ORDER
N.K. Saini A.M.
These two cross-appeals are directed against the order of the learned Commissioner (Appeals) dated 16-10-1995.
2. Common issue is involved in these cross-appeals which revolves round the sustenance/deletion of penalty levied by the assessing officer under section 271(1)(c) of the Act.
3. The facts of the case in brief are that the assessee filed its return of income declaring loss of Rs. 7,76,212 which was assessed at an income of Rs. 2,84,900 under section 144 of the Act vide order dated 31-12-1990. The aforesaid assessment was set aside and after appeal effect the finally assessed income came to loss of Rs. 80,442. However, the assessing officer observed that an addition of Rs. 4,89,811 was made on account of cash credits amounting to Rs. 4,67,257 and interest thereon amounting to Rs. 22,554. The assessing officer levied the penalty of Rs. 3 lakhs in view of Explanation 4 to section 271(1)(c) of the Act considering the amount of Rs. 4,89,811 as concealed income.
4. The assessee carried the matter to the learned Commissioner (Appeals) who reduced the penalty to the extent of Rs. 1 lakh by stating that in the additions of Rs. 4,89,811, the only amount related to this year was of Rs. 1,46,757 and the other additions were related to the opening balance of the cash credits. Now the department is in appeal against the relief of Rs. 2 lakhs while the assessee is in appeal against the sustenance of penalty of Rs. 1 lakh.
5. The learned Departmental Representative submitted before us that the assessee concealed the income to the extent of Rs. 4,89,811. Therefore, the assessing officer was justified in making the addition in view of Explanation 4 to section 271(1)(c) of the Act. He, therefore, prayed to restore the penalty levied by the assessing officer. In his rival submissions, the learned counsel for the assessee stated that finally assessed income was at a loss figure and there was no evasion of tax, as such, no penalty was leviable under section 271(1)(c) of the Act. Reliance was placed on the following judgments:
1. CIT v. Harshvardhan Chemicals & Minerals Ltd. 28 Tax World 374 (Raj)
2. CIT v. Prithi Pal Singh & Co. (2001) 249 ITR 670 (SC)
3. CIT v. Prithi Pal Singh & Co. (1990) 183 ITR 69 (P&H)
4. CIT v. N Kishnan (1999) 240 ITR 47 (Ker)
5. CIT v. Jeora Ofl Mills (1981) 129 ITR 423 (MP)
6. Asstt. CIT v. Abril Pharmaceuticals (P) Ltd. (2001) 70 TTJ (Ind) 60 : (1999) 70 ITD 206 (Ind)
7. Ess Ess Marbles (India) (P) Ltd. v. Asstt. CIT 24 Tax World 352 (Jp)
8. Indo German Electrical v. Income Tax Officer (1992) 41 ITD 455 (Jp)
9. Dy. CIT v. Aditya Chemicals Ltd. (2001) 70 TTJ 953 (Del)
10. Rani Sati Coal Suppliers v. Income Tax Officer 26 Tax World 186 (Jp)
11. P.R. Basavappa & Sons v. CIT (2000) 243 ITR 776 (Kar).
6. We have heard both the parties at length, and also carefully gone through the material available on record. In the instant case, it is an admitted fact that the assessee filed its return of income at a loss of Rs. 7,76,212 and finally assessed income was also at a loss of Rs. 80,442. The assessing officer levied the penalty observing that the addition to the extent of Rs. 4,89,811 had been confirmed on account of cash credits and accordingly held that the penalty was leviable in view of the Explanation 4 to section 271(1)(c) of the Act. It is true that the penalty proceedings and the assessment proceedings are two separate and distinct proceedings. In other words, it is not necessary that the penalty should be levied if there is addition in the quantum. It is seen that the amendment had been made in Explanation 4 to section 271(1)(c) by the Finance Act (No. 2) with effect from 1-4-2003 and it has been inserted that :
“In any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, 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.”
7. Before the amendment, the position was not clear with respect to the reduction in the loss. In other words, it was not clear whether the Explanation 4 was applicable to the case where the loss declared by the assessee had been reduced and the penalty was leviable in respect of the reduced loss because earlier in the Explanation 4, the only word used was income and Explanation was relevant to the amount of income, in respect of which particulars have been concealed or inaccurate particulars have been furnished, exceeds the total income of the assessee, means that the tax 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, however, in respect of reduction in loss nothing was mentioned in Explanation 4 to section 271(1)(c), i.e., as to whether the same can be considered as concealed income for the purpose of levying the penalty under section 271(1)(c).
8. From the above discussions, it would be clear that there was no such provisions in the Act before the amendment that the reduction in the loss would also be liable to be penalised. In our opinion, the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Punjab and Haryana High Court in the case of CIT v. Prithipal Singh & Co. (supra) wherein it has been held that in case of no positive income penalty under section 271(1)(c) cannot be imposed. In that case, the assessee filed its return of income declaring loss at Rs. 3,35,830 and the assessee was finally assessed at a loss figure amounting to Rs. 34,164. In that case, the Hon’ble Punjab & Haryana High Court in its decision (supra) held that :
“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.” The Hon’ble High Court of Punjab & Haryana, in its decision, supra, at page 71 also observed that “penalty provisions of section 271(1)(c), therefore, are attracted only in the case of assessee having positive income and not loss as the question of concealment of income to avoid payment of tax would arise only in the former case. Penalty is deterrent measure to prevent evasion of tax and when there was no tax payable, there could not be any such evasion so as to provide a scope for levying any penalty.”
9. In the instant case, the assessee filed a return declaring loss of Rs. 7,76,212 and was finally assessed at a loss of Rs. 88,442. In that view of the matter the judgment of the Punjab & Haryana High Court in the case of CIT v. Prithi Pal Singh & Co. (supra) is squarely applicable to the facts of the instant case. It is worth mentioning that the judgment of the Hon’ble Punjab & Haryana High Court had been confirmed by the Hon’ble Apex Court reported in (2001) 249 ITR 670 (SC) (supra). A similar view had been taken by the Hon’ble Kerala High Court in the case of CIT v. N. Krishnan (supra) wherein it has been observed by the Hon’ble Kerala High Court at page 49 that :
“It is amply clear from a perusal of section 271(1)(c) that penalty could be determined with reference to the amount of tax and unless the tax is determined, penalty cannot be quantified. When the penalty, cannot be quantified in the absence of determination of tax, it goes without saying that no penalty could be imposed.”
10. Recently, Hon’ble Madras High Court in the case of Ramnath Goenka v. CIT (2003) 259 ITR 229 (Mad) has held:
“That penalty under section 271(1)(c) is imposable only in cases where the tax has been levied and no penalty can be levied when the result of the computation made by the assessing officer is at a loss”.
11. Admittedly in the instant case, also the assessee filed its return of income declaring net loss at Rs. 7,76,212 and finally assessed income was at a loss of Rs. 80,442. Therefore, respectfully following the judgment of the Punjab & Haryana High Court in the case of Prithi Pal Singh (supra) and the Madras High Court in the case of Ramnath Goenka (supra), we are of the view that in the case of the assessee no penalty under section 271(1)(c) was leviable. Accordingly, we delete the same.
12. In the result, the appeal of the assessee is allowed and that of the department is dismissed.