Ita/301/2003 Of Commissioner Of Income Tax Del v. M/S Sequence Estate P. Ltd

Digitally Signed By:AMULYACertify that the digital file andphysical file have been compared andthe digital data is as per the physicalfile and no page is missing. v + WITH F \,r [)'] 3. Whether the [judgment ]should be repor.ted [in ][Digest?] BADAR DURREZ AI{MED. J "..if lif" is not logic, income-tax is much less so.."l 1. This batch of appeals under section 2604 of the Income Tax Act, 1961(hereinafter referred to as the. Act) arises out of separate orders of the Income TaxAppellate Tribunal (hereinafter referred to as "ITAT") in different matters.However, the questions and issues involved are common and, therefore, we aredisposing of all these appeal5 by this common [judgement. ]At the cornmencementof the hearing it was agreed upon by all the learned counsel appearing in theseappeals that ITA 205/01shall be taken as the [lead ][case ][and ]be [representative ]of theother cases. The questions which need to be answered in these appeals are: 1)Whether the ITAT was right in deleting the penalty imposedunder section 27l(l)(c) of the Income Tax Act, 1961 on theground that the total income of the assessee has been assessedat a minus figure/loss?under section 27l(l)(c) of the Income Tax Act, 1961 on theground that the total income of the assessee has been assessedat a minus figure/loss? 2)Whether the ITAT was [justified ]in holding that thejudgements in Prithipal Singh's case (183 ITR 69 and 249ITR 670) will apply even after insertion of Explanation 4 tosection 271 (l)(c) of the Income Tax Act, 1961 with effectfrom 1.4.1976?judgements in Prithipal Singh's case (183 ITR 69 and 249ITR 670) will apply even after insertion of Explanation 4 tosection 271 (l)(c) of the Income Tax Act, 1961 with effectfrom 1.4.1976? Facts and Question 2: 2. To supply some factual content it would be sufficient for us to refer to thefacts in the case of ITA 2051f|^. For the assessment year 1989-90 the assesseefiled its return of income showing a loss of Rs. 2.36 crores and the assessment wascompleted at a loss of Rs.1.21 crores. The Assessing Officer initiated penaltyproceedings for concealment of income. After considering the response to the lChagla C.J. in Elphinstone Spinning And Weaving Mills Co, Ltd v, Commissioner OfIncome-tuc. Bombav Citv: 28ITR 811 (Bon),ITA 205.01etcPage No. 9 of 37 '-:t: notices for the penalty proceedings, the Assessing Officer fixed a penalty of Rs.1.68 crores. On appeal, the ClT(Appeals) confirmed the [penalty ]to the extent ofRs. 56.01 lakfrs and cancelled the balance amount. Both, the [assessee ]and [the]revenue, approached the ITAT by way of separate [appeals. These appeals were]disposed of by the common order dated 23.2.2001. It is a [short ]order [and ][the]relevant portion is set out below:- lChagla C.J. in Elphinstone Spinning And Weaving Mills Co, Ltd v, Commissioner OfIncome-tuc. Bombav Citv: 28ITR 811 (Bon),ITA 205.01etcPage No. 9 of 37 '-:t: notices for the penalty proceedings, the Assessing Officer fixed a penalty of Rs.1.68 crores. On appeal, the ClT(Appeals) confirmed the [penalty ]to the extent ofRs. 56.01 lakfrs and cancelled the balance amount. Both, the [assessee ]and [the]revenue, approached the ITAT by way of separate [appeals. These appeals were]disposed of by the common order dated 23.2.2001. It is a [short ]order [and ][the]relevant portion is set out below:- "We have heard the rival submissions. It is a case of assessee whofiled refurn showing loss and asff. was completed at reduced amountof loss. The Hon'ble Punjab &Haryana High Court in the case ofPrithipal Singh vs CIT, 183 ITR 69 has concluded that in a casewhere refurned income and assessed income is loss then no penaltyfiled refurn showing loss and asff. was completed at reduced amountof loss. The Hon'ble Punjab &Haryana High Court in the case ofPrithipal Singh vs CIT, 183 ITR 69 has concluded that in a casewhere refurned income and assessed income is loss then no penalty,...'r{i v\ for concealment of income uls 27l(l)(c) is leviable. The Hon'bleSupreme Court has dismissed the appeal filed by the Department andthis fact has been conceded by the Ld.DR who has simply [prayed]that reference to the decision of Hon'ble Karnataka High Court in theSupreme Court has dismissed the appeal filed by the Department andthis fact has been conceded by the Ld.DR who has simply [prayed]that reference to the decision of Hon'ble Karnataka High Court in the. case of P.R. Vasapp* & Sons Vs. CIT,243ITR 776 may be madein which the view is contrary to the view of Punjab & Haryana HighCourt referred to above. However, the fact remains that Hon'bleSupreme Court has confirmed the view taken by [the ][Hon'ble ][Punjab]& Haryana High Court and has become trite law on the [subject.]Accordingly, ro penalty uls 271(l)(c) could be [imposed on the ][facts]and circumstances of the case. Accordingly [penalty ]u/s 271(1)(c)confirmed by the CIT(A) is cancelled. Consequently, the appealfiled by the revenue has no force and the same is also [dismissed.]in which the view is contrary to the view of Punjab & Haryana HighCourt referred to above. However, the fact remains that Hon'bleSupreme Court has confirmed the view taken by [the ][Hon'ble ][Punjab]& Haryana High Court and has become trite law on the [subject.]Accordingly, ro penalty uls 271(l)(c) could be [imposed on the ][facts]and circumstances of the case. Accordingly [penalty ]u/s 271(1)(c)confirmed by the CIT(A) is cancelled. Consequently, the appealfiled by the revenue has no force and the same is also [dismissed.] 