1987-VIL-58-ITAT-ALH

Equivalent Citation: ITD 023, 448,

Income Tax Appellate Tribunal ALLAHABAD

Date: 13.07.1987

INCOME-TAX OFFICER.

Vs

GEEP INDUSTRIAL SYNDICATE LIMITED.

BENCH

Member(s)  : R. N. PURI., R. SWARUP.

JUDGMENT

Per Shri R.N. Puri, Accountant Member --- This appeal has been filed by the Department against the order of the Commissioner of Income-tax (Appeals) [CIT (A) for short] cancelling the penalty of Rs. 3,50,000 which had been imposed by the Income-tax Officer (ITO for short) under section 271(1)(c) of the Income-tax Act, 1961 in respect of assessment year 1978-79.

2. The assessee is a company, having business of manufacture of torches, miniature bulbs and dry cell batteries. It filed its return of income for the assessment year 1978-79 on 31-8-1971, declaring an income of Rs. 10,75,942, subject to set-off of brought forward losses and unabsorbed depreciation pertaining to earlier years. The ITO, while processing the assessment, found that the assessee had made a wrong claim for depreciation. In all, the assessee had claimed depreciation of Rs. 21,36,791 on the assets of the battery unit. The factory had worked in all for 301 days. It had worked in double shift for 300 days and in triple shift for 154 days. The extra shift allowance up to a maximum of an amount equal to one-half of the normal allowance is to be allowed where a concern works double shift. Where a concern works triple shift, an extra shift allowance equal to the normal allowance, instead of one-half of the normal allowance, is to be allowed. The assessee had claimed extra shift allowance for triple shift working for 154 days. Again, the assessee claimed extra shift allowance for double shift working for 300 days. The assessee should have confined its claim for extra shift allowance in respect of the double shift working of the concern to 146 days, since extra shift allowance in respect of 154 days had already been allowed on the basis of the triple shift working of the concern. The assessee, however, claimed extra shift allowance on account of the double shift working for 300 days. In this manner, the assessee claimed an extra depreciation of Rs. 2,13,364. The ITO brought this to the notice of the assessee by his letter dated 28-10-1980. The assessee thereupon filed a revised return of income on 14-3-1981. In this return, the assessee modified its claim for depreciation. Now, it claimed extra shift allowance for 146 days for double shift working and for 154 days for triple shift working. The assessee thus reduced its claim for depreciation by a sum of Rs. 2,13,364. The assessee also made a few more modifications of the income as originally returned by it. It added back in its computation of taxable income a sum of Rs. 2,38,415 which was required to be added on account of disallowance of interest under section 40A(8). it also modified its income by adding back a sum of Rs. 51,372 being entertainment expenditure and a sum of Rs. 71,160 which was required to be disallowed out of the travelling expenses being in excess of the prescribed limit. Thereupon, the ITO completed the assessment of the assessee. The ITO came to the conclusion that the assessee by making wrong claim of depreciation and by not adding back the amounts which were required to be disallowed, as mentioned above, had concealed the particulars of its income or furnished inaccurate particulars of such income and had thus made itself liable to the imposition of penalty under section 271(1)(c). The ITO by his order dated 30-7-1983 imposed penalty of Rs. 3,50,000. Being aggrieved by this order of the ITO, the assessee went up in appeal before the CIT (A). Before the CIT (A), the assessee raised two-fold contentions. The first one was that the omissions or mistakes were inadvertent and hence on the basis of such omissions or mistakes it would not be justified to raise a charge of concealment of income against the assessee. The other arguments of the assessee as to why penalty should not be imposed were of legal nature. It was pointed out that the assessed total income was nil. It was argued that where the net result of the computation of total income made by the ITO was nil, no penalty was leviable. The argument was that there could not be any question of ' concealment ' unless there was positive assessed income in respect of which a ' concealment ' could be said to have taken place. It was hence contended that since in this case the total income determined on assessment was nil, there was no concealment of income and hence the question of levying penalty did not arise. It was also argued that the provisions, which provided for the computation of the penalty, also did not become applicable in the facts of the case and hence penalty did not become exigible. The CIT (A) found force in both the contentions of the assessee. He hence cancelled the penalty of Rs. 3,50,000 which had been imposed by the ITO. Being aggrieved by this decision of the CIT (A), the Department has come up in appeal before us. It is contended by the Department that the CIT (A) was not justified to cancel the penalty. It is contended by the Department that hence the order of the CIT (A) should be set aside and the order of the ITO levying penalty should be restored.

