Rc/176/1996 Of The Commissioner Of Income Tax v. M/S.balaramakrishna Engineering Contractors Corporation

* THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERENCE CASE No.176 of 1996 %Dated:23.11.2011 Between: Commissioner of Income-Tax,Visakhapatnam. …Applicant and M/s.Balarama Krishna Engineering ContractorsCorporation, Visakhapatnam. …Respondent !Counsel for the Petitioner: Sri S.R.Ashok Senior Standing Counsel for Income Tax. ^Counsel for the Respondent: Sri <Gist: >Head Note: ?Citations: 1. (2008) 304 ITR 308 (SC) 2. (2007) 9 SCC 665 : (2007) 289 ITR 83 (SC) THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERENCE CASE No.176 of 1996 Dated:23.11.2011 Between: Commissioner of Income-Tax, Visakhapatnam. …Applicant and M/s.Balarama Krishna Engineering ContractorsCorporation, Visakhapatnam. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERENCE CASE No.176 of 1996 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) The Commissioner of Income Tax, Visakhapatnam,got the following question referred to this Court underSection 256(1) of the Income Tax Act, 1961 (the Act). Whether on the facts and in thecircumstances of the case, the Tribunal wasjustified in holding that penalty under Sec.271(1)(c) of the I.T.Act cannot be levied in a case wherethe assessed income is a loss. At the outset it is necessary to briefly mention thefacts leading to the reference. The assesse firm is a civilcontractor. They filed the return of income for assessmentyear 1990-1991 showing loss of Rs.28,27,249/-. TheIncome Tax Officer completed assessment under Section144 of the Act. While doing so, he added Rs.19,15,002/-and reduced the addition of Rs.10,00,000/- to Rs.7,45,253/-, and determined the tax payable at Rs.9,03,375/-. Penaltyproceedings were also initiated separately under Section271(1)(c) of the Act and an amount of Rs.14,34,294/- was imposed as penalty by order dated 16.03.1993. TheCommissioner of Income Tax (Appeals) confirmed thepenalty vide order dated 31.12.1993. The Income TaxAppellate Tribunal (the Tribunal), however, allowed theappeal against penalty order taking a view that levy ofpenalty for concealment in case where the assessedincome is loss is not permissible under law. In spite of service of notice, none appears for therespondent, and therefore, the respondent is set ex parte. The Junior Standing Counsel for Income TaxDepartment would submit that even when assessee filedthe loss return, the provisions of Section 271(1)(c) of theAct are attracted. Relying on Section 271(1)(iii) andExplanation 4 thereof, he would submit that the amount ofincome concealed which has effect of reducing the lossdeclared in the return or converting the loss into incomewould also amount to “the amount of tax sought to beevaded”. He would further submit that Explanation 4which was substituted by the Finance Act, 2002, witheffect from 01.04.2003, is a clarificatory nature andtherefore even in case of an assessee filing a loss return,the provisions of Section 271(1)(c) of the Act areattracted. He placed reliance on a Division Benchjudgment of the Supreme Court in Commissioner of Income Tax v Gold Coin Health Food P.Ltd[[1]]. A plain reading of Section 271(1)(c)(iii) withExplanation 4 would reveal the following. If an assesseehas concealed the particulars of his income or furnishedinaccurate particulars of such income, in addition to taxpayable by him, a sum which shall not be less than andwhich shall not be more than three times “the amount oftax sought to be evaded” by reason of such concealment Income Tax v Gold Coin Health Food P.Ltd[[1]]. A plain reading of Section 271(1)(c)(iii) withExplanation 4 would reveal the following. If an assesseehas concealed the particulars of his income or furnishedinaccurate particulars of such income, in addition to taxpayable by him, a sum which shall not be less than andwhich shall not be more than three times “the amount oftax sought to be evaded” by reason of such concealment shall be levied and collected as penalty. Even if a lossreturn is filed, if the amount of concealment has the effectof reducing the loss in the return or converting such lossinto income, Section 271(1)(c) of the Act is attracted. It iswell settled that a taxing statute has to be strictlyinterpreted by giving a plain meaning to the clear andunambiguous language used by the Legislature. The scriptof law cannot