4. In the result, the appeal filed by the assessee is allowed [and]that of revenue is dismissed."that of revenue is dismissed." I '"{, Clearly, the ITAT deleted the penalty thinking that the decisions in PrithipalSingh's case of the Punjab & Haryana High Court [(183 ]ITR 69) and of [the]Supreme Court (249 ITR 670) were applicable and that the decision of theKarnataka High Court in P.R. Basavappa & Sons v. CIT [(243 ]ITR 776) was not.To fully appreciate the scope an ambit of the questions raised in these appeals itwould be necessary to examine what was exactly decided in the two PrithipalSingh cases and in what context those decisions were rendered. ln CIT v.Prithipal Singh & Co: 183 ITR 69 (P&H) the assessee, for the assessment year 2(sic), should be Basavappa. 4. In the result, the appeal filed by the assessee is allowed [and]that of revenue is dismissed."that of revenue is dismissed." I '"{, Clearly, the ITAT deleted the penalty thinking that the decisions in PrithipalSingh's case of the Punjab & Haryana High Court [(183 ]ITR 69) and of [the]Supreme Court (249 ITR 670) were applicable and that the decision of theKarnataka High Court in P.R. Basavappa & Sons v. CIT [(243 ]ITR 776) was not.To fully appreciate the scope an ambit of the questions raised in these appeals itwould be necessary to examine what was exactly decided in the two PrithipalSingh cases and in what context those decisions were rendered. ln CIT v.Prithipal Singh & Co: 183 ITR 69 (P&H) the assessee, for the assessment year 2(sic), should be Basavappa. lg70-71, filed its return [declaring loss ][of ][Rs. ][3,35,830. ][The ][Income-tax.Officer]found that it was a case of [concealment ][and suppression ][of ][income ][as ][the ][assessee]had furnished inaccurate [particulars ]of [its ][income. ][He ][computed ][the ][assessee's]income at Rs. I47,978 [and, ][in ][the ][course ][of ][the ][assessment ][proceedings, ][started]penalty proceedings under section 271(l)(c) of the [Act. ][The ][assessee ][went ][in]appeal to the Appellate [Assistant ][Commissioner against ][the order ][of ][the Income-]tax Officer and the Appellate Assistant Commissioner [determined ][the ][loss ][at ][Rs.]34,164 against the returned loss of [Rs.3,35,830. ][In ][the penalty ][proceedings, the]..Inspecting [Assistant ][Commissioner ][(Central), Ludhiana, ][imposed ][a ][penalty ][of]r:'r1r.' ["Rs. ]3,50,000 for concealment. The assessee went in appeal to the ITAT which [was]allowed holding that no penalty could be [imposed upon ][the ][assessee ][when ][it ][had]refurned a loss and it had also been assessed finally on [a ][loss ][figure. ][Ultimately, ][a]reference was made to the Punjab &Haryana [High ][Court ][which ][was ][disposed ][of]by the decision n Prithipal Singh [(P&H) ][(supra). ][The court ][held:-] , .l "Penalty imposed is paid in addition to [the ][tax ][payable. ][When ][there]is no tax payable, the [question ]of any [penalty ][does ][not ][arise. ][In ][fact,]evasion of tax is the sine [qua ]non for imposition [of ][penalty. ][Clause](iii) deals with cases referred to in clause [(c) ]under sub-section [(1) ]ofsection 27I of the Act and it clearly [provides therein that the ][penalty]or further sum [payable ]by a [person ]would be [in ][addition ][to ][any ][tax]payable by him. Explanations 3 and 4 annexed to the said [provision]of law also presuppose taxable income with [regard ][to ][the ][assessment]year in question. If there is no taxable income or tax assessed forpayment during a particular year, the question of evasion [and']consequently penalty do not arise. As [is ][obvious ][from ][annexure ]"B",the assessee was assessed finally at.a loss ['figure ]amounting toRs.34,164 as pointed out at page 33 of the record. Thus, there was noincome and so the motive to avoid tax during the [year ]in [question ]iscompletely missing. May be, it may give a benefit to the assessee inthe coming year as the loss could be canied forward but, [by ][no]stretch of imagination, can it be said that, during the assessment [year]in question, the assessee had concealed its income. "Income" [has ][been defined ][in ][section ][2(24) of ][the ][Act which ][clearly]includes profits, gains, dividends or other benefits [derived ]only. [Loss]cannot possibly be'termed as income. Under section 139(1) of the' Act, a person is required to furnish a return only if his total income -i "Income" [has ][been defined ][in ][section ][2(24) of ][the ][Act which ][clearly]includes profits, gains, dividends or other benefits [derived ]only. [Loss]cannot possibly be'termed as income. Under section 139(1) of the' Act, a person is required to furnish a return only if his total income -i during the [previous ][year ][exceeded ][the maximum ][amount ][which ][is]not ciargeutl. to [income-tax. ][If ][the ][same ][falls ][short ][of ][the ][maximum]amount *tti"tt is not [chargeable, ][which ][has ][been ][the ][case ][here ][as ][per.]final assessment, [he ][need ][not ][file ][a ][refurn. ] [person ][who ][sustains ][a]loss, however, may [file ][a ][return in ][view of ][sub-section ][(3) ][of ][section-]139 of the Act if [he wants ][to ][claim ][that ][the ][loss ][or ][any ][part ][thereof]should be carried forward. [The ][penal ][provisions of ][section ][271(I)(c),]therefore are attracted [only in ][the ][case ][of ][an ][assessee ][having ][positive]income and not [loss, ][as ][the ][question ][of ][concealment ][of ][income to]avoid payment of [tax ][would ][arise ][only ][in ][the ][formel ][case. ][Penalty is].a [detenent ][measure ][to ][prevent evasion ][of tax ][and ][when ][there ][was no]tu< payable, there [could not be any ][such evasion so ][aS ][to provide ][a]srop. for levying [any penalty. ][In ][the present ][case, ][only the ][loss ][has]bee-n reduced and it [cannot be ][said ][that ][the ][assessee ][had ][suppressed]any income which would [have ][attracted ][liabilrty ][to ][tax. ][The ][qrrestion]olimposition of [penalty, therefore, ][did not ][arise. ][Thus, ][on ][the ][facts]and in the circumstances [of ][the ][case, ][the ][Appellate ][Tribunal ][has]acted rightly in law in [holding ][that the ][provisions of ][the ][Explanation],fto section 27L(l)(c) will [not be ][attracted ][to ][the ][present ][case. ][The]word "income" occurring [in ][clause ][(c) ][and ][(iii) ][of ][section ][271(I) ][ot]the Act refers to [positive income ][only ][and ][that no penalty could ][be]levied against the assessee." t) ; r' r'- 1: 3. Being aggrieved by [this ][decision, the ][revenue ][went up ][in ][appeal ][before the] Supreme Court which, [disposed ][the ][same ][(CIT ][v. ][Prithi'at ][Sineh ][& ][Co: ][24g ITR]670 [(SC)) ]by the following [order:-]670 [(SC)) ]by the following [order:-] "We have heard [learned counsel ][and ][find ][that on the ][facts ][of ][this]case. no interference [is called ][for.] The civil appeal is dismissed. No order as to costs." It is pertinent to note that [the ][assessment ][year ][involved ][in Prithipal ][Singh's]case (supra) was Lg7}-TL Much [before ][the ][1976 ][amendment came ][into foice ][on]I.4.1976 whereunder Explanation [4 was ][added ][to ][section ][27I(l) ][of ][the ][Act. ][And,]alttrough there is mention of [this Explanation ][4 ][in ][Prithipal ][Singh ][(P&.H) ][(supra)]it did not arise for consideration [therein ][as ][the relevant ][assessment ][year ][was ][1970-]71 when this Explanation 4 [was ][not ][even ][in ][the ][statute ][book. ][So, ][Prithipal ][Singh](P&H) (supra) cannot be cited as a [precedent ]or [authority ][with ][regard ][to ][the]interpretation of the said Explanation 4. [Therefore, ][the ][dismissal ][of ][the ][appeal]ITA 205.0IetcPage No. 12 of 37 from the decision in Prithipol Singh [(P&H) ][(supra) ][by ][the ][Supreme ][Court ][will]have no bearing in those cases which [have ][arisen ][after ][L4.t976 ][when the ][said]Explanation 4 took effect. [There ][was quite a ][lot of ][argument ][on ][the ][issue ][as ][to]whether the order in Prithipol Singh [(SC) (supra) ][could at ][all ][be ][regarded as ][a]binding precedent in view [of ][the ][very ][wordings ][used ][in the ][order ][to the ][effect:-] "..on the facts of this [case, ][no interference is called for] from the decision in Prithipol Singh [(P&H) ][(supra) ][by ][the ][Supreme ][Court ][will]have no bearing in those cases which [have ][arisen ][after ][L4.t976 ][when the ][said]Explanation 4 took effect. [There ][was quite a ][lot of ][argument ][on ][the ][issue ][as ][to]whether the order in Prithipol Singh [(SC) (supra) ][could at ][all ][be ][regarded as ][a]binding precedent in view [of ][the ][very ][wordings ][used ][in the ][order ][to the ][effect:-] "..on the facts of this [case, ][no interference is called for] Particularly, when there is [no ][discussion ][in ][the ][Supreme ][Court order ][on ][the]reasons or the tegal principles [involved. ][It ][was ][argued ][with ][some degree ][of]... [pvehemence ][by ][Mr ][Sanjiv Khanna on behalf ][of ][the ][revenue ][that ][the ][Supreme ][Court]j14.order had to be viewed [only ][as ][a ][decision ][on the ][facts ][of ][the ][case ][in ][Prithipal]Singh and did not constitute [a ][binding precedent. ][However, ][without ][going into]these issues, it is clear [that the Punjab ][& ][Haryana ][High ][Court was dealing ][with ][the]assessment year 1970-7I when [the ][said ][Explanation ][4 ][did ][not ][even ][exist.]Therefore, its observations on [the ][said Explanation ][4 ][and ][its ][impact ][on ][the]interpretation of section 271(l)(c) of [the ][Act ][would ][be ][obiter ][dicta. ][And,]dismissal of the appeal from such [decision ][by the ][Supreme ][Court ][in ][the ][manner]r aforesaid would not entail otherwise. a We agree with the Karnataka tligh Court's [observation ][in ][Basdvappa](supra) to the following effect:- "6.lt is contended that income in s.271(1)(c) [should ][be ][of ][positive]figure. In CIT vs. Prithpal Singh & Co. [(1990) ]85 CTR [(P&H) ]26 [:](1990) 183 ITR 69 (P&H) TC 50R.236 the Punjab & Haryana HighCourt held that the income as envisaged n's. 271(1)(c) [means]positive income. If the loss declared has been reduced penalty unders.271(1)(c) cannot be levied. This decision is in respect of asst. [yr.]1970-71 i.e., before the insertion of above explanation and hencecannot help the case of the assessee. For the same reason thedecisions glven in CIT vs. India Sea Food (1976) 105 ITR 708 [(Kar)]: TC 50R.148, asst. yr. 1968-69, CIT vs. C. R. Niranjan (1991) 187ITR 280 (Mad) : TC 50R.1014, asst. yr. 1969-70 and CIT vs. JaoraOil Mill (1981) 129 ITR 423 (MP) : TC 50R.486, asst. yr. 1968-69,are not applicable." Of course, when these [observations ][were ][made, ][the ][Supreme ][Court ][order ][[\n]]dismissing the appeal n [Prithipal Singh ][(SC) ][(supra) had ][not ][come. ]['But, ][as]indicated above the [passing ][of the ][Supreme ][Court order did ][not ][alter the ][position]that in prithipal singh's [case ][the ][said Explanation ][4 ][did ][not ].at [all ][come ][up for]This [being the position, the ][answer ][to ][question ][no.2 ][has ][to ][be ][in]interpretation. the negative. 