Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified iv v TI{E HIGI{ COURT OF DELHI AT N'EW DELHI rTA 205/2001 COMMISSIONER OF INCOME TAX' DELHI-L ...Appellant - versus - n[/S ADITYA CHEMICALS LTD & OTHERS ...Respondent Judgment pronounce d on: t'l ,07 .2005 Page No. I of j7 .xe" WITH rTA 183/2001 COMMISSIONER OF INCOME TAX' DELHI-I ...Appellant - versus 1\{/S WELCOMES SEEDS LIMITED ...Respondent WITH TTATI2OO2 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - n/US vINoD PAPER MILLS LTD. "'Respondent WITH rTA7212002 CoMMISSIOiYER OF INCOME TAX, DELHI-L ...Appellant - versus - N[/S C.L. BATRA ,. ...Respondent WITH rrA 301/2003' r '* W ITA 205.0Ietc ' l'{ \) COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - 1\[/S SEQUENCE ESTATE P. LTD ...Respondent WITH ITA 106/2004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - ,f, *\tws KRrsoNs ELECTR9NISS sYsrEM ...Respondent WITII ITA r07t2004 \ COMMISSIONER OF'INCOME TAX' DELIII-I ...Appellant - versus - nos MoNTARI CIIEMCARE irWnSrnnENT ...Respondent WITH .3 '.r- ITA 108/2004 . CoMMISSIONER OF INCOME TAX, DELIII-I ...Appellant - versus - M/S jHALAIII TOOLS INDIA LTD. ...Respondent lTL14612004 CoMMISSIONER OF'INCOME TAX, DELHI-I ...Appellant - versus - n[/S SAXONS FARMS ...ResPondent ITA 205.01etc WITH Page No. 2 of 37 f ITA223t2004^ COMMISSIoNER OF INCOME TAX, DELHI-I ...Appellant - versus - n[/S BRAMCO IIIDIA PVT. LTD. ...Respondent WITH ITA2s2t2004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant versus - I\[/S MAIIAVIR ALTJMINIUM LTD. WITH ...Respondent tTA254t2004 COMMISSIONER OF'INCOME TAX, DELHI-I ...Appe[ant - versus 1![/S TRIAN QUEBEC GEARS LTD. ...Respondent WITH {- - rTA 340t2004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - n[/S VIRTUAL SOF'T $YSTEMS LTD. ..Respondent rTA362t2004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - M/S MOSER BAER INDIA LTD. ...Respondent ITA 205.01etc page No. 3 of 37 k [' \,\ \( + WITH trA376/2004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - 1\[/S MODEX INTL. SECURITIES PVT. LTD. ...Respondent WITH tTA 409t2004 ,A' r covtvnlssroNER oF INcoME TAx, DELHI-I ...Appellant - versus - tWS pnOGRESSIVE CASTING PVT. LTD. ...Respondent WITH trA 409t2004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - *fi' i\{/S GROVTR OVERSEAS PVT. LTD. ...Respondent WITH tTA 41412004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus . N[/S FIRST STONEX LIMITED ...Respondent WITH ITA 42012004 ' COMMISSIONER Oq INCOME TAX, DELIII-I ...Appellant ;dilfifi,.jil _ Versus _ ' ITA 205.01etc Page No. 4 of 37 &l \t ...Respondent I i![/S VEGA ENTERPRISES PVT. LTD. WITH ITA448t2004, COMMISSIONER OF INCOME TAX' DELHI-I ...Appellant - versus - nOS SWEDESHI CRBDITS PVT. LTD. ...Respondent WITH tTA 44912004 JCOMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - n[/S VECO II\DIA LTD. ...Respondent WITH ITA45212004 ,./" COMMISSIONER OF INCOME TAX' DELIII-I ...Appellant - versus - N[/S SIMON INDIA LIMITED ..Respondent WITH ITA 462t2004 COMMISSIONER OF'INCOME TAX' DELHI-I ...Appellant - versus I\[/S BST MANUFACTTIRING LTD. ...Respondent ITA 500.'/2004 COMMISSIONER OF INCOME TAX' DELIII-I. ...Appellant - versus - n[/S SAPNA TOURS TRAVELS AI\D LEAS ...Respondent Page No. 5 of 37 ITA 205.01etc \ry l-. WITH rrA 503/2004 COMMISSIONER OF INCOME TAX' DELHI-I ...Appellant - versus - i\ryS SAPNA TOUR AI\D TRAVELS AI\D LEAS ...Respondent WITH ITA 58s/2004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - , '<t L1i Y ' NI/S MAIDEN CIRCUITS LTD. ...Respondent WITI{ tTA 62812004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - nOS JAGAII LAMPS LIMITED ..Respondent WITH rTA 63912004 ' ^{ COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus - NI/S CORAL NEWSPnnVfS LIMITED ...Respondent . WITH tTA 66912004 COMMISSIONER OF INCOME TAX' DELHI-I ...Appellant VCTSUS - i\[/S BHARAT HOTELS LIMITED ..Respondent , 1. WIJH ITA 205.01etc Page No. 6 of 37 \q t rr' 67otzoo4 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus n[/S BHARA'T HOTELS LTD. "'Respondent WITH rr[ 67212004 CoMMISSIONER OF INCOME TAX, DELIil-l ...Appellant ' - versus - I\[/S BIIARAT HOTELS LTD. "Respondent +J YFr *ITH ITA 67312004 CoMMISSIONER OF INCOME TAX, DELIil-l ...Appellant - versus - I\[/S BHARAT HOTELS LTD. "'Respondent WITH rTA 674t2004' COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant 3 - versus - NryS BASI AGRICULTIIRAL FARM PVT. LTD. ...Respondent WITH ITA 67612004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant - versus n[/s RATAI\ CHAND HARJAS RAM PVT. LTD. ...Respondent WITH rrL71012004 COMMISSIONER OF INCOME TAX, DELHI-I ...Appellant ITA 205.01etc Page No. 7 of 37 F \,r )' 3. Whether the judgment should be repor.ted in Digest? BADAR DURREZ AI{MED. J "..if lif" is not logic, income-tax is much less so.."l 1. This batch of appeals under section 2604 of the Income Tax Act, 1961 (hereinafter referred to as the. Act) arises out of separate orders of the Income Tax Appellate Tribunal (hereinafter referred to as "ITAT") in different matters. However, the questions and issues involved are common and, therefore, we are disposing of all these appeal5 by this common judgement. At the cornmencement of the hearing it was agreed upon by all the learned counsel appearing in these appeals that ITA 205/01shall be taken as the lead case and be representative of the other cases. The questions which need to be answered in these appeals are: Whether the ITAT was right in deleting the penalty imposed under section 27l(l)(c) of the Income Tax Act, 1961 on the ground that the total income of the assessee has been assessed at a minus figure/loss? Whether the ITAT was justified in holding that the judgements in Prithipal Singh's case (183 ITR 69 and 249 ITR 670) will apply even after insertion of Explanation 4 to section 271 (l)(c) of the Income Tax Act, 1961 with effect from 1.4.1976? Facts and Question 2: 2. To supply some factual content it would be sufficient for us to refer to the facts in the case of ITA 2051f|^. For the assessment year 1989-90 the assessee filed its return of income showing a loss of Rs. 2.36 crores and the assessment was completed at a loss of Rs.1.21 crores. The Assessing Officer initiated penalty proceedings for concealment of income. After considering the response to the lChagla C.J. in Elphinstone Spinning And Weaving Mills Co, Ltd v, Commissioner Of Income-tuc. Bombav Citv: 28ITR 811 (Bon), 1) 2) # ITA 205.01etc Page No. 9 of 37 R1 '-:t: notices for the penalty proceedings, the Assessing Officer fixed a penalty of Rs. 1.68 crores. On appeal, the ClT(Appeals) confirmed the penalty to the extent of Rs. 56.01 lakfrs and cancelled the balance amount. Both, the assessee and the revenue, approached the ITAT by way of separate appeals. These appeals were disposed of by the common order dated 23.2.2001. It is a short order and the relevant portion is set out below:- "We have heard the rival submissions. It is a case of assessee who filed refurn showing loss and asff. was completed at reduced amount of loss. The Hon'ble Punjab &Haryana High Court in the case of Prithipal Singh vs CIT, 183 ITR 69 has concluded that in a case where refurned income and assessed income is loss then no penalty ,...'r{i for concealment of income uls 27l(l)(c) is leviable. The Hon'ble v\ Supreme Court has dismissed the appeal filed by the Department and this fact has been conceded by the Ld.DR who has simply prayed that reference to the decision of Hon'ble Karnataka High Court in the . case of P.R. Vasapp* & Sons Vs. CIT,243ITR 776 may be made in which the view is contrary to the view of Punjab & Haryana High Court referred to above. However, the fact remains that Hon'ble Supreme Court has confirmed the view taken by the Hon'ble Punjab & Haryana High Court and has become trite law on the subject. Accordingly, ro penalty uls 271(l)(c) could be imposed on the facts and circumstances of the case. Accordingly penalty u/s 271(1)(c) confirmed by the CIT(A) is cancelled. Consequently, the appeal filed by the revenue has no force and the same is also dismissed. 4. In the result, the appeal filed by the assessee is allowed and that of revenue is dismissed." I '"{, Clearly, the ITAT deleted the penalty thinking that the decisions in Prithipal Singh's case of the Punjab & Haryana High Court (183 ITR 69) and of the Supreme Court (249 ITR 670) were applicable and that the decision of the Karnataka High Court in P.R. Basavappa & Sons v. CIT (243 ITR 776) was not. To fully appreciate the scope an ambit of the questions raised in these appeals it would be necessary to examine what was exactly decided in the two Prithipal Singh cases and in what context those decisions were rendered. ln CIT v. Prithipal Singh & Co: 183 ITR 69 (P&H) the assessee, for the assessment year 2(sic), should be Basavappa. ITA 205.01etc Page No. 10 of 37 nF .