Vildirect: IncomeTax-caselaws-1983-VIL-54-ITAT-CHD

1983-VIL-54-ITAT-CHD

Equivalent Citation: TTJ 017, 518,

Income Tax Appellate Tribunal CHANDIGARH

Date: 30.07.1983

INCOME TAX OFFICER.

SUDHA PHARMACEUTICAL PVT. LTD.

BENCH

Member(s) : S. K. CHANDER., F. C. RUSTAGI.

JUDGMENT

In this appeal by the revenue, the grievance is that the ld. CIT(A) erred in holding that no penalty is leviable u/s 271(1) (c) of the IT Act, 1961, if no tax is payable by the assessee there by cancelling the penalty of Rs. 20,6 90 levied by the ITO.

2. The assessee is a private limited company. It maintains its books of account on mercantile system of accounting and follows calendar year as the previous year. Calendar year ending December, 1975 was the previous year for the asst. yr. 1976-77 with which we are concerned. The return of income, according to the letter dt. 27th January, 1981 extracted by the ITO in the impugned penalty order dt. 16th March, 1981, was filed on 19th August, 1977. The ITO, however, records that the original assessment in this case was framed u/s 144 vide order dt. 19th August, 1977 at the net loss of Rs. 41,867. Thereafter assessee made an application u/s 146 of the Act and the assessment was cancelled. After the regular assessment was made, the assessee went up in appeal. That assessment was set aside and as a consequence of the directions issued by the AAC, assessment order dt. 21st March, 1979 was made by the ITO. In this assessment order the total income of the assessee was determined at total income of Rs. 3,714. However, there was brought forward loss of the earlier years as per year 1975-76 amounting to Rs. 2,11,907 so that the net result was that loss of Rs. 2,08,193 remained to be carried forward in the hands of the assessee for the asst. yr. 1976-77.

3. When this assessment was completed on 21st March, 1979, the ITO, inter alia, added an amount of Rs. 35,631 an account of the difference between the value of the stock shown with the bank and the value shown by the assessee in its books of variation in value of stock. When show cause notice was issued to the assessee, it was contended, nothing was concealed and no penalty was leviable. However, the ITO rejected the contentions of the assessee including the one that no penalty was leviable in view of the definitions of tax sought to be avoided as per Explanation 4 to s. 271 because there was net loss in the case of the assessee. The penalty levied by the ITO was Rs. 20,690 which is 100% of the tax on the concealed income of Rs. 35,381.

4. When this penalty order was taken up in appeal before the CIT (A), he accepted the contention of the assessee that there being loss finally determined by the ITO and there being no tax as such payable by the assessee, no penalty was leviable u/s 271 (1) (c) in view of the judgment of the Madras High Court in the case of Addl CIT vs. Murugan Timber Depot 1978 CTR (Mad) 58 : (1978) 113 ITR 99 (Mad). Hence the grievance of the revenue.

5. Before us it was submitted of behalf of the revenue that the ld. CIT (A) gravely erred in relying upon the ratio decidendi of Madras High Court judgment because that judgement is based upon old law before insertion of Explanation 4 to s. 271 (1) (c) w.e.f. 1statement April,1975. According to the revenue it is no longer necessary that there should be positive total income for purpose of imposition of penalty for concealment because the penalty is to be based on "the amount of tax sought to be evaded" The order of the ITO be restored because the penalty has been cancelled by the ld. Commissioner by merely following the judgement of Madras High Court.