4. Before parting with [the ][discussion ][of ][the ][Prithipal ][Singh ][cases, ][we ][would ][like ][to]comment on another [aspect ][of ][the ][matter. ][If ][we ][closely ][examine the decision ][in ][Prithipal]Singh (P.&H.) [(supra) ]we [find ][that the ][Court ][also decided the ][case ][on ][merits ][with ][regard]rftirut existence of "concealment" as an issue of fact. This becomes clear from the following observations:- "As is obvious [from ][annexwe ]["B", ][the ][assessee ][was ][assessed ][finally]at a loss figure amounting [to ][Rs 34,164/- ][as ][pointed ][out ][at page ][33 ][of]the record. Thus, there [was no income ][and ][so ][the ][motive to ][avoid ][tax]durins the vear in [question ][is ][completelv ][missing. ]MfY [be, ][it.may]to the assessee in the [coming ][year ][as ][the ][loss ][could ][be]giy;;6ennt forward but. bv no sfretch of [imaeination. ][can ][it ][be ][said that.]"utriea during the assessment vear [in ][question. the ][assessee ][had concealed ][its]income." following observations:- "As is obvious [from ][annexwe ]["B", ][the ][assessee ][was ][assessed ][finally]at a loss figure amounting [to ][Rs 34,164/- ][as ][pointed ][out ][at page ][33 ][of]the record. Thus, there [was no income ][and ][so ][the ][motive to ][avoid ][tax]durins the vear in [question ][is ][completelv ][missing. ]MfY [be, ][it.may]to the assessee in the [coming ][year ][as ][the ][loss ][could ][be]giy;;6ennt forward but. bv no sfretch of [imaeination. ][can ][it ][be ][said that.]"utriea during the assessment vear [in ][question. the ][assessee ][had concealed ][its]income." So, Prithipal Singh's [case ][was ][one where ][the Punjab ][and Haryana ][High ][Court held that]the assessee had not [concealed ][its ][income. Though, ][with ][respect, ][we ][disagree ][with ][the]generalisation that as the [assessed ][income was ][a ][loss ][figure ][the ][assessee ][could not ][have]a motive for concealment, [the ][said ][Court found ][as a ][fact that ][there was ][no ][concealment.]Obviously, where such [a ][finding ][is recorded on merits, the question ][of penalty ][would not]arise. Perhaps, this [explains ][the ][said ][words ][used ][in ][the ][Supreme ][Court ][order ][to ][the]effect:- n -(, "........on the [facts ][of this ][case, ][no interference is called ][for."] Question [l.:] 5. With the Prithipal Singh [decisions ][out ][of ][the way, ][let ][us ][now ][examine]question 1 which is the core [issue. ]It [would ][be ][necessary ][to ][set ][out ][the ][relevant]provisions of section 271 of the Act [as ][it ][existed ][after ][1.4.1976 ][and ][for ][the ][period] ' .{^ relevant to the assessment [years ][involved ][in ][the ][present ][appeals. ][After ][1976 ][therc]was an amendment carried [out ][in ][1989 ][but ][that ][does ][not ][change ][the ][1976 ][position]much. Finally, there [was an ][amendment ][(by ][Finance ][Act, ][2002 ][w.e.f. ][1.4.2003)]whereby, inter alia, new [clause ][(a) ][of ][Explanation 4 ][to ][section ][27L ][(I) ][of ][the ][Act]was substifuted in [place ]of [the ][existing ][one. ][However, ][we ][are concerned ][with ][the]post-1976 and pre-2003 position. The [relevant ][provisions ][of ][section ][271 ][as ][it]stood then are [as ][under:-] "27I. RNISH ][RETURNS, ] NOTTCES, CONCEALMENT [TNCOME' ETC.] (1) If the Income-tax Officer or the Appellate Assistantlfi Commissioner in the course of [any ][proceedings ][under ][this]Act, is satisfied that any [person]Act, is satisfied that any [person] t * *;or (a) * * * *;or (b) has concealed the [particulars ][of ][his ][income ][or ][furnished](c) inaccurate particulars of [such ][income,]inaccurate particulars of [such ][income,] he may direct that [such ][person ][shall pay by ][way ][ofpenalty, ][-] .(i)***'F .tf(ii)*i(*'k in the cases referred to in [clause ][(c), ][in ][addition ][to ][any ][tax](iii) payable by him, a sum which [shall not ][be ][less ][than but ][which]ihall not exceed twice, [the amount ][of ][tax ][sought ][to ][be ][evaded]by reason of the concealment [of ][particulars ][of ][his ][income or]the furnishing of inaccurate [particulars ][of ][such ][income:]payable by him, a sum which [shall not ][be ][less ][than but ][which]ihall not exceed twice, [the amount ][of ][tax ][sought ][to ][be ][evaded]by reason of the concealment [of ][particulars ][of ][his ][income or]the furnishing of inaccurate [particulars ][of ][such ][income:] **** Explanation 3 : where [any ][person ][who ][has ][not ][previously_been]assissed under the Indian [Income-tax ][Act, ][t922 ][(11 ][of ][t922), ][or]under this Act, fails, without [reasonable ][cause, ][to ][furnish ][within ][the]period specified in sub-clause [(iii) ]of [clause ][(a) ][of ][sub-section ][(1) ][of]. iection 153 a return of his [income ][which he is ][required ][to ][furnish]under section 139 in [respect ][of ][any ][assessment ][year commencing on] { **** Explanation 3 : where [any ][person ][who ][has ][not ][previously_been]assissed under the Indian [Income-tax ][Act, ][t922 ][(11 ][of ][t922), ][or]under this Act, fails, without [reasonable ][cause, ][to ][furnish ][within ][the]period specified in sub-clause [(iii) ]of [clause ][(a) ][of ][sub-section ][(1) ][of]. iection 153 a return of his [income ][which he is ][required ][to ][furnish]under section 139 in [respect ][of ][any ][assessment ][year commencing on] { or after the first day of April, [1974, and, ][until ][the ][expry ][of ][the]period aforesaid, no