Judgment:
1. This appeal by the Revenue is directed against the order of the learned CIT(A)-II, Nagpur dt. 18th May, 1998, whereby he cancelled the penalty imposed by the AO under Section 271(1)(c) whereas the assessee has filed the cross-objection supporting the said order of the learned CIT(A).
2. The facts of the case are that the assessee filed his return of income for asst. yr. 1992-93 in response to notice issued under Section 142(1) declaring a loss of Rs. 12,14,120. The assessment was completed by the AO by making addition of Rs. 4,28,879 on account of suppression of sale which resulted into reduction of returned loss to that extent.
In the quantum proceedings, the addition of Rs. 4,28,879 made by the AO was deleted by the learned CIT(A) while disposing of the appeal filed by the assessee. Against the order of the learned CIT(A) the Revenue preferred an appeal before the Tribunal which found no justification in the action of the learned CIT(A) deleting the entire additions and proceeded to sustain the addition to the extent of gross profit @ 20 per cent on the suppressed sale of Rs. 4,28,879 which was worked out to Rs. 85,776. The AO treated this addition sustained by the Tribunal as concealment of income by the assessee and imposed penalty in respect of the same under Section 271(1)(c). The matter was carried before the learned CIT(A) who deleted the penalty imposed by the AO observing that no penalty can be imposed in this case since both the returned as well as finally assessed figures are negative. Aggrieved by the same, the Revenue is in appeal before us.
3. The learned Departmental Representative submitted before us that the penalty in this case was imposed by the AO under Section 271(1)(c) in respect of additions sustained by the Tribunal in the quantum proceedings considering that the finding given by him on the issue of suppression of sale stood confirmed by the Tribunal. He contended that the learned CIT(A), however, deleted the said penalty on a technical ground observing that the returned income as well as assessed income being loss, penalty could not be imposed under Section 271(1)(c). He further contended that the learned CIT(A) placed heavy reliance on the decision of Hon'ble Punjab and Haryana High Court in the case of CIT v.Prithipal Singh & Co. (1990) 183 ITR 69 (P&H) in arriving at this conclusion. In this regard, he pointed out that the said decision was rendered by the Hon'ble Punjab & Haryana High Court in respect of asst.
yr. 1970-71 i.e., before the insertion of Expln. 4 w.e.f. 1st April, 1976. Referring to the provisions of Expln. 4, he contended that the expression "the amount of tax sought to be avoided" has been defined to clarify that the same also covers within its ambit 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. He, therefore, contended that after the said Expln. 4(a) inserted in Section 271(1)(c) w.e.f. 1st April, 1976, concealment penalty can be levied under that section even in a case where returned income and finally assessed income are losses. For this contention, he derived support from the decision of Hon'ble Karnataka High Court in the case of P.R. Basavappa & Sons v. CIT (2000) 243 ITR 776 (Kar). He, therefore, contended that the learned CIT(A) has deleted the penalty imposed in this case under Section 271(1)(c) without considering the effect of Expln. 4 and urged that his impugned order, therefore, deserves to be set aside.
4. The learned counsel for the assessee, on the other hand, drew our attention to the main provisions of Clause (c) of Sub-section (1) of Section 271 to point out that the same refer to the concealment of positive income alone and there is nothing to even indicate or suggest that the legislative intention of enacting these provisions was to levy the penalty for concealment of negative income also. He also drew our attention to the Explanation to Sub-section (1A) of Section 143 dealing with the levy of additional tax and pointed out that the provisions of the said Explanation prior to its omission by Finance Act w.e.f. 1st April, 1989, were on the same lines to the provisions of the Expln. 4 to Section 271(1)(c). However, as the intention of the legislature was to levy the additional tax in the cases where the loss declared in the return has been reduced as a result of the adjustment made under Section 143(1)(a) also, the said Section 143(1A) was amended by the Finance Act, 1992 with retrospective effect from 1st April, 1989, by substituting Clause (a) in the said section to provide specifically that the additional tax shall be levied even in the cases where as a result of the adjustments made under Section 143(1)(a), the loss declared by the assessee in the return is reduced or is converted into income. His contention, therefore, was that had the intention of the legislature been to levy the concealment penalty in the cases of determined loss also, similar amendment to this effect would have been made to Section 271(1)(c) also and the same having not been made by the law-makers, it is quite clear that there is no legislative intention to levy the penalty for concealment of negative income.