3. First of all, we will consider whether the CIT (A) was justified to come to the conclusion that the omissions in the original return, as filed by the assessee, were inadvertent and on the basis of such omissions it would not be justified to say that the assessee had concealed the particulars of his income or furnished inaccurate particulars thereof. The items, in respect of which penalty had been levied, are as under :

(1) Disallowance of interest under section 40A(8) for Rs. 2,38,415.

(2) Disallowance of entertainment expenditure for Rs. 51,372.

(3) Disallowance of travelling expenses for Rs. 7,160.

(4) Disallowance of extra claim of depreciation for Rs. 2,14,364.

4. While submitting its return originally, the assessee appended the following note with regard to the disallowance of Rs. 2,46,547 which was required to be made under section 40A(8) out of interest payment :

" We intend to contest the vires of section 40A(8) in writ. Hence, we have not added back Rs. 2,46,547 being 15 per cent of interest paid on deposits."

Taking this into consideration, the CIT (A) held that in respect of this addition, it would not be justified to hold that the assessee had concealed its income. The view taken by the CIT (A) is reasonable and fair and we do not consider any interference with this view of the CIT(A) to be necessary. The assessee had itself mentioned in a note given in the original return that an amount of Rs. 2,46,547, which was disallowable under section 40A(8), was not being added to the total income on account of the fact that the assessee was proposing to challenge the vires of the provisions of section 40A(8). In view of this, it cannot be said that the assessee had concealed the particulars of its income or furnished inaccurate particulars of such income as far as it goes.

5. The CIT (A) has also rightly come to the conclusion that in respect of the disallowance of entertainment expenditure of Rs. 51,372, it would not be justified to make a charge of concealment against the assessee. The assessee had explained to the CIT (A) that it had not added back this expenditure in its computation of taxable income, as the assessee was under a bona fide impression that the expenditure incurred on serving tea, refreshments etc. would not constitute entertainment expenditure which was required to be disallowed. It has been further stated by the assessee that it had not withheld giving information about this expenditure. It was pointed out that the figure of this expenditure had been provided in the break up of the miscellanous expenses which had been furnished by the assessee to the ITO even before the filing of the revised return. The contention of the assessee was that there was no attempt on his part to hoodwink the Department and hence in respect of this addition, it would not be justified to impose any penalty for concealment. We uphold the finding of the CIT (A) that when the assessee did not add back this expenditure in its computation of taxable income, it could not be said to have concealed the particulars of its income or furnished inaccurate particulars of such income.

6. A sum of Rs. 7,160 was disallowed out of travelling expenses, being the amount in excess of the limits prescribed under Rule 6D of the income-tax Rules, 1962. The ITO had considered this to be concealment of income. The CIT (A) felt satisfied with the explanation of the assessee and came to the conclusion that there was no concealment of income on account of this addition. It had been stated by the assessee that the omissions to add back this amount in the original return was inadvertent. It was stated that when a fresh scrutiny revealed that the amount in excess of the prescribed limit had been spent, it was voluntarily offered by the assessee for addition, without any query from the Department on that behalf. The conclusion reached by the CIT (A) is fair. We uphold the finding of the CIT (A) on this behalf.

7. Now, we come to the consideration of the add back of Rs. 2,13,364, which has been made by the ITO out of the claim for depreciation. The facts with regard to this have already been narrated above. To recall, the factory had worked during the year for 301 days. It worked double shift for 300 days and triple shift for 154 days. At the time of the filing of the original return, the assessee had claimed extra shift allowance for triple shift working for 154 days. The assessee also claimed extra shift allowance for double shift working for 300 days. Since extra shift allowance for triple shift working had already been allowed for 154 days, the assessee should have claimed extra shift allowance on account of double shift working only for 146 days. Thus, in respect of 154 days, the assessee claimed extra shift allowance on account of double shift working twice over, once when it claimed extra shift allowance on account of triple shift working for these days and again when it claimed extra shift allowance on account of double shift working for 300 days. The contention of the assessee that it was only an inadvertent mistake, which would not amount to concealment, had not found favour with the ITO. The CIT (A), however, accepted the contention of the assessee that the mistake being inadvertent, the charge of concealment could not be levelled against the assessee in respect of this addition.