6. On the other hand, the ld. counsel for the assessee submitted that the provision of Explanation 4(a) to s. 271(1) have a to be read with cl.(iii) of s. 271 (1)(c) of the Act. If so read, the provisions of cl. (iii) would show that the penalty to be levied is in addition to any tax payable by the assessee. He then submitted that the Hon'ble Supreme Court in the case of CIT vs. Vegetable Product Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) has pointed out that tax payable is not the some thing as tax assessed. The tax payable is the amount for which a demand notice is issued u/s 156 of the IT Act, 1961. In determining the tax payable the tax already paid has to be deducted. He emphasised that even in sub-cl. (iii) of s. 271 (1)(c) the reference is to "the amount of tax sought to be evaded by reason of the concealment of particulars of income" and, therefore, the penalty that can be levied upon any assessee is with reference to the amount of tax payable. This is so because the penalty can be only in addition to the tax payable by the assessee and since there is no tax payable by the assessee in this case, the ld. CIT(A) rightly held that penalty was not eligible at all. He, therefore, was acting in accordance with law when he cancelled the penalty. The ld. counsel for the assessee also emphasised that in cl.(s) of Explanation 4, referred to supra, there is reference to the total income assessed and not to the total income as such. The total income assessed must be a positive income assessed and not to the total income as such. The total income assessed must be a positive income otherwise the words used in the Explanation, namely, "the total income assessed" will become redundant and redundancy cannot be attributed to the legislature. Relying upon the rule of harmonious construction he summed up that the penalty was rightly cancelled by the CIT(A) and his order can further be supported with the judgement of Madhya Pradesh High Court in the case of CIT vs. Jaora Oil Mill (1981) 129 ITR 423 (MP). The judgement of Madras High Court along with this judgement laid down the law applicable to the facts of the case of the assessee. The revenue has not done any thing, it was contended, to the deserve an interference in the order of the Commissioner.

7. In the rejoinder, however, the ld. departmental representative submitted that income assessed can be a negative figure and therefore when there is a loss finally determined, the ITO us still vested with the powers to impose penalty upon the assessee and therefore, there is reason to interfere in the order of the Commissioner.

8. After very careful consideration of the rival submissions, we have come to the conclusion that we cannot interfere in the order of the Commissioner by which he cancelled the penalty. The reasons for this are as under. The Legislature, apparently, has taken note of the difference between the total income and the total income assessed. This becomes very clear from a very close reading of the provisions of s. 271(1)(c) read with the other provisions of this section, particularly the provision of Explanation 4 ibid. Explanation 4 clarified the expression, "the amount of tax sought to be evaded" used in cl. (iii) of s. 271 (1)(c) of the Act. Clause (iii) lays down the basis of quantification of penalty attracted by the provisions of s. 271 (1)(c) of the Act. That is where an assessee has concerned the particulars of such income. The clause points out that in addition to any tax payable by the assessee, the ITO May direct that the assessee shall pay by way of penalty a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be evaded by reason of concealment of particulars of his income or furnishing of inaccurate particulars of such income. The Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd., mentioned supra, succinctly points out the difference between the tax payable and the tax assessed. This judgement was delivered on 28th January, 1973. Thereafter cl.(iii) referred to supra, came as a substitute for the original clause by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1statement April, 1976. The Hon'ble Court has pointed out that the tax payable is an amount which a demand notice is issued u/s 156 of the IT Act, 1961. When we see the case of the assessee in this context, we find that total income assessed was a loss of Rs. 2,08,193 to be carried forward. Even it is considered that total income can be a negative figure, we can't concede to the proposition that income assessed can't be a negative figure. The question of assessment will arise only when its a positive figure and then tax will become payable thereon. Only in such circumstances there will be an amount for which a demand notice can be issued u/s 156 of the IT Act, 1961. Therefore, taking in to consideration the ratio decidendi of the two judgments cited by the ld. counsel for the assessee and even the provisions of Explanation 4 which has been inserted and has not been considered by the above two judgements, we are of the consider opinion that the law laid down by the Hon'ble High Court in the said case in applicable to the facts of the case of the assessee. Therefore, the ld. CIT(A) was fully justified in cancelling the penalty.

9. Before, we close, we would like to observe that it was rightly contended by the ld. counsel for the assessee that the words "income assessed" used in cl. (s) of Explanation 4 to s. 271 (1) (c) of the Act will become redundant in case the proposition of the revenue is accepted and carried weight because in the type of case before us, we have to go on the rule of harmonious construction so as to make the provisions of the Act workable part redundancy can not be attributed to the legislature.

10. In the result, appeal the revenue is dismissed.

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