ORDER
Pramod Kumar, Accountant Member
1. This appeal, filed by the revenue, is directed against the order dated 24th January 1997 passed by the CIT(A) for the assessment year 1989-90. Revenue is aggrieved that, on the facts and in the circumstances of this case, the CIT(A) erred in deleting penalty of Rs. 4,70,998 imposed under section 271(1)(c) of the Income Tax Act, 1961.
2. The issue requiring our adjudication in this appeal is a purely legal issue set out in a narrow compass of material facts. The assessee’s income tax return, for the relevant previous year, disclosed loss of Rs. 14,53,538 which was finally assessed at a loss of Rs. 6,25,504. In the course of assessment, the additions were made of Rs. 5,45,581 on account of unexplained credits, being loans which could not be satisfactorily proved, and another Rs. 2,70,000 on account of unexplained credits, being unverified issue of share capital. These additions were confirmed in appeal by the CIT(A) and the mater did not travel any further in appeal. On these facts, and for the detailed reasons rejecting the explanation of the assessee as set out in the penalty order, the Assessing Officer imposed penalty of Rs. 4,70,998 which was equivalent to 100% of the tax sought to be evaded.
3. For the reasons we shall state later, it is not necessary for us to go into any further details so far as the nature of additions and assessee’s explanations, in respect of the same, are concerned. Suffice to take note of the fact that the assessee’s returned income, as also finally assessed income, was a negative figure i.e. loss.
4. The CIT(A), taking note of the above fact as also relying upon the judgment of Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Prithipal Singh & Co. (188 ITR 69) which laid down the proposition that “in a case where returned income of the assessee as also the finally assessed income are negative figures, penalty under section 271(1)(c) is not leviable”, deleted the aforesaid penalty of Rs. 4,70,998. Aggrieved by the order of the CIT(A), revenue is in appeal before us.
5. We have conscientiously heard the rival contentions at considerable length. We have also carefully perused orders of the authorities below and duly considered the applicable legal position.
6. In the case of CIT Vs. Prithipal Singh (183 ITR 69), Hon’ble Punjab High Court has, inter alia, observed as follows :
“Penalty imposed is paid in addition of tax payable. When there is no tax payable, the question of penalty does not arise. Infact, 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) of section 271 of the Act and it clearly provides therein that the penalty is further sum payable by the a person would be in addition to any tax payable by him. Explanations 3 and 4 annexed to the said provisions of law also presuppose taxable income with regard to the assessment year in question. 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…… Thus (on the given facts) there was no income and so the motive to avoid tax during the year is completely missing. Maybe it may give a benefit to the assessee in the coming year as the loss could be carried forward but, by no stretch of imagination, can it be said that, during the assessment year in question, the assessee had concealed income.
In the same judgment, Their Lordships further, inter alia, observed as follows :
“…… Loss can not possibly be termed as income……. Penalty is a deterrent measure, to prevent evasion of tax and when there is no tax payable, there could not be any such evasion so as to provide a scope of levying any penalty. In the present case, only the loss has been reduced and it cannot be said that the assessee had suppressed any income which would have attracted liability to tax. The question of penalty, therefore, did not arise. Thus, on the facts and in the circumstances of the case, the Tribunal has acted rightly in holding that the provisions of Section 271 (1)(c) will not be attracted to the present case…..”
7. Not satisfied with the aforesaid judgment of Hon’ble Punjab & Haryana High Court, revenue carried the matter in civil appeal before the Hon’ble Supreme Court, but without any success. Their Lordships of Hon’ble Supreme Court, in the judgment reported as CIT Vs. Prithipal Singh (249 ITR 670), confirmed the judgment of Hon’ble Punjab & Haryana High Court by observed that “We have heard the learned counsel and find that on the facts of this case, no interference is called for”. It is also noteworthy that the only fact taken note of the High court was that figure of income returned by the assessee as well as figure of income finally assessed, by the Assessing Officer and after making the additions, were negative figures i.e. of losses. In this view of the matter, in our considered view, it is settled legal position, as was laid down by the Hon’ble Punjab & Haryana High Court and as approved by the Hon’ble Supreme Court, that in a situation where, as a result of additions being made by the Assessing officer, only the loss is reduced, it cannot be said that the assessee has suppressed any income which would have attracted liability to tax, and, therefore, the question of penalty under section 271(1)(c) does not arise.
8. We further find that, by the virtue of amendment brought about vide Finance Act, 2002 and with effect from assessment year 2003-2004, clause (a) of Explanation 4 to section 271 (1)(c) provides as follows :
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 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 has such income been total income.
Prior to the said amendment, clause (a) of Explanation 4 to section 271(1)(c) provided as follows :
In any case where the amount of income in respect of which particulars have been concealed of inaccurate particulars having 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 total income.
A plain reading of the above provisions makes it clear that until the amendment in clause (a) of Explanation 4 to section 271(1)(c) the statute did not visualize imposition of penalty under section 271(1)(c) in a situation where, as a result of additions being made by the Assessing Officer, assessed losses are reduced vis-a-vis the returned losses. As for the pre amendment clause (a) of Explanation 4, which was duly taken note of by the punjab & Haryana High Court in Prithpal Singh’s case (supra), Hon’ble High Court’s view is that “the said provision of law also presupposes taxable income with regard to the assessment year in question” and this view, in the light of dismissal of civil appeal against the judgment based on the said view, has the approval of Hon’ble supreme Court. The school of thought emerging from these discussions, therefore, suggest that without the aid of amendment in clause (a) of Explanation 4 to section 271(1)(c), additions or disallowances resulting in reduction of assessed losses vis-a-vis returned losses can not be visited with penal provisions under section 271(1)(c) of the Act. That is our humble understanding of the legal position.
