ORDER
J.K. Verma, Accountant Member
1. It is an appeal against the imposition of penalty under Section 271(1)(c). In this case a search was conducted on 31-7-1982 which is relevant for the assessment year under consideration. It was noticed that the books of account were incomplete and they had been seized by the Department. Thereafter, as explained by Shri Jhanwar, the assessee completed the books of account after taking copies of documents, papers etc. which had been seized by the Department. The return of income was filed on 29-11-1983. During the course of assessment proceedings, the Assessing Officer found that the assessee had not incorporated certain expenses which had been incurred by the firm. The ITO worked out such unexplained expenses/investments at Rs. 1,46,156. These included advance to employees, miscellaneous expenses, expenses incurred by one partner Shri Shailendra Gupta, purchases of goods and profits thereon, expenses on sales-promotion, advances to various persons and miscellaneous expenses. The ITO treated this amount of Rs. 1,46,156 as assessee’s income under Section 69 of the IT Act, and imposed penalty under Section 271(1)(c) which was confirmed by the learned CIT (Appeals).
2. It has been argued by Shri Jhanwar that in this case the assessee had filed return of income in which as per the computation of total income there was loss of Rs. 4,46,827 and unabsorbed depreciation of Rs. 71,003. It was assessed at a loss of Rs. 1,62,835 and unabsorbed depreciation was Rs. 76,945. In the appeal the loss was determined at Rs. 2,65,245 and the figure of depreciation remained undisturbed. He submitted that assessee’s accumulated losses between assessment years 1984-85 to 1991-92 were Rs. 8,26,381 and unabsorbed depreciation was Rs. 6,08,997. In these circumstances, according to Shri Jhanwar there could be no question of assessor’s concealing any income. He argued that the loss is returned if one wants to get the. benefit of loss in the subsequent years. But since in the instant case year after year the assessee was suffering losses, there was no question of assessee’s concealing its income. The learned counsel referred to the decisions in the cases of CIT v. Jaora Oil Mill [1981] 129 ITR 423 (MP), Addl. CIT v. Murugan Timber Depot [1978] 113 ITR 99 (Mad.) and CIT v. Prithipal Singh & Co. [1990] 183 ITR 69 (Punj. & Har.) in which it had been held that in those cases where returned figures were losses, no penalty under Section 271(1)(c) could be imposed to the extent there were losses. The learned counsel also referred to the Tribunal’s decisions in the cases of ITO v. Sudha Pharmaceutical(P.) Ltd. [1983] 17TTJ(Chd.) 518, Shri Kedut Sahakari Khand Udyog Mandli Ltd. v. ITO [1990] BCAJ 1032 and Mutual Plastics v. 12th IT0, photocopies of which have been filed before us to canvass that as per these decisions where the income assessed was loss and there was no prospect of any profit in near future, it could not be said that mistake was committed with guilty mind and that penalty under Section 271(1)(c) could not be imposed. The 1d. counsel argued that so far as the facts of the case were concerned, the Revenue had found these defects only from the documents which were with the Revenue and the assessee had also complied its books of account from that material which was in the possession of the Revenue and hence it could not be said that the assessee had made any attempt to conceal its income. Even if some items were left out, it was on account of inadvertent mistake caused on account of paucity of time, menial pressure on account of the search, accumulated losses etc. Even then the assessee had given explanations regarding these items which it believed to be bona fide but which were not accepted by the Assessing Officer or by the Appellate Authorities. The Id. counsel pleaded that looking to all these facts and circumstances and the case law the penalty of Rs. 74,273 should be deleted.
3. The learned Departmental Representative, on the other hand, vehemently argued that in this case the assessee had sought time for filing the return up to 31-12-1983 and had filed the return on 29-11-1983 and hence it could not be said that the assessee did not know the benefit of carrying forward losses. He argued that in view of specific provisions of Explanation 4 of Section 271(1)(iii), tax sought to be evaded would be covered by Clause (a) of that Explanation and hence would mean lax on Rs. 1,46,156. He pointed out that the explanations regarding the sources of the expenses were vague and could not be treated as explanations. He further argued that assessee’s propositions that even if expenses are added under Section 69C of the Act, they should be allowed as deduction being business expenses, had not been accepted by us in the appeal against the assessment order and our view was supported with the decision of the Hon’ble Supreme Court in the famous case of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1.
4. We have carefully considered the arguments advanced from both the sides. However, we are unable to agree with the 1d. Departmental Representative in view of the fact that the entire judicial opinion as cited by the 1d. counsel for the assessee is against this Revenue. Thus in the case of Sudha Pharmaceutical (P.) Ltd. (supra), the Chandigarh Bench of the Tribunal has held that since penalty under Section 271(1)(c) can be levied in addition to any tax payable by assessee, in a case where total income is assessed at a loss, no question of tax payable arises and no penalty under Section 271(1)(c) is leviable. In the case of Shri Khedut Sahakari Khand Udyog Mandli Ltd. (supra) a similar view is taken. In the case of Mutual Plastics (supra), it was held that Explanation 4 to Section 271(1)(c) deals with cases of positive income and does not specifically provide for levy of penalty in case of assessed loss and that the word “income” used in Explanation to Section 271(1)(c) cannot be held to include “loss”. In the case of Jaora 0il Mill (supra) also the Hon’ble High Court has observed that the contention that a loss can be used to set off the income in a particular year and can be carried forward under certain circumstances to the following assessment years will not by any logic convert it into an income. In the case of Prithipal Singh & Co. (supra) also it was held that “income” in Section 271(1)(c) means positive income and where assessed amount was loss, penalty under Section 271(1)(c) could not be imposed in spite of Explanations 3 & 4 annexed to Section 271(1)(c).
5. In the circumstances, we hold that primarily on facts of the case it cannot be said that the assessee had concealed the particulars of his income. Moreover, respectfully following the judicial opinion also on the subject we hold that the penalty imposed by the Assessing Officer and upheld by the 1d. CIT (Appeals) cannot be sustained and is, therefore, directed to be cancelled.
6. The appeal filed by the assessee is allowed.