5. Referring to the decision of Hon'ble Madhya Pradesh High Court in CIT v. Jaora Oil Mills (1981) 129 TTR 423 (MP) and that the Madras High Court in CIT v. C.R. Niranjan (1991) 187 ITR 280 (Mad) the learned counsel for the assessee emphasised that these are the direct and clear authorities for the proposition that no penalty under Section 271(1)(c) can be imposed on the assessee for alleged concealment where the returned loss is just reduced in the assessment, notwithstanding the fact that the expression "income" includes loss also as held by Hon'ble Supreme Court in the case CIT v. Harprasad & Co. (P) Ltd. (1975) 99 TTR 118 (SC) and CIT v. J.H. Gotla (1985) 156 ITR 323 (SC). He contended that the plea of the learned Departmental Representative that concealment penalty can be levied under Section 271(1)(c) even in,a case where returned income and finally assessed income are loss in view of Expln. 4 inserted in that section w.e.f. 1st April, 1976 is not acceptable because the said Explanation by itself cannot alter the definition of "income" given in the main section which refers to the positive income as interpreted in the various judicial pronouncements.
In this regard he also elaborated the scope of "Explanation" appended to a section with the help of decision of the Hon'ble Supreme Court Keshavji Ravji & Co. v. CIT (1990) 183 ITR 1 (SC) and contended that the purpose of an "Explanation" in a statute is to clarify or explain any doubt or ambiguity and the same cannot be construed as to widen the scope of the substantive provision.
6. As regards the decision of Hon'ble Karnataka High Court in the case of P.R Basavappa & Sons (supra) on which heavy reliance was placed by the learned Departmental Representative, he submitted that the Hon'ble Karnataka High Court in the said decision has distinguished the decision of Hon'ble Punjab and Haryana High Court in the case of Prithipal Singh & Co. (supra) on the basis that the same relates to asst. yr. 1970-71 whereas the Expln. 4 to Section 271(1)(c) has been inserted w.e.f. 1st April, 1976. In this regard, he drew our attention to page No. 71 of the relevant report (copy at p. 31 of his paper book) to show the specific observations recorded by their Lordships of Punjab and Haryana High Court that Explns. 3 and 4 annexed to Section 271(1)(c) also presuppose taxable income. He, therefore, contended that the effect of Explns. 3 and 4 was duly considered by the Hon'ble Punjab and Haryana High Court in that case, He submitted that the decision of Hon'ble Punjab and Haryana High Court has been upheld by Hon'ble Supreme Court vide its decision in CIT v. Prithipal Singh & Co. (2001) 249 ITR 670 (SC), and, therefore, the issue under consideration has reached its finality. He also submitted that the Hon'ble Punjab & Haryana High Court has also followed its decision in Prithipal Singh's case in its subsequent judgment delivered in the case of its subsequent judgment delivered in the case of CIT v. Varindra & Co. (2001) 118 Taxman 946 (P&H) wherein the assessment year involved was 1990-91 i.e., after the insertion of Expln. 4 to Section 271(1)(c).
7. The learned counsel for the assessee submitted that the decision of Hon'ble Karnataka High Court in the case of P.R Basavappa & Sons (supra) was cited by the learned Departmental Representative before this Bench in the case of Asstt. CIT v. Guru Storage Batteries, Nagpur, involving asst. yr. 1995-96 and after taking into consideration the contrary view expressed by Hon'ble Punjab & Haryana High Court in the case of Pnthipal Singh & Co. (supra) and also by Hon'ble Kerala High Court in the case of CIT v. N. Krishnan (1999) 240 ITR 47 (Ker) on the similar issue the Tribunal preferred to follow the view taken in favour of the assessee and cancelled the penalty imposed under Section 271(1)(c) vide its order dt. 9th Nov., 2000 in ITA No. 611/Nag/1998.