8. We have considered the matter carefully. We do not agree with the finding given by the CIT (A). The assessee is a limited company. It has been in existence for a number of years. It has the assistance of the experts who advise it on matters pertaining to taxation. We do not think that the mistake in making a higher claim of depreciation was only an inadvertent one. We were informed by the authorised representative of the assessee that it was only for the assessment year under consideration and for the immediately preceding year that extra shift allowance had been claimed on this basis. We were informed that for the assessment years prior to that, extra shift allowance had been claimed on different basis. We fail to understand as to why the assessee, who had been claiming extra shift allowance correctly in the past, had to change the basis for its claim for the assessment year under consideration. There is no satisfactory explanation for this. The assessee company has been in existence for a long time. In the past, it had claimed extra shift allowance on the correct basis. We fail to comprehend the provocation for altering the basis for the claim of extra shift allowance. We find it difficult to appreciate the contention of the assessee that the mistake in the claim of the extra shift allowance for the year under consideration was only an inadvertent mistake. In our view the chances of making a mistake of the type which has been made by the assessee are practically nil. The triple shift working includes the double shift. Hence when claim for extra shift allowance on account of triple shift working had been made, claim for double shift working was included in it. There was no question of making a separate claim for double shift working. There is practically no scope for making a mistake of the type which has been made by the assessee. We are inclined to take the view that the wrong claim of depreciation cannot be hence attributed to inadvertence, particularly keeping in view the fact that in the past depreciation had been claimed correctly. We hence conclude that by claiming depreciation wrongly the assessee concealed the particulars of its income or furnished inaccurate particulars of such income and thus has made itself liable to the imposition of penalty.

9. Hence our finding is that the assessee by making a wrong claim of depreciation for Rs. 2,13,364 concealed the particulars of its income or furnished inaccurate particulars of such income. As far as other additions are concerned, we uphold the view of the CIT (A) that they did not give rise to any concealment.

10. Now we will proceed to examine the legal arguments of the assessee. The first argument put forth by the authorised representative of the assessee was that since there was no positive assessed income in the case under consideration, it cannot be said that there had been concealment of any income within the meaning of clause (c). It was stated that there must be positive assessed income in respect of which ' concealment ' can be said to have taken place. According to him, in the absence of positive assessed income, there can be no concealment of income. We do not find it possible to persuade ourselves to accept this contention of the authorised representative of the assessee. The ' concealment of particulars of income ' and the ' total income assessed ' are two different things. Let us take a case where the assessee does not disclose its income from house property. On assessment, there is no positive total income. There was loss from business. After it was set off against the property income, there was still some loss left. Can it be said that the assessee had not concealed its income from property ? The net result on assessment may be nil income or loss on account of so many factors. Whether there has been concealment of income or not will not depend on there being positive total income computed in assessment. It will be erroneous to think that unless there is positive total income determined on assessment, there cannot be concealment of income. A person who has inflated his loss by making some wrong claims has certainly given inaccurate particulars of his income. For example, an assessee carrying on cloth business files a return declaring a loss of Rs. 50,000. When the ITO processes the assessment, he finds that the assessee has suppressed his sales by Rs. 30,000. An ' addition ' of Rs. 30,000 on account of suppression of sales is made and the loss of Rs. 20,000 is determined on assessment as against the loss of Rs. 50,000, which had been disclosed by the assessee. Can it be said that just because there was no positive total income determined on assessment, the assessee did not give inaccurate particulars of his income ? According to us, the assessee has given inaccurate particulars of his income. There is no connection between the income that has been concealed and the total income assessed. If the income that has been sought to be concealed is to be made dependent on the total income assessed, then it will lead to odd results. In the illustration taken above, there will be concealment of income in case there is positive total income assessed and there will be no concealment of income when the computation is a loss. We fail to understand as to how the same fact of the suppression of sales amounting to Rs. 30,000 can be viewed differently, depending on whether there was positive assessed income or not. Even though the suppression of sales was for Rs. 30,000 do we have to say that, when the total income is determined at Rs. 10,000, the concealment is of only Rs. 10,000 and when the total income is determined at Rs. 5,000, the concealment is only of Rs. 5,000 and in case the total income is nil or there is loss, there is no concealment of income. It is self-evident that as to what income has been concealed would not depend on the total income determined on assessment. If the assessee has inflated its expenditure or has suppressed its receipts by a certain sum, then the concealment is of that sum by which the expenditure has been inflated or the receipts have suppressed, regardless of the final result obtaining as per the profit and loss account of the assessee. If the assessee has suppressed its receipts by Rs. 10,000, the concealment is of Rs. 10,000 regardless of the fact that the net profit of the assessee as per its profit and loss account was only of Rs. 5,000. The net result as per the profit and loss account of the assessee is not material for the determination of the quantum of concealment. Less so is the total income determined on assessment. The determination of the total income on assessment will depend on so many factors like the carried forward business, losses or unabsorbed depreciation of earlier years etc.