notice has been issued to him [under sub-section](2) of section 139 or section 148 and the Assessing Officer [or ][the]Deputy Commissioner [(Appeals) ]or [the Commissioner (Appeals) ][is]satisfied that in respect of such [assessment ][year ][such person ][has]torable income, then, such [person ]shall, [for ][the ][purposes ][of ][clause](c) of this sub-section, be deemed to have concealed the [particulars]of his income in respect of such [assessment ][year, notwithstanding]that such person furnishes a refurn of [his ][income ][atany ][time ][after the]expiry of the [period ]aforesaid [in ]- [pursuance ][of ][a ][notice under section]:148. -/ Explanation 4 : For the [purpose ]of [clause ][(iii) ][of ][this ][sub-section,]the expression "the amount of tax sought [to ][be ][evaded", -]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;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;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.]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.] *r, We are concerned with the interpretation [of ].section [27t ][(l)(c),27I(l)(iii) ][and]Explanation 4 to section 271 (I). A [plain ][reading ][of ][these ][provisions ][makes ][it]clear that the liability to penalty arises if [any person ][has concealed ][the ][particulars]of his income or furnished inaccurate [particulars ][of ][such ][income. ][The ][liability for]penalty is not in any manner linked with whether total [income ][assessed ][is postive]or negative. Or, to put it differently, [whether ][any ][tax is ][payable ][on ][the ][total]income assessed. Once the liability to [penalty ][arises, ][the next question is ][-- ][how]muchi Sub-clause (iii) of section z|I(l)deals with [the computation ][of ][the] ITA 205.0Ietc *r, We are concerned with the interpretation [of ].section [27t ][(l)(c),27I(l)(iii) ][and]Explanation 4 to section 271 (I). A [plain ][reading ][of ][these ][provisions ][makes ][it]clear that the liability to penalty arises if [any person ][has concealed ][the ][particulars]of his income or furnished inaccurate [particulars ][of ][such ][income. ][The ][liability for]penalty is not in any manner linked with whether total [income ][assessed ][is postive]or negative. Or, to put it differently, [whether ][any ][tax is ][payable ][on ][the ][total]income assessed. Once the liability to [penalty ][arises, ][the next question is ][-- ][how]muchi Sub-clause (iii) of section z|I(l)deals with [the computation ][of ][the] ITA 205.0Ietc penalty. It says that the penalty [shall ][be ][in ][addition ][to ][any ][tax payable ][by ][him ][and]it shall be a sum which [shall ][not ][be ][less ][than but ][which ][shall ][not ][exceed ][twice ][the]amount of tm sought to [be evaded ][by ][reason ][of ][the concealment ][of ][particulars ][of]his income or the furnishing [of ][inaccurate ][particulars ][of ][such ][income. Now, ][the]expression "the amount of [tax ][sought ][to ][be ][evaded' ][is'not ][to ][be ][considered ][in]general terms because a specific [meaning has been ascribed ][to ][it ][by ][the ][said]Explanation 4. This [Explanation 4 ][deals ][with ][three ][different ][and ][distinct ][situations]under clauses (a), [(b) ][and ][(c) ][thereof. ][Clause ][(a) ][of ][Explanation ][4 ][pertaids ][to ][a]-1,1'\bituation where the amount of income in respect of which particulars have beenconcealed or inaccurate [particulars have been furnished (hereinafter referred ][to ][as]"concealed income") [exceeds ][the ][total ][income ][assessed. Clause ][(b) of Explanation]4 deals with a situation [where ][Explanation 3 ][applies. By virtue of ][Explanation ][3,]since no return is filed [before ][a ][specified ][date, ][the entire taxable income is ][deemed]to be the concealed [income ][as ][the ][returned ][income ][is ][taken ][to ][be ][zero)]notwithstanding the [fact ][that ][a ][return ][may ][in ][fact be ][filed ][after the stipulated ][date.]Clause (c) of Explanation [4 ][is ][the ][residual ][clause and deals ][with ][all ][cases ][of]concealed.income which [do ][not ][fall ][under ][clauses ][(a) or ][(b)'] I 6. Let us examine as to [under ][what ][conditions ][each ][of ][the three ][clauses ][would]be attracted. For [this purpose, let ][us ][use ][a ][little ][symbology ][and some ][mathematics.]Let x be the extent of [concealed income; ][y ][represents ][total ][income ][assessed and ][z]stands for refurned income [or ][declared ][income. ][Because ][concealed ][income ][is the]difference between total [income ][assessed ][and ][retumed income ][we ][get ][the]following equation:ITA 205.01etcPage No. 17 of 37 x:yz (concealed income [: ]total income assessed refurned/declared income) Clause (a) applies to situations where the concealed income exceeds the totalincome assessed, or where x - y [> ]0. This can only happ en if z is negative. This isso because, from the above equation we can derive the following equation:- zx-y: And, if x - y > 0 it means that -z [> ]0 lbecause x - y [: ]-r) and, that can onlyhappen if z < 0 (ie., there is a negative returned income or, to put it differently,"'in.I there is a returned loss). The following table (Table 1) makes this clear. We haveassumed that the total income assessed (y) is 50 throughout. However, thedifferent returned income (z) values have been taken between -100 (loss of 100) to100 (positive income of 100) at increments of 10. ?./ Table I x:yz (concealed income [: ]total income assessed refurned/declared income) Clause (a) applies to situations where the concealed income exceeds