Rc/34/2001 Of Commissioner Of Income Tax v. Harp Rubber Enterprises Pvt. Ltd

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE NO.34 of 2001 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) The Commissioner of Income Tax, Vijayawada, got thefollowing two questions referred for opinion of this Court underSection 256(1) of the Income Tax Act, 1961 (“the Act” for brevity). 1.Whether on the facts and circumstances of the case, theITAT was correct in law in canceling the penalty ofRs.1,24,729/- levied u/s.271(1)(c) of the I.T.Act?ITAT was correct in law in canceling the penalty ofRs.1,24,729/- levied u/s.271(1)(c) of the I.T.Act? 2.Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that since theassessment ultimately resulted in loss, no penalty wasleviable u/s.271(1)(iii) read with Explanation 4(a) of theI.T.Act?assessment ultimately resulted in loss, no penalty wasleviable u/s.271(1)(iii) read with Explanation 4(a) of theI.T.Act? The assessee company filed return of income for theassessment year 1983-84 declaring loss of Rs.4,15,400/-. Theassessment was completed under Section 143(3) of the Actdetermining the total income of Rs.7,450/- in which inter alia anaddition of Rs.3,13,124/- was made on account of unexplainedcash credits. Thereafter, the assessing officer initiated penalty forconcealment of income and levied penalty of Rs.1,24,722/-. Thesame was, however, reversed by the CIT(A) on the ground that theassessing officer failed to establish that the assessee concealedparticulars of income relating to cash credits. The Revenue’sappeal before the appellate Tribunal was also dismissed. Beingaggrieved, Revenue sought the reference. We have heard the Junior Standing Counsel for Income Taxwho relied on the decision of the three Judge Bench of theSupreme Court in Commissioner of Income Tax v Gold CoinHealth Food P.Ltd[[1]]. A plain reading of Section 271(1)(c)(iii) with Explanation 4would reveal the following. If an assessee has concealed theparticulars of his income or furnished inaccurate particulars ofsuch income, in addition to tax payable by him, a sum which shallnot be less than and which shall not be more than three times “theamount of tax sought to be evaded” by reason of suchconcealment shall be levied and collected as penalty. Even if aloss return is filed, if the amount of concealment has the effect ofreducing the loss in the return or converting such loss into income,Section 271(1)(c) of the Act is attracted. It is well settled that a taxing statute has to be strictlyinterpreted by giving a plain meaning to the clear and unambiguouslanguage used by the Legislature. The script of law cannot beread in such a manner which has the effect of changing the spiritof law. When Explanation 4(a) clearly speaks of the return of lossand also deals with the effect of concealment on such return ofloss either decreasing loss or converting loss into income, it is notpossible to give any other meaning. The question, however,remains as to whether Explanation 4(a), which was substituted bythe Finance Act, 2002, with effect from 01.04.2003, isretrospective in operation, as we are dealing with a case pertainingto assessment year 1982-1983. In Virtual Soft Systems Ltd v Commissioner of Income Tax[[2]]a Bench of two Judges of the Supreme Court held thatExplanation 4 to Section 271(1) has no retrospective operation andpenalty cannot be levied if the return income is loss. In Gold Coin Health Food P.Ltdthe Supreme Courtconsidered the decision in Virtual Soft Systems Ltd and held asunder. A combined reading of the Committee’s recommendations In Virtual Soft Systems Ltd v Commissioner of Income Tax[[2]]a Bench of two Judges of the Supreme Court held thatExplanation 4 to Section 271(1) has no retrospective operation andpenalty cannot be levied if the return income is loss. In Gold Coin Health Food P.Ltdthe Supreme Courtconsidered the decision in Virtual Soft Systems Ltd and held asunder. A combined reading of the Committee’s recommendations and the circular makes the position clear that Explanation 4(a)to Section 271(1)(c) intended to levy the penalty not only in acase where after addition of concealed income, a lossreturned, after assessment becomes positive income but alsoin a case where addition of concealed income reduces thereturned loss and finally the assessed income is also a lossor a minus figure. Therefore, even during the periodbetween April 1, 1976 and April 1, 2003, the position wasthat the penalty was leviable even in a case whereaddition of concealed income reduces the returned loss. (emphasis supplied) This Bench also considered the same issue in anunreported order dated 23.11.2011 in R.C.No.176 of 1996(Commissioner of Income-Tax v M/s.Balarama KrishnaEngineering Contractors Corporation). Following the decision inGold Coin Health Food P.Ltd, the question was answered in thenegative against the assessee and in favour of the Revenue.Accordingly, the two questions referred to this Court areanswered in negative in favour of the Revenue and against theassessee, and the Referred Case shall stand disposed of withoutany order as to costs. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) 26[th] December 2011RRB [1](2008) 304 ITR 308 (SC) [2](2007) 9 SCC 665 : (2007) 289 ITR 83 (SC)(2007) 9 SCC 665 : (2007) 289 ITR 83 (SC)