be read in such a manner which has theeffect of changing the spirit of law. When Explanation 4(a)clearly speaks of the return of loss and also deals with theeffect of concealment on such return of loss eitherdecreasing loss or converting loss into income, it is notpossible to give any other meaning. The question,however, remains as to whether Explanation 4(a), whichwas substituted by the Finance Act, 2002, with effect from01.04.2003, is retrospective in operation, as we aredealing with a case pertaining to assessment year 1990-1991. Gold Coin Health Food P.Ltd., was an appealagainst the judgment of the Division Bench of GujaratHigh Court, which having considered the question,“Whether on the facts and circumstances of the case, theAppellate Tribunal was right in law in holding that penaltyunder Section 271(1)(c) of the Income Tax Act, 1961, cannotbe levied if the returned income is loss in the cases prior tothe amendment in the year 2002”, dismissed the Revenue’sappeal holding that when the income disclosed and theincome assessed is negative, no case would be made outfor attracting the penalty under Section 271(1)(c) of theAct. I n Virtual Soft Systems Ltd v Commissioner ofIncome Tax[[2]] a Bench of two Judges while rejecting the plea of the Revenue that Explanation 4 to Section 271(1)as amended by Finance Act, 2002, was retrospective, tookthe view that penalty under Section 271(1)(c) of the Actcannot be levied if the returned income is a loss. Doubtingthe ratio therein, Gold Coin Health Food P.Ltd., wasreferred to three Judge Bench. The Revenue submitted that the purpose behindSection 271(1)(c) of the Act was to penalise the assesseefor concealing the particulars and furnishing inaccurateparticulars of income, whether the income returned is aprofit or loss are really of no consequence and thatExplanation 4 to Section 271(1)(c) was clarificatory innature and would apply to all assessments even prior toassessment year 2003-2004. On consideration of therecommendations of Wanchoo Committee pursuant towhich Explanation 4(a) was inserted, CBDT circularNo.204, dated 24.07.1976, the Finance Act, 1979, therelevant clauses of the Finance Act, 2002, and the caselaw dealing with interpretation of statutes beingprospective or retrospective, the three Judge Bench inGold Coin Health Food P.Ltd., reversed Virtual Soft Systems Ltd., and held A combined reading of the Committee’srecommendations and the circular makes theposition clear that Explanation 4(a) to Section271(1)(c) intended to levy the penalty not only in acase where after addition of concealed income, aloss returned, after assessment becomes positiveincome but also in a case where addition ofconcealed income reduces the returned loss andfinally the assessed income is also a loss or aminus figure. Therefore, even during the periodbetween April 1, 1976 and April 1, 2003, theposition was that the penalty was leviable even ina case where addition of concealed incomereduces the returned loss. (emphasis supplied) The ratio in Gold Coin Health Food P.Ltd. , Systems Ltd., and held A combined reading of the Committee’srecommendations and the circular makes theposition clear that Explanation 4(a) to Section271(1)(c) intended to levy the penalty not only in acase where after addition of concealed income, aloss returned, after assessment becomes positiveincome but also in a case where addition ofconcealed income reduces the returned loss andfinally the assessed income is also a loss or aminus figure. Therefore, even during the periodbetween April 1, 1976 and April 1, 2003, theposition was that the penalty was leviable even ina case where addition of concealed incomereduces the returned loss. (emphasis supplied) The ratio in Gold Coin Health Food P.Ltd. , therefore, would leave no scope for us except to hold thatpenalty under Section 271(1)(c) of the Act would beattracted and can be levied even in a case where theassessed income is a loss. The reference is accordinglyanswered in the negative against the assessee and in favourof the Revenue. The Reference Case stands disposed of accordinglywithout any order as to costs. _______________ (V.V.S.RAO, J) 23.11.2011 ____________________ (B.N.RAO NALLA, J) Note: LR Copy to be marked.B/o. vs [1](2008) 304 IT R 308 (SC)(2008) 304 IT R 308 (SC) [2](2007) 9 SCC 665 : (2007) 289 IT R 83 (SC)(2007) 9 SCC 665 : (2007) 289 IT R 83 (SC)