the totalincome assessed, or where x - y [> ]0. This can only happ en if z is negative. This isso because, from the above equation we can derive the following equation:- zx-y: And, if x - y > 0 it means that -z [> ]0 lbecause x - y [: ]-r) and, that can onlyhappen if z < 0 (ie., there is a negative returned income or, to put it differently,"'in.I there is a returned loss). The following table (Table 1) makes this clear. We haveassumed that the total income assessed (y) is 50 throughout. However, thedifferent returned income (z) values have been taken between -100 (loss of 100) to100 (positive income of 100) at increments of 10. ?./ Table I Looking at the table, one can immediately [discern ][that the ][moment ][z ][becomes]i4' positive (or greater than 0), x - y becomes negative which means that x no longerexceeds y. But, clause [(a) ]of Explanation 4 [applies ][only ][to ][cases ][where ][the]concealed income [(x) ]exceeds the total [income ][assessed ][(y). ][That, ][only ][happens]when the declared or returned [income is negative ][or ][a ][loss. ][As ][the ][following ][table](Table 2) demonstrates, it does not matter whether [the ]total [income ][assessed ][(y) ][is]positive or negative; as long as the returned income [(z) ][is ][negative and ][it ][is ][less]than the total income assessed [(y), ][the ][concealed ][income ][(x) ][is ][postive ][and ][it ][is ][in]excess of the total income assessed [(see ][the x ]-y [column; ][it ][is ][100 ][throughout!).]' positive (or greater than 0), x - y becomes negative which means that x no longerexceeds y. But, clause [(a) ]of Explanation 4 [applies ][only ][to ][cases ][where ][the]concealed income [(x) ]exceeds the total [income ][assessed ][(y). ][That, ][only ][happens]when the declared or returned [income is negative ][or ][a ][loss. ][As ][the ][following ][table](Table 2) demonstrates, it does not matter whether [the ]total [income ][assessed ][(y) ][is]positive or negative; as long as the returned income [(z) ][is ][negative and ][it ][is ][less]than the total income assessed [(y), ][the ][concealed ][income ][(x) ][is ][postive ][and ][it ][is ][in]excess of the total income assessed [(see ][the x ]-y [column; ][it ][is ][100 ][throughout!).] ) ,:l Table 2 I '.tl i{ So, from the [above ][table ][it ][becomes ][clear ][that the ][entire ][data range ][depicted]therein (barring where t [: ][0 ]), [falls ][under ][clause ][(a) ][of ][Explanation ][4' ][The]will [have ][to ][be ][computed ][in ][terms ][of ][clause ][(a) ][which ][merely]penalty therefore stipulates that the ["qmount ][of ][tax ][sought ][to ][be ][evaded', under ][the ][fictional]meaning given to it by [the ][said ][clause ][(a), ][would ][the ][tax ][on ][rc, ][taking ][x to ][be the]total income assesed. [Once ][this ][is ][calculated, ][the ][penalty ][amount ][would ][be]ranging between such tax [amount ][and ][the ][double ][of ][it. ][It ][is ][clear ][that we ][have]been able to compute [the ][penalty ][amount ][without ][much ][difficulty ][and ][without ][anY]discussion as to whether [the ][penalty ][is payable ][when ][the ][total ][income ][assessed ][is ][a]loss or not. That, in our view, [is ][a ][discussion ][which ][is ][irrelevant to the ][scheme ][of]the provisions. 7. Section 27t(I) has two [limbs. ][Under the ][first ][limb, ][the ][liability ][of ][penalty]is fixed. The second limb [pertains ][to ][the computation ][of ][the ][penalty. ][When ][the]ITA 205.0IetcPage No. 20 of 37 to [penalty ][is ][trilgered ][under ][the ][first ][limb, ][there is ][no reference ][to ][whether]liability trthe total income [assessed ][is ][positive or ][negative. And, ][insofar ][as ][the ][second ][limb]is concerned, this is [absolutely ][irrelevant as ][the ][computation ][of ][the ][fictional]"amottnt of tax sought [to ][be ][evaded' ][canbe easily ][done ][in ][either ][case.] 7. Section 27t(I) has two [limbs. ][Under the ][first ][limb, ][the ][liability ][of ][penalty]is fixed. The second limb [pertains ][to ][the computation ][of ][the ][penalty. ][When ][the]ITA 205.0IetcPage No. 20 of 37 to [penalty ][is ][trilgered ][under ][the ][first ][limb, ][there is ][no reference ][to ][whether]liability trthe total income [assessed ][is ][positive or ][negative. And, ][insofar ][as ][the ][second ][limb]is concerned, this is [absolutely ][irrelevant as ][the ][computation ][of ][the ][fictional]"amottnt of tax sought [to ][be ][evaded' ][canbe easily ][done ][in ][either ][case.] 8. There is another way [to ][look ][at.the ][issue. ][This ][much ][is ][clear ][from ][the]discussion above that [clause ][(a) ][of ][Explanation ][4 ][applies ][only ][to ][a ][situation where]the returned income [(z) ][is negative (a loss). The returned ][income could be ][-1 or ][-]10000 or -100,00,000 ... [So, ][situations, where the ][total ][income ][assessed ][(y) could]negative or postive, [exist. ][And, ][under ][both ][situations, the ][computation is ][easily]1r{. done. If the intention of [the ][legislature was ][to ][shut out ][penalties ][in ][cases ][where]the total income [assessed ][was ][not positive, ][it ][would ][have ][not provided ][for ][such]possibilities by speciffing cases [under ][different ][categories ][where ][concealed]income exceeds [the ][total ][income ][assessed ][clause [(a)] ][and ][whele ][concealed]income is equal to [or ][less ][than the ][total ][income ][assessed ][[clause ][(c)]. ][Clause ][(c) ][of]Explanation 4 applies [only ][to ][cases ][where ][the ][total ][income ][assessed ][would ][be]positive. Therefore, it [would ][not ][be possible ][to ][hold that ][under clause ][(a) ][the]did not [contemplate ][the imposition ][of ][penalty where the ][total ][income]legislature assessed was not [a ][positive figure.] :l g. The special case of [clause ][(b) of ][Explanation ][4 ][essentially ][means ][a ][situation]where z [: ]0 and, [when this ][happens ][the ][entire ][total ][income ][assessed ][has ][to ][be] taken to be the concealed [income. ][This ][is clear ][from ][the aforementioned equation:] x=!