+ lg70-71, filed its return declaring loss of Rs. 3,35,830. The Income-tax.Officer found that it was a case of concealment and suppression of income as the assessee had furnished inaccurate particulars of its income. He computed the assessee's income at Rs. I47,978 and, in the course of the assessment proceedings, started penalty proceedings under section 271(l)(c) of the Act. The assessee went in appeal to the Appellate Assistant Commissioner against the order of the Income- tax Officer and the Appellate Assistant Commissioner determined the loss at Rs. 34,164 against the returned loss of Rs.3,35,830. In the penalty proceedings, the ..Inspecting Assistant Commissioner (Central), Ludhiana, imposed a penalty of r:'r1r. ' "Rs. 3,50,000 for concealment. The assessee went in appeal to the ITAT which was allowed holding that no penalty could be imposed upon the assessee when it had refurned a loss and it had also been assessed finally on a loss figure. Ultimately, a reference was made to the Punjab &Haryana High Court which was disposed of by the decision n Prithipal Singh (P&H) (supra). The court held:- "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. Clause .l (iii) deals with cases referred to in clause (c) under sub-section (1) of section 27I of the Act and it clearly provides therein that the penalty or further sum payable by a person would be in addition to any tax payable by him. Explanations 3 and 4 annexed to the said provision 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. As is obvious from annexure "B", the assessee was assessed finally at.a loss 'figure amounting to Rs.34,164 as pointed out at page 33 of the record. Thus, there was no income and so the motive to avoid tax during the year in question is completely missing. May be, it may give a benefit to the assessee in the coming year as the loss could be canied forward but, by no stretch of imagination, can it be said that, during the assessment year in question, the assessee had concealed its income. "Income" has been defined in section 2(24) of the Act which clearly includes profits, gains, dividends or other benefits derived only. Loss cannot possibly be'termed as income. Under section 139(1) of the ' Act, a person is required to furnish a return only if his total income ITA 205.01etc PageNo. 11of 37 -i ,f t) during the previous year exceeded the maximum amount which is not ciargeutl. to income-tax. If the same falls short of the maximum amount *tti"tt is not chargeable, which has been the case here as per. final assessment, he need not file a refurn. A person who sustains a loss, however, may file a return in view of sub-section (3) of section- 139 of the Act if he wants to claim that the loss or any part thereof should be carried forward. The penal provisions of section 271(I)(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 formel case. Penalty is .a detenent measure to prevent evasion of tax and when there was no tu< payable, there could not be any such evasion so aS to provide a srop. for levying any penalty. In the present case, only the loss has bee-n reduced and it cannot be said that the assessee had suppressed any income which would have attracted liabilrty to tax. The qrrestion olimposition of penalty, therefore, did not arise. Thus, on the facts and in the circumstances of the case, the Appellate Tribunal has acted rightly in law in holding that the provisions of the Explanation to section 27L(l)(c) will not be attracted to the present case. The word "income" occurring in clause (c) and (iii) of section 271(I) ot the Act refers to positive income only and that no penalty could be levied against the assessee." 