11. The authorised representative of the assessee has relied on the decision of the Madhya Pradesh High Court in the case of CIT v. Jaora Oil Mill [1981] 129 ITR 423. In that case, for the assessment year 1968-69, the assessee had returned a loss of Rs. 2 lakhs. On the assessee's failure to produce the books of account, the ITO completed the assessment u/s. 144 and he computed the total income of the assessee at Rs. 50,000. Proceedings u/s. 271(1)(c) were initiated. The IAC held that, inasmuch as the assessee had shown a loss of Rs. 2 lakhs whereas its income was computed at Rs. 50,000, the entire sum of Rs. 2.50 lakhs was the concealed income of the assessee and he levied a penalty of Rs. 2.50 lakhs. At that time, as per clause (iii) of sub-sec. (1) of sec. 271, the measure of penalty was the income concealed. The Tribunal held that the income concealed was the income actually determined on assessment, that is Rs. 50,000. It hence reduced the penalty to Rs. 50,000. On reference, the Madhya Pradesh High Court confirmed the view of the Tribunal. It was held that the income, which was determined by the ITO, was the income that could be said to have been concealed by the assessee. On the basis of this decision, it was argued by the authorised representative of the assessee that since there was no positive assessed income in the case under consideration, it was required to be held that there was no concealment of income within the meaning of section 271(1)(c).

12. We have to point out that a similar question had arisen for consideration before the Kerala High Court in the case of CIT v. India Sea Foods [1976] 105 ITR 708. In that case also, the proceedings had related to the assessment year 1968-69. The assessee firm had filed a return in which it had declared a net loss of Rs. 3,29,304. The assessee firm made a settlement with the Department, pursuant to which, while finalising the assessment for the assessment year 1968-69, an amount of Rs. 2,84,727 was added as concealed income. The net result of this addition and certain disallowances was that in the place of the loss of Rs. 3,29,304 shown in the return, the assessment was finalised on a total income of Rs. 18,460. Penalty proceedings u/s. 271(1)(c) were initiated. The question arose as to what was the amount of the concealed income. The contention of the assessee was that the concealment, if any, could only be to the extent of the assessed income, that is, Rs. 18,460. The Department was, on the other hand, of the view that the concealed income was of Rs. 2,84,727, which was the amount that was added in the assessment of the assessee on account of his concealed income for the year. The Kerala High Court did not accept the view of the assessee that the quantum of concealment can never exceed the amount of taxable income as finally determined in the order of assessment. The High Court affirmed the Department's view that the concealment was of Rs. 2,84,727. The Kerala High Court observed as under :

" Hence, it is not possible to construe the word ' income ' occurring in sub-clause (iii) as connoting the total income of the assessee as assessed under section 143, 144 or 1 47. We have to understand the said word as having been used in the same wide sense in which it has been used in clause (c) of section 271(1) of the Act. The quantification of penalty has, therefore, to be made not with reference to the total taxable income of the assessee as determined in the assessment order but with reference to the amount of the assessee's income, including expenditure, deductions etc. in respect of which the assessee had either concealed particulars or furnished inaccurate particulars.

