JUDGMENT
P.D. Dinakaran, J.
1. The above tax case appeal is directed against the order of the Income-tax Appellate Tribunal dated 28.7.2006, raising the following substantial questions of law.
(a) Whether in the facts and circumstances of the case, the Tribunal had properly exercised its discretion and was right in deleting the penalty imposed under Section 271(1)(c)?
(b) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the Assessing Officer has to prove with evidence that there was a deliberate attempt to conceal income before he could invoke the provisions of Section 271(1)(c), ignoring the Explanation I to Section 271?
2.1. The facts which led to the rise of the above appeal are as under.
The assessee filed its return for the relevant assessment year, claiming carry forward of loss of unabsorbed depreciation of Rs. 91,59,571/-. The Assessing Officer reduced the carry forward of loss of unabsorbed depreciation to Rs. 83,42,451/-, in addition of Rs. 7,50,000/-as unexplained credit, while completing the assessment under Section 143(3) of the Act and initiated penalty proceedings and levied penalty under Section 271(1)(c) of the Act. Aggrieved by the same, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who, annulled the levy of penalty and decided the issue in favour of the assessee. The Tribunal, on appeal at the instance of the revenue, following the decision in Commissioner of Income Tax v. A. Hariraman 282 ITR 607, decided the issue in favour of the assessee. Hence, the above appeal.
3. The learned Standing Counsel appearing for the revenue submits that the issue involved in the above appeals is covered by the decision of this Court in Commissioner of Income Tax v. A. Hariraman 282 ITR 607, wherein, it has held as follows:
3. It would be appropriate to refer Section 271(1)(c) of the Act in this regard, which reads as under:
Failure to furnish returns, comply with notices, concealment of income etc.
(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-
(a) …
(b) …
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,
he may direct that such person shall pay by way of penalty,-
(i) Omitted by the Direct. Tax Laws (Amendment) Act, 1989, with effect from 1.4.1989
(ii) in the cases referred to in Clause (b), in addition to tax, if any, payable by him, a sum of ten thousand rupees for each such failure;
(iii) in the cases referred to in Clause (c), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, 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.
(emphasis supplied)
4. The words in addition to tax, if any, payable him employed in Clauses (ii) and (iii) above and the words amount of tax sought to be evaded by reason of such concealment of particulars of his income employed in Clause (iii) of Section 271(1)(c) of the Act are the deciding factors for invoking penalty proceedings under Section 271(1)(c) of the Act. A plain reading of Clauses (ii) and (iii) in Section 271(1) (c) of the Act, particularly in the context of the words in addition to tax, if any, payable him employed in Clauses (ii) and (iii) would make it clear that the penalty contemplated in all the above clauses is a measure of tax payable by the assessee. In other words, if no tax is payable by the assessee, there would be no penalty which could be levied on the assessee.
4.2. As per the language in Section 271(1)(c) of the Act, there could be no case in which penalty could be levied where no tax is payable by the assessee since the quantification of the penalty is totally dependent upon the tax payable by the assessee. Therefore, the conclusion is irresistible that when the assessee is not liable to pay any tax, no penalty can be levied on the assessee, vide Addl. CIT v. Murugan Timber Depot 113 ITR 99.
4.3. It is trite law that the loss cannot be taken into account in computing penalty. Similarly, the amount representing unexplained credit cannot be treated as concealed income for levying penalty, vide CIT v. C.R. Niranjan 187 ITR 280.
4.4. The word “income” occurring in Clause (c) and (iii) of Section 271(1) of the Act refers to positive income only and not a loss. Penalty could be imposed only 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. If there is no taxable income or tax assessed for payment during a particular year, the question of evasion and consequently, penalty do not arise. The penal provisions of Section 271(1)(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 former case. Penalty is a deterrent measure to prevent evasion of tax and when there was no tax payable, there could be any such evasion so as to provide a scope for levying any penalty, vide CIT v. Prithipal Singh and Co. 183 ITR 69.
4.5. The view taken by the Punjab and Haryana High Court in CIT v. Prithipal Singh and Co. 183 ITR 69 was upheld by the Supreme Court in CIT v. Prithipal Singh and Co. 249 ITR 670.
4.6. This Court, in Ramnath Goenka v. CIT 259 ITR 229, following the decisions cited above, held that penalty is imposable only in cases where tax has been levied and that no penalty can be levied when the result of the computation made by the assessing officer is a loss. In other-words, penalty is not leviable when the assessment did not show any taxable income, but net loss.
5. Applying the ratio laid down in the decisions cited supra, we do not find any error
or illegality in the order of the Tribunal in deleting the penalty taking into account the income of the assessee is a net loss. Finding no substantial question of law arising for consideration, the appeal is dismissed.
4. In view of the ratio laid down in the decision cited supra, we do not find any error or illegality in the order of the Tribunal in deleting the penalty the Tribunal has rightly deleted the penalty imposed by the Assessing Officer. Finding no substantial question of law arising for consideration, the appeal is dismissed.