3. Being aggrieved by this decision, the revenue went up in appeal before the Supreme Court which, disposed the same (CIT v. Prithi'at Sineh & Co: 24g ITR 670 (SC)) by the following order:- "We have heard learned counsel and find that on the facts of this ; case. no interference is called for. r' - 1: The civil appeal is dismissed. No order as to costs." It is pertinent to note that the assessment year involved in Prithipal Singh's case (supra) was Lg7}-TL Much before the 1976 amendment came into foice on I.4.1976 whereunder Explanation 4 was added to section 27I(l) of the Act. And, alttrough there is mention of this Explanation 4 in Prithipal Singh (P&.H) (supra) it did not arise for consideration therein as the relevant assessment year was 1970- 71 when this Explanation 4 was not even in the statute book. So, Prithipal Singh (P&H) (supra) cannot be cited as a precedent or authority with regard to the interpretation of the said Explanation 4. Therefore, the dismissal of the appeal ITA 205.0Ietc Page No. 12 of 37 $4 .--i from the decision in Prithipol Singh (P&H) (supra) by the Supreme Court will have no bearing in those cases which have arisen after L4.t976 when the said Explanation 4 took effect. There was quite a lot of argument on the issue as to whether the order in Prithipol Singh (SC) (supra) could at all be regarded as a binding precedent in view of the very wordings used in the order to the effect:- "..on the facts of this case, no interference is called for Particularly, when there is no discussion in the Supreme Court order on the reasons or the tegal principles involved. It was argued with some degree of ... pvehemence by Mr Sanjiv Khanna on behalf of the revenue that the Supreme Court j14. order had to be viewed only as a decision on the facts of the case in Prithipal Singh and did not constitute a binding precedent. However, without going into these issues, it is clear that the Punjab & Haryana High Court was dealing with the assessment year 1970-7I when the said Explanation 4 did not even exist. Therefore, its observations on the said Explanation 4 and its impact on the interpretation of section 271(l)(c) of the Act would be obiter dicta. And, dismissal of the appeal from such decision by the Supreme Court in the manner r aforesaid would not entail otherwise. a We agree with the Karnataka tligh Court's observation in Basdvappa (supra) to the following effect:- "6.lt is contended that income in s.271(1)(c) should be of positive figure. In CIT vs. Prithpal Singh & Co. (1990) 85 CTR (P&H) 26 : (1990) 183 ITR 69 (P&H) TC 50R.236 the Punjab & Haryana High Court held that the income as envisaged n's. 271(1)(c) means positive income. If the loss declared has been reduced penalty under s.271(1)(c) cannot be levied. This decision is in respect of asst. yr. 1970-71 i.e., before the insertion of above explanation and hence cannot help the case of the assessee. For the same reason the decisions glven in CIT vs. India Sea Food (1976) 105 ITR 708 (Kar) : TC 50R.148, asst. yr. 1968-69, CIT vs. C. R. Niranjan (1991) 187 ITR 280 (Mad) : TC 50R.1014, asst. yr. 1969-70 and CIT vs. Jaora Oil Mill (1981) 129 ITR 423 (MP) : TC 50R.486, asst. yr. 1968-69, are not applicable." ITA 205.0Ietc Page No. I3 of 37 ,. 3s Of course, when these observations were made, the Supreme Court order \n dismissing the appeal n Prithipal Singh (SC) (supra) had not come. 'But, as indicated above the passing of the Supreme Court order did not alter the position that in prithipal singh's case the said Explanation 4 did not .at all come up for interpretation. This being the position, the answer to question no.2 has to be in the negative. 4. Before parting with the discussion of the Prithipal Singh cases, we would like to comment on another aspect of the matter. If we closely examine the decision in Prithipal Singh (P.&H.) (supra) we find that the Court also decided the case on merits with regard rftirut existence of "concealment" as an issue of fact. This becomes clear from the following observations:- "As is obvious from annexwe "B", the assessee was assessed finally at a loss figure amounting to Rs 34,164/- as pointed out at page 33 of the record. Thus, there was no income and so the motive to avoid tax durins the vear in question is completelv missing. MfY be, it.may giy;;6ennt to the assessee in the coming year as the loss could be "utriea forward but. bv no sfretch of imaeination. can it be said that. during the assessment vear in question. the assessee had concealed its income." So, Prithipal Singh's case was one where the Punjab and Haryana High Court held that the assessee had not concealed its income. Though, with respect, we disagree with the generalisation that as the assessed income was a loss figure the assessee could not have a motive for concealment, the said Court found as a fact that there was no concealment. Obviously, where such a finding is recorded on merits, the question of penalty would not arise. Perhaps, this explains the said words used in the Supreme Court order to the effect:- "........on the facts of this case, no interference is called for." Question l.: 5. With the Prithipal Singh decisions out of the way, let us now examine question 1 which is the core issue. It would be necessary to set out the relevant provisions of section 271 of the Act as it existed after 1.4.1976 and for the period n -(, ITA 205.01etc Page No. 14 of 37 et .