Commissioner Of Income Taxchennai v. M/S.msk Constructions Pvt. Ltd.,220 (Old

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 05.03.2007 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MRS.JUSTICE CHITRA VENKATARAMAN T.C.(A) Nos.196 and 197 of 2007 Commissioner of Income TaxChennai...Appellant Vs M/s.MSK Constructions Pvt. Ltd.,220 (Old No.868)Poonamalle High RoadKilpauk, Chennai – 600 010...Respondent Appeals under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Madras 'A' Bench dated28.2.2006 made in ITA Nos.822 and 823/Mds/2004 for the assessment years1997-98 and 2000-2001 respectively against the Order of the Commissionerof Income Tax [Appeals] in ITA.No.216 AND 218/2003-04 respectively dated9.1.2004 against the Order of the Asst. Commissioner of Income Tax,Company Circle IV [3], Chennai 34, dated 26.2.2003 in PA.No/GI No.Ms.13,AAA CM 2608 B for the assessment Year 1997-98 and 2000-01 respectively. J U D G M E N T (Delivered by P.D.DINAKARAN, J.) The above tax case appeals are directed against the order of theTribunal even dated 28.2.2006 made in ITA Nos.822 and 823/Mds/2004 for theassessment years 1997-98 and 2000-2001 respectively, raising the followingcommon substantial questions of law: "i. Whether in the facts and circumstances of the case,the Tribunal was right in deleting the penalty imposedunder Section 271(1)(c) on the ground that the assesseesuffered a loss in the relevant assessment year? and ii. Whether in the facts and circumstances of thecase, the amendment to explanation 4(a) to Section 271(1)(c) is to be treated as having retrospectiveeffect?" 2. The Revenue is the appellant. The assessee filed a loss return andclaimed deduction of interest paid to IREDA under the head Wind MillDivision. The assessment was completed under Section 143(3) of the IncomeTax Act (for brevity, "the Act"). The assessment was reopened by issue ofnotice under Section 148 on the ground that the interest on borrowingsfrom IREDA were not paid during the year. The Assessing Officerdisallowed the unpaid interest resulting in reduction of loss and alsolevied penalty invoking Section 271(1)(c) of the Act. On appeals at theinstance of the assessee, the Commissioner of Income Tax (Appeals) deletedthe penalty and allowed the appeals in favour of the assessee. On appeals,at the instance of the Revenue, the Tribunal held that the disallowance ofinterest under Section 43B of the Act does not amount to concealment ofincome and observed that when there is no tax payable then penalty couldnot be levied. Hence, the Revenue has preferred these appeals raising thequestions of law referred to above. 3. Mrs.Pushya Sitaraman, learned Senior Standing Counsel for theRevenue, fairly concedes that the issues raised in these appeals have beensquarely covered in favour of the assessee and against the Revenue by thedecision of this Court in Commissioner of Income Tax v. A.Hariraman,[2006] 282 ITR 607. 4. In Commissioner of Income Tax v. A.Hariraman, [2006] 282 ITR 607,this Court held as under: "The word “income” occurring in clauses (c) and (iii) of section271(1) of the Income-tax Act, 1961, refers to positive income onlyand not a loss. Penalty could be imposed only in addition to thetax payable. A plain reading of clauses (ii) and (iii) in section271(1)(c) of the Act, particularly in the context of the words “inaddition to tax, if any payable by him” employed in sub-clauses(ii) and (iii) would make it clear that the penalty contemplated inall the above clauses is a measure of tax payable by the assessee.In other words, if no tax is payable by the assessee, there wouldbe no penalty which could be levied on the assessee. The penalprovisions of section 271(1)(c) are attracted only in the case ofan assessee having positive income and not loss as the question ofconcealment of income to avoid payment of tax would arise only inthe former case. No penalty can be levied when the result of thecomputation made by the Assessing Officer is a loss." (emphasis supplied) 5. In the instant case, the Tribunal after going through the recordsobserved that the disallowance of interest under Section 43B of the Actdoes not amount to concealment of income and that when there is no taxpayable, penalty could not be levied. We, therefore, find no illegalityor infirmity in the order of the Tribunal in deleting the penalty. Hence,finding no substantial question of law arising for our consideration,these appeals are dismissed. No costs. Consequently, M.P.No.1 of 2007 isclosed. sasiTo Sd/-Asst. Registrar./true copy/Sub Asst. Registrar. 1.The Assistant Registrar,Income Tax Appellate TribunalMadras Bench "A", Chennai. 2.The Secretary, Central Board of Direct Taxes, New Delhi.of Direct Taxes, New Delhi. 3.The Commissioner of Income TaxChennai-III, Chennai.Chennai-III, Chennai. 4.The Assistant Commissioner of Income-tax-III, Company Circle IV,Chennai.of Income-tax-III, Company Circle IV,Chennai. + 1 CC To Ms.Pushya Sitaram,Sr. Standing Cousel, SR NO.13793 ava[co]gp/20.3. T.C.(A) Nos.196 and 197 of 2007