* THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERENCE CASE No.176 of 1996 %Dated:23.11.2011 Between: Commissioner of Income-Tax, Visakhapatnam. …Applicant and M/s.Balarama Krishna Engineering Contractors Corporation, Visakhapatnam. …Respondent ! Counsel for the Petitioner: Sri S.R.Ashok Senior Standing Counsel for Income Tax. ^Counsel for the Respondent: Sri <Gist: >Head Note: ?Citations: 1. (2008) 304 ITR 308 (SC) 2. (2007) 9 SCC 665 : (2007) 289 ITR 83 (SC) THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERENCE CASE No.176 of 1996 Dated:23.11.2011 Between: Commissioner of Income-Tax, Visakhapatnam. …Applicant and M/s.Balarama Krishna Engineering Contractors Corporation, Visakhapatnam. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERENCE CASE No.176 of 1996 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The Commissioner of Income Tax, Visakhapatnam, got the following question referred to this Court under Section 256(1) of the Income Tax Act, 1961 (the Act). Whether on the facts and in the circumstances of the case, the Tribunal was justiﬁed in holding that penalty under Sec.271(1) (c) of the I.T.Act cannot be levied in a case where the assessed income is a loss. At the outset it is necessary to brieﬂy mention the facts leading to the reference. The assesse ﬁrm is a civil contractor. They ﬁled the return of income for assessment year 1990-1991 showing loss of Rs.28,27,249/-. The Income Tax Oﬃcer completed assessment under Section 144 of the Act. While doing so, he added Rs.19,15,002/- and reduced the addition of Rs.10,00,000/- to Rs.7,45,253/- , and determined the tax payable at Rs.9,03,375/-. Penalty proceedings were also initiated separately under Section 271(1)(c) of the Act and an amount of Rs.14,34,294/- was imposed as penalty by order dated 16.03.1993. The Commissioner of Income Tax (Appeals) conﬁrmed the penalty vide order dated 31.12.1993. The Income Tax Appellate Tribunal (the Tribunal), however, allowed the appeal against penalty order taking a view that levy of penalty for concealment in case where the assessed income is loss is not permissible under law. In spite of service of notice, none appears for the respondent, and therefore, the respondent is set ex parte. The Junior Standing Counsel for Income Tax Department would submit that even when assessee ﬁled the loss return, the provisions of Section 271(1)(c) of the Act are attracted. Relying on Section 271(1)(iii) and Explanation 4 thereof, he would submit that the amount of income concealed which has eﬀect of reducing the loss declared in the return or converting the loss into income would also amount to “the amount of tax sought to be evaded”. He would further submit that Explanation 4 which was substituted by the Finance Act, 2002, with eﬀect from 01.04.2003, is a clariﬁcatory nature and therefore even in case of an assessee ﬁling a loss return, the provisions of Section 271(1)(c) of the Act are attracted. He placed reliance on a Division Bench judgment of the Supreme Court in Commissioner of Income Tax v Gold Coin Health Food P.Ltd[1]. A plain reading of Section 271(1)(c)(iii) with Explanation 4 would reveal the following. If an assessee has concealed the particulars of his income or furnished inaccurate particulars of such income, in addition to tax payable by him, a sum which shall not be less than and which shall not be more than three times “the amount of tax sought to be evaded” by reason of such concealment shall be levied and collected as penalty. Even if a loss return is ﬁled, if the amount of concealment has the eﬀect of reducing the loss in the return or converting such loss into income, Section 271(1)(c) of the Act is attracted. It is well settled that a taxing statute has to be strictly interpreted by giving a plain meaning to the clear and unambiguous language used by the Legislature. The script of law cannot be read in such a manner which has the eﬀect of changing the spirit of law. When Explanation 4(a) clearly speaks of the return of loss and also deals with the eﬀect of concealment on such return of loss either decreasing loss or converting loss into income, it is not possible to give any other meaning. The question, however, remains as to whether Explanation 4(a), which was substituted by the Finance Act, 2002, with eﬀect from 01.04.2003, is retrospective in operation, as we are dealing with a case pertaining to assessment year 1990- 1991. Gold Coin Health Food P.Ltd., was an appeal against the judgment of the Division Bench of Gujarat High Court, which having considered the question, “Whether on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that penalty under Section 271(1)(c) of the Income Tax Act, 1961, cannot be levied if the returned income is loss in the cases prior to the amendment in the year 2002”, dismissed the Revenue’s appeal holding that when the income disclosed and the income assessed is negative, no case would be made out for attracting the penalty under Section 271(1)(c) of the Act. I n Virtual Soft Systems Ltd v Commissioner of Income Tax[2] a Bench of two Judges while rejecting the plea of the Revenue that Explanation 4 to Section 271(1) as amended by Finance Act, 2002, was retrospective, took the view that penalty under Section 271(1)(c) of the Act cannot be levied if the returned income is a loss. Doubting the ratio therein, Gold Coin Health Food P.Ltd., was referred to three Judge Bench. The Revenue submitted that the purpose behind Section 271(1)(c) of the Act was to penalise the assessee for concealing the particulars and furnishing inaccurate particulars of income, whether the income returned is a proﬁt or loss are really of no consequence and that Explanation 4 to Section 271(1)(c) was clariﬁcatory in nature and would apply to all assessments even prior to assessment year 2003-2004. On consideration of the recommendations of Wanchoo Committee pursuant to which Explanation 4(a) was inserted, CBDT circular No.204, dated 24.07.1976, the Finance Act, 1979, the relevant clauses of the Finance Act, 2002, and the case law dealing with interpretation of statutes being prospective or retrospective, the three Judge Bench in Gold Coin Health Food P.Ltd., reversed Virtual Soft Systems Ltd., and held A combined reading of the Committee’s recommendations and the circular makes the position clear that Explanation 4(a) to Section 271(1)(c) intended to levy the penalty not only in a case where after addition of concealed income, a loss returned, after assessment becomes positive income but also in a case where addition of concealed income reduces the returned loss and ﬁnally the assessed income is also a loss or a minus ﬁgure. Therefore, even during the period between April 1, 1976 and April 1, 2003, the position was that the penalty was leviable even in a case where addition of concealed income reduces the returned loss. (emphasis supplied) The ratio in Gold Coin Health Food P.Ltd. , therefore, would leave no scope for us except to hold that penalty under Section 271(1)(c) of the Act would be attracted and can be levied even in a case where the assessed income is a loss. The reference is accordingly answered in the negative against the assessee and in favour of the Revenue. The Reference Case stands disposed of accordingly without any order as to costs. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) 23.11.2011 Note: LR Copy to be marked. B/o. vs [1] (2008) 304 IT R 308 (SC) [2] (2007) 9 SCC 665 : (2007) 289 IT R 83 (SC)