It is quite conceivable that the amount of income in respect of which there has been concealment or furnishing of inaccurate particulars may, in certain cases, exceed the total income determined as assessable after making allowance for admissible expenses, other deductions and prior losses, if any, carried forward. The present case is a typical instance of the kind. Here, the amount of income in respect of which particulars had admittedly been concealed was Rs. 2,84,727 whereas the total income assessed was only Rs. 18,460, what sub-clause (iii) enjoins is that even in such cases the quantification of the penalty has to be made with reference to the amount of the income in respect of which concealment of particulars or the furnishing of false particulars had actually taken place." (Emphasis supplied)

From this decision of the Kerala High Court, it becomes clear that the word ' income ' has been used in clause (c) in the wide sense and it will be wrong to understand by it only the assessed total income. The word ' income ' in clause (c) has a connotation different from the connotation of " assessed total income ".

13. This conclusion that the word ' income ' as used in clause (c) has a connotation different from the connotation of the words ' total income assessed ' is also forced on us by the examination of the language of Explanation 4 to sub-section (1) of section 271 which has been on the statute with effect from 1-4-1976. Clause (a) of this Explanation states that where the amount of income, in respect of which particulars have been concealed, or inaccurate particulars have been furnished, exceeds the total income assessed, the amount of tax sought to be evaded means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished, had such income been the total income. From the language of this clause, it is quite apparent that it has been very much envisaged that the concealed income and the total income determined on assessment are two different things. It may be mentioned that this Explanation was not on the statute when penalty was levied in the case of Jaora Oil Mill. Hence the Madhya Pradesh High Court, while deciding that case, had no occasion to look into this Explanation. Hence, if at all there was any doubt with regard to the connotation of the term ' income ' as used in clause (c) as being different from the connotation of the term ' total income assessed ', this is to be considered to be set at rest after the introduction of this Explanation with effect from 1-4-1976.

14. Because of the foregoing discussion, we reject the contention of the assessee that since there was no positive total income assessed in the case under consideration, there was no concealment of income in case, the interpretation sought to be given by the assessee were to be accepted, then in the case of a loss, the concealment can be indulged into with impunity. The loss can be inflated without any fear of consequences of concealment by way of penalty being made to visit on the assessee. Loss is to be carried forward and set off against the income of the subsequent year. In the current year, no penalty will become imposable on the basis of the interpretation given by the assessee, since there is no positive total income. In the subsequent year, no penalty can be imposed, as the concealment was not in that year. The view canvassed by the assessee is not warranted by the language of the section and if the interpretation sought to be given by the assessee were to be accepted, the very object and purpose of the section would he defeated. We, hence, reject this contention of the assessee.

15. The second argument raised by the learned authorised representative of the assessee was that since in this case, there was not any tax payable on assessment, as the total income determined was nil, the question of levying any penalty would not arise. According to him, the liability to pay penalty would arise only if, as a result of the assessment, the assessee is found liable to the payment of some tax. In support of this contention, reliance was placed by the assessee on the decision of the Madras High Court in the case of Addl. CIT v. Murugan Timber Depot [1978] 113 ITR 99. Attention was drawn to the following observations of the High Court at page 105 :

" Therefore, it is clear that the legislature intended the penalty as a deterrent to prevent evasion of tax and when there was no tax payable, there cannot be any evasion of tax and, therefore, there was no question of levying any penalty as a deterrent for the evasion of tax."

The authorised representative also drew our attention to the words " in addition to any tax payable " appearing in clause (iii). It was argued that penalty was to be levied in addition to tax and if there was no tax payable on assessment, no penalty could be levied. On the other hand, it was argued by the Departmental Representative that penalty would be levied even though there might not be liability to pay tax.

