Commissioner Of Income Tax Tamil Nadu Vii, Madras v. A. Hariraman

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 27.2.2006 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A).No.250 of 2006 Commissioner of Income TaxTamil Nadu VII, Madras...AppellantVs.A. Hariraman..Respondent----- Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Chennai 'A' Benchdated 25.8.2005 in ITA No.1678/Mds/1999 for the assessment year1992-93 against ITA.No.101/99-00 order dated 30.8.1999 for theassessment year 1992-93 on the file of the Commissioner of IncomeTax (Appeals-IX), Chennai and G.I.No.321-H Order dated 29.4.1999on the file of the Assistant Commissioner of Income Tax (Asst-1)Circle-1, Chennai-34. -----For Appellant:Mr.J. Naresh Kumar, Jr.S.C.-----J U D G M E N T (Delivered by P.D.DINAKARAN, J.) The above tax case appeal is directed against the order ofthe Income-tax Appellate Tribunal in dated 25.8.2005 made in ITANo.1678/Mds/1999, raising the following substantial questions oflaw. "1. Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right indeleting the penalty, even though the assessee wasconcealed any income or furnished inaccurate particularsof income under the meaning of section 271(1)(c) of theIncome Tax Act? (2) Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right incancelling the penalty under Section 271(1)(c), on theground the assessee's income computed by the assessingofficer is a net loss? 2. The facts which led to the rise of the above appeal bythe revenue are as under. The assessee publishes and prints five tamil magazines, apartfrom doing job works, in the name of M/s. Parvathy Publication andM/s. Parvathy Art Printers. The assessee filed the returnadmitting a loss of Rs.9,45,242/- for the assessment year 1992-93.On perusal of the account books, the assessing officer came to theconclusion that an attempt had been made to reconcile paperpurchases account by making transfer entries and inflation ofpaper purchases account etc. and treating the purchases ofRs.3,07,172/- and Rs.4,00,723/- made from Kothandapani PaperStores and Karpagam Agencies as bogus purchases, added the same tothe total income, thereby computing the loss at Rs.19,874/- andconsequently, initiated penalty proceedings under section 271(1)(c) of the Act. Hence, the assessee preferred an appeal beforethe Commissioner of Income Tax (Appeals), who dismissed the appealconfirming the penalty levied. The Income Tax Appellate Tribunal,on appeal, allowed the appeal in favour of the assessee holdingthat quantum proceeding and penalty proceeding are separate andbecause of the quantum, penalty cannot be levied automatically.Hence, the present appeal by the revenue. 3. It would be appropriate to refer Section 271(1)(c) of theAct in this regard, which reads as under: "Failure to furnish returns, comply with notices,concealment of income etc. (1) If the Assessing Officer or the Commissioner(Appeals) or the the Commissioner in the course of anyproceedings under this Act, is satisfied that anyperson- (a) ... (b) ... (c) has concealed the particulars of his income orfurnished inaccurate particulars of such income, he may direct that such person shall pay by way ofpenalty, - (i) Omitted by the Direct Tax Laws (Amendment) Act,1989, with effect from 1.4.1989 (ii) in the cases referred to in clause (b), inaddition to tax, if any, payable by him, a sum of tenthousand rupees for each such failure; (iii) in the cases referred to in clause (c), inaddition to tax, if any, payable by him, a sum whichshall not be less than, but which shall not exceed threetimes, the amount of tax sought to be evaded by reasonof the concealment of particulars of his income or thefurnishing of inaccurate particulars of such income. " (emphasis supplied) (a) ... (b) ... (c) has concealed the particulars of his income orfurnished inaccurate particulars of such income, he may direct that such person shall pay by way ofpenalty, - (i) Omitted by the Direct Tax Laws (Amendment) Act,1989, with effect from 1.4.1989 (ii) in the cases referred to in clause (b), inaddition to tax, if any, payable by him, a sum of tenthousand rupees for each such failure; (iii) in the cases referred to in clause (c), inaddition to tax, if any, payable by him, a sum whichshall not be less than, but which shall not exceed threetimes, the amount of tax sought to be evaded by reasonof