_z if z:0, then, substitutingfor [z,the ][equationbecomes: ][r ][- ][y- ][0 ][which ][implies]that x [: ]y [(ie., ][concealed income ][: ][total ][income ][assessed). The ][foltowing ][table](table 3) makes its clear that where returned [income ][(t):O,the ][concealed income]ITA 205.0IetcPage No. 21 of 37 "J.I ,-l' I .J (r) will always equal the total income [assessed ][(y). ][And, ][therefore, ][we ][have the] prescription in clause [(b) ]that the "amount [of ][tax sought ][to ][be ][evaded'means ][the]tax on the total income assessed [(y).] 10. Clause (c) of Explanation 4 deals with all other [cases ][meaning, ][thereby, ][all]those cases other than where z [< ]0. Therefore, clause [(c) ]applies where [the]ITA 205.0IetcPage No. 22 of 37 ,.1 rF returned income is zero or more. We have already seen that where the refurnedincome is negative or less than 0, clause (a) is applicable. In cases falling underclause (c), the expression "amount of tax sought to be evaded' means thedifference between the ta< on the total income assessed (y) and the tax that would;have been chargeable had. such total income been reduced by the amount ofincome in respect of which particulars have been concealed or inaccurateparticulars have been furnished. Simply stated it means the difference between theta>< on total income assessed (y) and the tax calculated on the returned income [(z).] ,.1 rF returned income is zero or more. We have already seen that where the refurnedincome is negative or less than 0, clause (a) is applicable. In cases falling underclause (c), the expression "amount of tax sought to be evaded' means thedifference between the ta< on the total income assessed (y) and the tax that would;have been chargeable had. such total income been reduced by the amount ofincome in respect of which particulars have been concealed or inaccurateparticulars have been furnished. Simply stated it means the difference between theta>< on total income assessed (y) and the tax calculated on the returned income [(z).] t\f . The following table (table 4) which pertains to cases under clause (c) ofExplanation 4 would enable us to understand this better. Take the case where thereturned income is 110 and the total income assessed is 210. In such a situation,the "amount of tax sought to be evaded' would be the difference between the taxon 210 (y) and the ta,r on 110 (z). To take this example further, let us assume [a]flat tax rate of 10%. The tax on 210 would be 2l and the tax on [1 ]10 would be [11.]Accordingly, the "qmount of tax sought to be evaded' would be the differencebetween 2I and 11, which comes to 10. The [penalty, ]therefore, in this [case ]couldrange from 10 to20 (beingtwice the"amount oftax sought to be evaded'). Table 4 Page No. 23 of 37 r{*L =*q rtl I 12. The scheme of section 271(1)(c) therefore is this. If a [person ]concealsincome in the sense we understand it, he becomes liable to [pay ][penalty. ]Theconcealment triggers the liability to penalty. Once the liability arises, the onlyother thing to do is to quantiff the amount of penalty. The minimum andmaximum penalty amounts have been specified. In all cases of concealment wherethe concealed amount exceeds the total income assessed [(or, ]in other words, wherethe declared or returned income is negative), clause (a) of Explanation 4 will applyand in all other cases (ie., where the declared or returned income is greater'than orequal to zero), clause (c) would apply. Clause (b), would apply in the special casespecified under Explanation 3. All the present appeals are in respect of cases.falling under clause (a) of Explanation 4. The assessees (respondents) in all theseappeals want us to read clause (a) as excluding those cases where, although theITA 205.01etcPage No. 24 of 37 refurned income is negative and there is established [concealment, the ][total ][income]assessed is negative and no tax is [payable ]thereon. We [are ]afraid, we do [not]discern any such intention on the part of the legislature in making any [such]exception. On the contrary, the only classification made by the legislature [is]between cases where the returned income is negative [clause(a)] [and ][where ][the]returned income is greater than or equal to zero [clause(b)]. And, of [course, the]special case of clause (b). The meaning of the [provisions ]and in [particular]Explanation 4 arc very clear. In our view, the legislative intent, and, that [is ][what]we are to gather, is that in respect of imposition of a [penalty ]for [concealment, the]FA+l/'i55ue of the total assessed income being positive or negative does not arise at all. We may note that there is also a logical3 explanation for not excluding thecases of concealed income from the imposition of [penalty ]where the returned [and]assessed incomes are both negative. Let us take [an ]example. [Assume ][that ][the]returned income is a loss of Rs 3 crores and the [assessed ][total ][income ][is ][a ][loss]figure of Rs 1 crore because of a concealed income of [Rs ][2 crores. ][If ][the ][view]expressed by the respondents were to be accepted then [no ][penalty could ][be]imposed although concealed income of Rs 2 crores [has been ][unearthed. ][Now, ][let]us take the case of an assessee who returned an income of Rs 2 [laLrfrs ][and upon]assessment it was increased to Rs 2.10 lakhs revealing a concealed income of [Rs]10,000/-. Here, where the concealment is of only Rs 10,000/-, admittedly, [penalty]would be imposable. But, if the respondents' submission were taken to be correct,in the former example where the concealment was of Rs 2 crores, no penaltywould be imposable. This does not appear to be equitable or logical. However,we must make it clear that our decision is not based upon any equitable 3Despite the caveat entered above: see footnote I -.