16. We have considered the matter carefully. The law of penalty, which is relevant for the proceedings under consideration before us is in a vital respect different from the law, which was applicable in the case of Murugan Timber Depot. Explanation 4 to sub-section (1) of section 271 was not then on the statute. This Explanation was brought on the Statute by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976. This Explanation is applicable for the proceedings, which are the subject matter of appeal before us. This Explanation gives the meaning of the expression " the amount of tax sought to be evaded " used in clause (iii) of sub-section (1) of section 271. The insertion of this Explanation in the statute has brought about a material change and according to us, the observation of the Madras High Court in the case of Murugan Timber Depot will be no more valid. In the case of Murugan Timber Depot the assessee, which was a registered firm, filed its return for the assessment year 1964-65, disclosing an income of Rs. 16,950. The ITO found that the assessee had not disclosed certain sales in its regular books of account. The ITO made an addition of Rs. 6,400 being the estimated profit on the suppressed turnover and thus, he made the assessment on a total income of Rs. 24,990. He imposed penalty u/s. 271(1)(c) for the concealment of income. The Tribunal cancelled, the penalty. The assessee had contended before the Tribunal that since no tax was payable by it, no penalty could be levied. At that time, no tax was payable by a registered firm on the first Rs. 25,000 and the total income determined was only Rs. 24,990. The Tribunal accepted the contention of the assessee that since there was no tax payable, no penalty could be levied. Thereupon the department obtained a reference to the High Court. The High Court considered the question whether penalty u/s. 271(1)(c) was not exigible, because the firm was not liable to pay tax. Taking into consideration the relevant statutory provisions, which were applicable to those proceedings, the High Court came to the conclusion that liability to penalty was attracted only when tax was payable by an assessee and in case, there was no tax payable, no penalty could be levied.

17. Now, let us examine the basis of this decision of the High Court. Sub-section (1) of section 271 falls in two parts. The first part spells out the defaults and the second part deals with the respective penalties to be levied. Clause (c) of sub-section (1) provides for the case where the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof and the related provisions for the levy of penalty is clause (iii) of that sub-section. This clause (iii) as was applicable to the proceedings in the case of Murugan Timber Depot was as under :

" (iii) In the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than 20 per cent, but which shall not exceed 1 1/2 times the amount of the tax, if any, which would have been avoided if the income as returned by such person, had been accepted as the correct income."

The Madras High Court, after analysing the provisions, came to the obvious conclusion that there could be no case in which penalty could be levied where no tax was payable by the assessee. The quantification of the penalty was dependent upon the tax payable. The High Court observed as under :

Therefore, the conclusion is irresistible that when an assessee is not able to pay any tax, no penalty can be levied on the said assessee."

18. But this view of the High Court, which was based on the language of the provisions relevant to the proceedings under their consideration, would not hold good for the proceedings under our consideration, in view of the altered legal position, since then. Clause (iii) which is relevant for our purpose is worded as under :

" In the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice the amount of tax sought to be avoided by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income."

As to what is to be understood by the expression " the amount of tax sought to be evaded " has been provided for. Explanation 4 to sub-section (1) of section 271 says as under :

" Explanation 4 - For the purposes of clause (iii) of this sub-section, the expression " the amount of tax sought to be evaded ",---

(a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income assessed, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income ;

(b) in any case to which Explanation 3 applies, means the tax on the total income assessed ;

(c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished."

From the above provisions, it is clear that, now, even if there was no tax liability on assessment, penalty could be levied. After examining the provisions of clause (iii) as it had existed when penalty was levied in the case of Murugan Timber Depot, the High Court had come to the conclusion that there could be no case in which penalty could be levied where no tax was payable by the assessee. This was because of the fact that the quantification of the penalty was totally dependent upon the tax payable by the assessee. It was under that circumstance that they found that " the conclusion is irresistible that when an assessee is not liable to pay any tax, no penalty can be levied on the said assessee ". But the legal position relevant to the proceedings under our consideration has changed. Clause (a) of Explanation 4 provides that in certain cases, the amount of tax sought to be evaded would be the tax that would be chargeable on the income in respect of which particulars have been concealed. Hence, no more the quantification of the penalty is dependent only upon the tax payable by the assessee on assessment. On account of this Explanation, it is obvious that it is no more necessary that there must be tax payable on assessment in order to give rise to the penalty as was the case previously. Hence, it will be no more valid to say that unless there was tax payable on assessment, no penalty could be levied. The decision of the Madras High Court in the case of Murugan Timber Depot will hence not apply to the proceedings under our consideration.