the concealment of particulars of his income or thefurnishing of inaccurate particulars of such income. " (emphasis supplied) 4. The words "in addition to tax, if any, payable him"employed in clauses (ii) and (iii) above and the words "amount oftax sought to be evaded by reason of such concealment ofparticulars of his income" employed in clause (iii) of Section 271(1)(c) of the Act are the deciding factors for invoking penaltyproceedings under Section 271(1)(c) of the Act. A plain readingof clauses (ii) and (iii) in Section 271(1)(c) of the Act,particularly in the context of the words "in addition to tax, ifany, payable him" employed in clauses (ii) and (iii) would make itclear that the penalty contemplated in all the above clauses is ameasure of tax payable by the assessee. In other words, if no taxis payable by the assessee, there would be no penalty which couldbe levied on the assessee. 4.2. As per the language in Section 271(1)(c) of the Act,there could be no case in which penalty could be levied where notax is payable by the assessee since the quantification of thepenalty is totally dependent upon the tax payable by the assessee.Therefore, the conclusion is irresistible that when the assesseeis not liable to pay any tax, no penalty can be levied on theassessee, vide ADDL. CIT v. MURUGAN TIMBER DEPOT (113 ITR 99). 4.3. It is trite law that the loss cannot be taken intoaccount in computing penalty. Similarly, the amount representingunexplained credit cannot be treated as concealed income forlevying penalty, vide CIT v. C.R. NIRANJAN (187 ITR 280). 4.4. The word "income" occurring in clause (c) and (iii) ofSection 271(1) of the Act refers to positive income only and not aloss. Penalty could be imposed only in addition to the taxpayable. When there is no tax payable, the question of any https://hcservices.ecourts.gov.in/hcservices/ penalty does not arise. In fact, evasion of tax is the sine quanon for imposition of penalty. If there is no taxable income ortax assessed for payment during a particular year, the question ofevasion and consequently, penalty do not arise. The penalprovisions of Section 271(1)(c), therefore, are attracted only inthe case of an assessee having positive income and not loss, asthe question of concealment of income to avoid payment of taxwould arise only in the former case. Penalty is a deterrentmeasure to prevent evasion of tax and when there was no taxpayable, there could be any such evasion so as to provide a scopefor levying any penalty, vide CIT v. PRITHIPAL SINGH AND CO. (183ITR 69). 4.5. The view taken by the Punjab & Haryana High Court in CITv. PRITHIPAL SINGH AND CO. (183 ITR 69) was upheld by the SupremeCourt in CIT v. PRITHIPAL SINGH AND CO. (249 ITR 670). 4.6. This Court, in RAMNATH GOENKA v. CIT (259 ITR 229),following the decisions cited above, held that penalty isimposable only in cases where tax has been levied and that nopenalty can be levied when the result of the computation made bythe assessing officer is a loss. In other words, penalty is notleviable when the assessment did not show any taxable income, butnet loss. 4.5. The view taken by the Punjab & Haryana High Court in CITv. PRITHIPAL SINGH AND CO. (183 ITR 69) was upheld by the SupremeCourt in CIT v. PRITHIPAL SINGH AND CO. (249 ITR 670). 4.6. This Court, in RAMNATH GOENKA v. CIT (259 ITR 229),following the decisions cited above, held that penalty isimposable only in cases where tax has been levied and that nopenalty can be levied when the result of the computation made bythe assessing officer is a loss. In other words, penalty is notleviable when the assessment did not show any taxable income, butnet loss. 5. Applying the ratio laid down in the decisions cited supra,we do not find any error or illegality in the order of theTribunal in deleting the penalty taking into account the incomeof the assessee is a net loss. Finding no substantial question oflaw arising for consideration, the appeal is dismissed. To 1. THE ASSISTANT REGISTRAR,INCOME TAX APPELLATE TRIBUNALIII FLOOR, RAJAJI BHAVANBESANT NAGAR, CHENNAI-90. 2. THE COMMISSIONER OF INCOME TAXAPPEALS IX, CHENNAI-34 3. THE ASSISTANT COMMISSIONER OFINCOME TAX (ASST.I)CIRCLE-1, CHENNAI-34. 4. THE COMMISSIONER OF INCOME TAXTAMIL NADU VII,MADRAS 1 cc to M/s.Pushya Sitaraman, Senior Standing Counsel SR.9521 je (co) dv/2.5.06 T.C.(A) No.250 of 2006.