Case: M/S.Virtual Soft Systems Ltd Vs. Commissioner Of Income Tax, Delhi-I

Commissioner of Income Tax, Delhi-I, the respondent herein, filed ITA No. 340 of 2004 in the High Court of Delhi against the order passed by the Income Tax Appellate Tribunal (for short "the Tribunal") under Section 260A of the Income Tax Act. Assessee also filed ITA No........... of 2004 being aggrieved against a part of the order of the Tribunal. High Court allowed the ITA No. 340 of 2004 filed by the Revenue and held that the Tribunal was not right in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act") merely on the ground that the total income of the assessee was assessed at a minus figure/loss. Tribunal had allowed the assessees appeal remitting the penalty imposed by the assessing officer under Section 271(1)(c) relating to the assessment year 1996-97, relying upon the decision of the Punjab High Court in CIT vs. Prithipal Singh & Co., 183 ITR 69 , which was affirmed by this Court in CIT vs. Prithipal Singh & Co., Civil Appeal No. 1961 of 1996 dated 27.07.2000, reported in 249 ITR 670 the appeal filed by the Revenue in the High Court of Delhi, the following two questions of law wereWhether the ITAT was right in deleting the penalty imposed under section 271(1)(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?2. Whether the ITAT was justified in holding that the judgments in Prithipal Singhs case (183 ITR 69 and 249 ITR 670) will apply even after insertion of Explanation 4 to Section 271(1)(c) of the Income Tax Act, 1961 with effect from 1.4.1976?

Reasoning: Keeping in view the rules of interpretation of criminal statue and the language and intent of the Order and the Act, we find ourselves in agreement with the view expressed by Ranganath Misra, J. as he then was, in Prem Bahadur v. State of Orissa, 1978 Cri. LJ 683, at page 685, para 4:"The Orissa Order does not make possession without a licence an offence. Storage, however, has been made an offence. Between "possession" and "storage" some elements may be common and, therefore, it would be appropriate to say that in all instances of storage there would be possession. Yet, all possession may not amount to storage. "Storage" in the common parlance meaning connotes the concept of continued possession. There is an element of continuity of possession spread over some time and the concept is connected with the idea of a regular place of storage. Transshipment in a moving vehicle would not amount to storage within the meaning of the Orissa Order.The provisions of Section 271(1)(c)(iii) prior to 1.4.1976, and after its amendment by the Finance Act, 1975 with effect from 1.4.1976, later provisions being applicable to the assessment year in question, being substantially the same except that in place of the word income in sub clause (iii) to sub clause (c) of Section 271 prior to its amendment by Finance Act, 1975, the expression "amount of tax sought to be evaded" have been substituted. Explanation 4 inserted for the purpose of clause (iii) where the expression "the amount of tax sought to be evaded", was inserted had in fact made no difference in so far as the main criteria, namely, absence of tax continued to exist, prior to or after 1.4.1976, changing only the measure or the scale as to the working of the penalty which earlier was with reference to the income and after the amendment related to the tax sought to be evaded. The sine qua non which was there prior or after the amendment on 1.4.1976 to the fact that there must be a positive income resulting in tax before any penalty could be levied continued to exist. The penalty imposed was in addition to any tax. If there was no tax, no penalty could be levied. The return filed declaring loss and assessment made at a reduced loss did not warrant any levy of penalty within the meaning of Section 271 (1)(c)(iii) with or without Explanation 4.In the present case, it is only in the Notes on Clauses relating to 2002 amendment that it has been stated that the said amendment is clarificatory. There is no such mention of the said amendment being clarificatory, anywhere in the statute itself. Such a statement in the Notes on Clauses cannot possibly bind the Court when even a statement in the statute itself is not regarded as binding or conclusive. In the present case, the statute expressly states that the amendment would take effect only from 1.4.2003. Consequently, this amendment cannot possibly be applied to or in respect of any period prior to 1.4.2003.54. Otherwise also, it has been consistently held that a provision must be read subject to the rule that in the absence of an express provision or clear implication, the Legislature does not intend to attribute to the amending provision, a greater retrospectivity than is expressly mentioned. It is settled law that a taxing provision imposing liability is governed by the normal presumption that is not retrospective.There is nothing in the language of Section 271(1)(c) as amended by the Finance Act, 2002 w.e.f. 1.4.2003 to suggest that the amendment is retrospective. The amendment in clause (iii) and simultaneously in Explanation 4(a) carried out enlarges the scope of penalty under Section 271(1)(c) to include even cases where assessment has been completed at loss. The same being in the nature of a substantive amendment would be prospective, in the absence of any indication to the contrary.Next proposition is with reference to the amended provision of law made by the Finance Act, 2002, where the expression used in Explanation 4 "the amount of tax sought to be evaded" has been deliberately amended providing specifically cases where the filing of return and the assessment had the effect of reducing the loss declared in the return or converting that losses into income. Taking support from this amendment brought about in the statute with effect from 1.4.2003, it is contended that the Legislature has now deliberately enacted such provision to fill in the lacuna in law and also to put an end to the controversy which existed between the High Courts in interpreting the laws after 1.4.1976. The amended provision of law is not available prior to 1.4.2003, as the same is not enacted with retrospective