\ .-,+ considerations for in taxing statutes equlty has a limited role to play, if at ail1. Our decision is based upon the plain understanding of the statutory provisions proprio vigore . 13. In Prithipal Singh (P&H) (supra) it was observed that:- "Penalty imposed is paid in addition to the tax payable. When thereis no tax payable, the question of any penalty does not arise. In fact,evasion of tax is the sine qua non for imposition of penalty. Clause(iii) deals with cases referred to in clause (c) under sub-section (1) ofsection (1) of section 271 of the Act and it clearly provides thereinthat the penalty or further sum payable person would be in additionto any taxpayable by him." ^ ,C'",C'"[_ ] The learned counsel for the assessees/respondents argued in similar vein. -fl ^ ,C'",C'" ,C'"' - But, we do not agree with this. The expression "in addition to any tm payable",But, we do not agree with this. The expression "in addition to any tm payable", in the context it is used, does not and cannot mean that there must be a tax payablebefore a penalty under the provision can be levied. It only means that the penalty amount will be over and above "any tox payable". The event that triggers aliability of penalty is entirely different and distinct from the taxable events. The 4See; Commr. of Sales Tox v. Shri Krishna Enes. Co.,(2005) 2 SCC 692, at page 706 : '633. [It ][is ][settled ][law that ][equity plays ][only ][a ][minuscule ][role ][in ][fiscal ][matters, even ][if ][such]considerations were to be applied, there would still be no [justification ]for an applicationadverse to the interest ofthe State..." in the context it is used, does not and cannot mean that there must be a tax payablebefore a penalty under the provision can be levied. It only means that the penalty amount will be over and above "any tox payable". The event that triggers aliability of penalty is entirely different and distinct from the taxable events. The 4See; Commr. of Sales Tox v. Shri Krishna Enes. Co.,(2005) 2 SCC 692, at page 706 : '633. [It ][is ][settled ][law that ][equity plays ][only ][a ][minuscule ][role ][in ][fiscal ][matters, even ][if ][such]considerations were to be applied, there would still be no [justification ]for an applicationadverse to the interest ofthe State..." Also see:iQ00a) [ru ][SCc ][1[para ][114].]5Also see:ITR 518 (Guj) wherein it rvas held:-This contention has found favour with the Tribunal. But it is diffrcult tocomprehend what connection the penal liability has with the liability to pay tax.Penal liability contemplated by sub-section (2) of section 271 falls within any of [']the clauses (a), (b) or (c) of section 271(1). These three clauses contemplate threedistinct types of defaults. The moment it is found that any one of these threedefaults is committed by an assessee which is a registered firm the said assessee5Also see:ITR 518 (Guj) wherein it rvas held:-This contention has found favour with the Tribunal. But it is diffrcult tocomprehend what connection the penal liability has with the liability to pay tax.Penal liability contemplated by sub-section (2) of section 271 falls within any of [']the clauses (a), (b) or (c) of section 271(1). These three clauses contemplate threedistinct types of defaults. The moment it is found that any one of these threedefaults is committed by an assessee which is a registered firm the said assesseebecomes "liable to penalty" within the rneaning of sub-section (2). Clauses (a),(b) and (c) constitute the first part of sub-section (1) of section 271. This partshows when and under what circumstances a penal liability comes into existence.Second part of this sub-section is constituted by clause (i), (ii) and (iii). These. [clauses have ][nothing ][to ][do after the ][liability ][has ][already come ][into ][existence ][as]their function is to provide for the rnethod to quantifr the different amounts of(b) and (c) constitute the first part of sub-section (1) of section 271. This partshows when and under what circumstances a penal liability comes into existence.Second part of this sub-section is constituted by clause (i), (ii) and (iii). These. [clauses have ][nothing ][to ][do after the ][liability ][has ][already come ][into ][existence ][as]their function is to provide for the rnethod to quantifr the different amounts ofpenalties with reference to the different defaults contemplated by clauses (a), (b)and (c). Thus, while the function of clauses (a), (b) and (c) is to create penalliability, the function of clauses (i), (ii) and (iii) is to quantifu the said liability.Now, if the quantification if penal liability is based on the amount of tax, if any,liability, the function of clauses (i), (ii) and (iii) is to quantifu the said liability.Now, if the quantification