19. The authorised representative of the assessee had also drawn our attention to the words " in addition to tax payable " appearing in clause (iii). According to him, the significance of these words was that there must be tax payable on assessment in addition to which penalty could be levied. We do not subscribe to this view. These words only mean that penalty will be in addition to tax. There being tax is not the necessary precondition for the levy of penalty. As a matter of fact, the assessee in the case of Murugan Timber Depot, had raised such an argument and this argument had also found favour with the Tribunal. The Tribunal found it significant that whereas the words " tax, if any, payable by him " had been used in clause (i) and the words " tax, if any, which would have been avoided ", had been used in clause (iii), the words that were used in clause (iii) were " in addition to any tax payable by him ". According to the Tribunal, the omission of the words " if any " in clause (iii) was significant. The High Court, however, did not base its conclusion that if no tax was payable, no penalty could be levied on this ground. The High Court stated as under at page 104 :

" In this particular case, as we have pointed out already and as was admitted before the Tribunal itself, no tax was payable by the assessee and, therefore, no penalty is leviable on the assessee. This conclusion of ours is based on the interpretation of all the three clauses namely, clauses. (i), (ii) and (iii) of section 271(1) and for such a conclusion, the presence of the words " if any " in clause (i) and the absence thereof in clauses (ii) and (iii) are totally immaterial." (Emphasis supplied)

We have already referred above to the basis of their decision. The basis of their decision was that since penalty was the measure of tax unless tax was there, there could be no penalty.

20. From the above, it becomes clear that the use of the words " in addition to any tax payable by him " in clause (iii) cannot be interpreted to mean that there must be tax payable on assessment before penalty can be levied. These words only mean that penalty will be in addition to tax, but they do not mean that there being tax is the necessary condition for the levy of penalty.

21. The authorised representative of the assessee also drew our attention to the decision dated 30th July, 1983 of the Chandigarh Bench of the Tribunal in the case of ITO v. Sudha Pharmaceuticals (P.) Ltd. [IT Appeal No. 631 (Chd.) of 1981]. On the basis of that decision, it was argued by the authorised representative of the assessee that clause (a) of Explanation 4 to sub-section (1) of section 271 did not become operative in the case of the assessee. It was hence contended that since the machinery provision to determine penalty did not become applicable, no penalty could be levied. Attention was drawn to the words " income assessed " in clause (a). The Chandigarh Bench of the Tribunal had accepted the contention of the assessee that by the words " income assessed ", it was to be understood only positive total income. The Chandigarh Bench of the Tribunal had come to the conclusion that in case there was loss, clause (a) of the Explanation would not become applicable. The Chandigarh Bench of the Tribunal had observed as under :

" Even if it is conceded that total income can be a negative figure, we cannot concede to the proposition that income assessed can be a negative figure. "

According to the Chandigarh Bench, if the intention of the legislature was that clause (a) was also to apply in cases where there was no positive total income, there was no need for the legislature to add the word " assessed ". According to the Chandigarh Bench, the words " total income " would have sufficed, since these words mean positive or negative income. According to the Chandigarh Bench of the Tribunal, the legislature, by adding the word " assessed ", wanted to confine the operation of clause (a) only to such cases where there was a positive figure of total income on assessment. We have given our utmost consideration to this point of view. With respect, we have to say that we find it difficult to persuade ourselves to accept this point of view. According to us, total income assessed can be a positive figure or a negative figure. According to us, clause (a) of the Explanation will apply both in cases where there is positive total income or where there is negative total income, on assessment. We do not think that the word " assessed " is to be construed to mean that the intention of legislature was to confine the operation of clause (a) only to such cases where there was positive figure of total income. We see no justification as to why clause (a) should not apply to cases where there is negative total income.

22. We hence hold that penalty for concealment of income is imposable in respect of the concealment of Rs. 2,14,364 on account of the wrong claim of depreciation, as made by the assessee. We direct that minimum penalty may be imposed.

23. In the result, the appeal of the department is partly allowed.

 

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