9. Revenue’s objection to the above legal proposition is two fold – first, that the judgment of Hon’ble Supreme Court is not binding inasmuch as no law is laid down by the same, and second, that in view of later judgment of Hon’ble jurisdictional High Court in the case of CIT Vs. Chemiequip Limited which holds that “penalty under section 271(1)(c) is leviable even where the final assessed income is reduced loss” it is not open to us to follow Hon’ble Punjab & Haryana High Court’s judgment in the case of Prithipal Singh’s case (supra). None of these objections, in our considered view, are sustainable in law. We find that the issue for the consideration of Hon’ble Supreme Court in Prithipal Singh’s case, was a purely legal question and the only material fact taken note o fin the impugned High Court judgment was that “In the present case, only the loss has been reduced and it cannot be said that the assessee has suppressed any income which would have attracted liability to tax.” The propositions laid down by the Hon’ble High court were also purely legal propositions, as evident from a plain reading of the judgment. In these circumstances, Hon’ble Supreme Court’s declining to interfere in this judgment, and that too in civil appellate proceedings and not in special leave petitions, cannot but be viewed as approval of the legal propositions laid down in Hon’ble High Court’s judgment. What the Hon’ble Supreme Court has actually decided in that the judgment of Hon’ble High Court, on the given facts, where the only fact taken note was that the returned income as also the assessed income are negative figures i.e. losses, no interference is called for. Therefore, Hon’ble Supreme Court has approved the proposition laid down by the Hon’ble Supreme Court to the effect that in a case where returned income of the assessee as also the finally assessed income are negative figures, penalty under section 271(1)(c) is not levaible. With utmost respect to the Hon’ble Supreme Court, we are inclined to follow, in letter and in spirit, the legal propositions so approved by the Hon’ble Supreme Court, and we are duty bound to do so, As far as Hon’ble Jurisdictional High Court’s judgment in the case of Chemiequip Limited (supra) is concerned, we have taken not of the fact that this judgment was passed ex parte qua the assessee and that Hon’ble High Court’s attention was not invited to the judgment of Hon’ble Supreme Court in the case of Prithipal Singh (supra) event though the same was available at that time – Hon’ble High Court’s judgment was passed on 20th February 2003 whereas Hon’ble Supreme Court judgment in Prithipal Singh’s case was passed on 21st July 2000 and reported in most of the tax journals, including Income Tax Reports, Current Tax Reporter and Taxmann, in the year 2001. Learned Departmental Representative accepts that though the Hon’ble supreme Court judgment on the issue was available at the relevant point of time, revenue apparently did not being the same to the notice of the Hon’ble High Court and the case was decided ex parte qua the assessee, but he also contends that it would to have made any difference on the Hon’ble Bombay High Court’s judgment because not law was laid down therein. We do not share this perception either, not is it for us to comment upon whether or not Their Lordships of Hon’ble Bombay High court would have had a different conclusion if the Hon’ble Supreme Court judgment in Prithipal Singh’s case (supra) was brought to their notice. We may , however, mention that when Chemiequip’s case (supra) came up before the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Prithipal Singh (supra) and by the Hon’ble Karnataka High Court in the case of P R Basavappa & Sons Vs. CIT (243 ITR 776) – out of which, as was not brought to the notice of the Hon’ble jurisdictional High Court, Punjab & Haryana High Court’s judgment stood approved by the Hon’ble Supreme Court in civil appellate proceedings. As to what is the legal position in such a situation, we can do not better than to quote the words of Hon’ble Jurisdictional High Court itself in the case of CIT Vs. Rare Earth Limited (181 ITR 22 Full bench) :
“…..It is True that this judgment has not been directly disapproved or over-rules by the Supreme Court in either of the three cases relied upon by Shri Jetley for the Department. However, the Supreme Court in ITO Vs. Mewalal Dwarka Prasad [1989] 176 ITR 529, in terms, approved the Andhra Pradesh High Court decision in Pulavarthi Viswanadham Vs. CIT 91963) 50 ITR 463 which was not followed by this Court. It can, therefore, by taken that the view taken by this court has not been approved by the Supreme Court….”
The view thus emerges that when the Supreme Court has approved the contrary view, one has to proceed on the basis that other view taken by the Court is not approved by the Hon’ble Supreme Court. That is the view taken by a Full Bench of Hon’ble Jurisdictional High Court. In any case, as we have stated earlier, the judgment in Chemiequip Ltd’s case (supra) was ex parte qua the assessee and without having the proper assistance by the counsel for the revenue inasmuch as relevant binding judicial precedents were not brought to the notice of Their Lordships. By not stretch of logic, this judgment can be construed as one diluting, restricting or otherwise curtailing the scope of Hon’ble Supreme Court’s judgment in Prithipal Singh’s case. Respectfully following the views of the Hon’ble Supreme Court ,therefore, we hold that where the figures of returned income as also the finally assessed income are negative figures i.e. of losses, penalty under section 271(1)(c) is not leviable This is, in our humble understanding, the legal proposition approved by the Hon’ble Supreme Court – fact which was neither brought to the notice of Hon’ble Jurisdictional High Court in Chemiequip’s case (supra), not the Hon’ble Jurisdictional High Court meant, and would probably ever mean, to disregard such an approval by the Hon’ble Supreme Court, or for that purpose, to disregard the law settled by a Full Bench, in the case of Rare Earth Limited (supra). The objections raised by the revenue are, therefore, unsustainable in law.
10. For the detailed reasons set out above, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter.
11. In the result, the appeal is dismissed.