{' ^ relevant to the assessment years involved in the present appeals. After 1976 therc was an amendment carried out in 1989 but that does not change the 1976 position much. Finally, there was an amendment (by Finance Act, 2002 w.e.f. 1.4.2003) whereby, inter alia, new clause (a) of Explanation 4 to section 27L (I) of the Act was substifuted in place of the existing one. However, we are concerned with the post-1976 and pre-2003 position. The relevant provisions of section 271 as it stood then are as under:- "27I. FAILURE TO FI]RNISH RETURNS, COMPLY WITH NOTTCES, CONCEALMENT OF TNCOME' ETC. (1) If the Income-tax Officer or the Appellate Assistant lfi Commissioner in the course of any proceedings under this Act, is satisfied that any person (a) * t * *;or (b) * * * *;or (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 ofpenalty, - .(i)***'F .tf(ii)*i(*'k (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than but which ihall not exceed twice, 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: **** Explanation 3 : where any person who has not previously_been assissed under the Indian Income-tax Act, t922 (11 of t922), or under this Act, fails, without reasonable cause, to furnish within the period specified in sub-clause (iii) of clause (a) of sub-section (1) of . iection 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on ITA 205.01etc Page No. 15 of 37 ffi { .+\ or after the first day of April, 1974, and, until the expry of the period aforesaid, no notice has been issued to him under sub-section (2) of section 139 or section 148 and the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has torable income, then, such person shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a refurn of his income atany time after the expiry of the period aforesaid in pursuance of a notice under section 148. - : Explanation 4 : For the purpose of clause (iii) of this sub-section, the expression "the amount of tax sought to be evaded", - (a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have 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 the total income; in any case to which Explanation 3 applies, means the tax on the total income assessed; in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished. *r, (b) (c) -/ We are concerned with the interpretation of .section 27t (l)(c),27I(l)(iii) and Explanation 4 to section 271 (I). A plain reading of these provisions makes it clear that the liability to penalty arises if any person has concealed the particulars of his income or furnished inaccurate particulars of such income. The liability for penalty is not in any manner linked with whether total income assessed is postive or negative. Or, to put it differently, whether any tax is payable on the total income assessed. Once the liability to penalty arises, the next question is -- how muchi Sub-clause (iii) of section z|I(l)deals with the computation of the Page No. 16 of 37 ITA 205.0Ietc Aq ,l penalty. It says that the penalty shall be in addition to any tax payable by him and it shall be a sum which shall not be less than but which shall not exceed twice the amount of tm sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. Now, the expression "the amount of tax sought to be evaded' is'not to be considered in general terms because a specific meaning has been ascribed to it by the said Explanation 4. This Explanation 4 deals with three different and distinct situations under clauses (a), (b) and (c) thereof. Clause (a) of Explanation 4 pertaids to a -1,1'\bituation where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished (hereinafter referred to as "concealed income") exceeds the total income assessed. Clause (b) of Explanation 4 deals with a situation where Explanation 3 applies. By