He, therefore, urged that the impugned order of the learned CIT(A) cancelling the penalty in the similar facts and circumstances, deserves to be upheld.8. We have considered the rival submissions in the light of material available on record and precedents relied upon at the Bar. It is observed that the learned CIT(A) cancelled the penalty imposed by the AO in this case under Section 271(1)(c) relying mainly on the decision of Hon'ble Punjab and Haryana High Court in the case of Prithipal Singh & Co. (supra) wherein it was held that in a case where only the loss has been reduced, it cannot be said that the assessee had suppressed any income which would have attracted liability of tax and, therefore, question of imposition of penalty did not arise is such a case. The learned Departmental Representative, however, has relied on the subsequent decision of Hon'ble Karnataka High Court in the case of P.R Basavappa and Sons (supra) wherein the decision of Hon'ble Punjab and Haryana High Court in the case of Pnthipal Singh & Co. (supra) was distinguished by the Hon'ble Karnataka High Court in view of the Expln.
4 inserted in Section 271(1)(c) and it was held that penalty under Section 271(1)(c) is imposable even in a case where the loss declared had been reduced since the word "income" includes loss also. From the perusal of the said judgment of Hon'ble Karnataka High Court, it is apparent that the decision of Hon'ble Punjab and Haryana High Court in the case of Prithipal Singh & Co. holding that the income as envisaged in Section 271(1)(c) means positive income, has been distinguished by the Hon'ble Karnataka High Court on the basis that the related assessment year in Prithipal Singh's case (supra) was 1970-71 i.e., prior to the insertion of Expln. 4. In this regard, the learned counsel for the assessee has pointed out before us that the effect of Expln. 4 was taken into consideration by the Hon'ble Punjab and Haryana High Court in the case of Piithipal Singh & Co. (supra) and it was also observed by the Hon'ble High Court in its judgment that Explns. 3 and 4 annexed to Section 271(1)(c) also" presuppose taxable income. It is also observed that the Hon'ble Punjab and Haryana High Court has followed its decision taken in the case of Prithipal Singh & Co. in its subsequent judgment delivered in the case of CIT v. Varindra & Co.
(supra) wherein the assessment year involved was 1990-91 i.e., after the insertion of Expln. 4 in Section 271(1)(c). Similarly the Hon'ble Kerala High Court in the case of CIT v. N. Krishnan (supra) involving asst. yr. 1978-79 i.e., after the insertion of Expln. 4 to Section 271(1)(c) held that where assessment is made at loss, tax cannot be determined as also penalty under Section 271(1)(c) based on the same cannot be quantified and, therefore, no penalty can be imposed in the case where the assessed income is loss even if there was concealment.
It is thus clear that the different High Courts have expressed contrary opinions on the issue of levy of concealment penalty in the case of reduction of loss in the assessments and in these circumstances, the Tribunal is bound to follow the view which is favourable to the assessee, as has been done by this Bench in the case of Asstt. CIT v.Guru Storage Batteries (supra).
9. To make out the legislative intention of levying penalty under Section 271(1)(c) only in respect of concealment of positive income very clear, the learned counsel for the assessee has compared the provisions of Section 271(1)(c) with the provisions of Section 143(1A) dealing with the levy of additional tax. In this regard, he has referred to Explanation to Section 143(1A) inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989, and subsequently omitted by the Finance Act, 1992, w.e.f. 1st April, 1989, which reads as under : "Explanation : For the purposes of this sub-section, "tax payable on such excess amount" means : (i) in any case where the amount of adjustments made under the (first) proviso to Clause (a) of Sub-section (1) exceed the total income, the tax that would have been chargeable had the amount of the adjustments been the total income; (ii) in any other case, the difference between the tax on the total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments." 10. In order to appreciate the contention of the learned counsel for the assessee, it would be worthwhile to refer to the Expln. 4 to Section 271(1)(c) also, which is reproduced below : "Explanation 4 : For the purposes 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; (b) in any case to which Expln. 3 applies, means the total income assessed; (c) 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".
11. From the perusal of the aforesaid Explanations it is evident that the provisions of the Explanation to Section 143(1A) as existed prior to its omission, were on the same lines as the provisions contained in Expln. 4 to Section 271(1)(c). It is pertinent to note here that Section 143(1A) was amended by the Finance Act, 1991, with retrospective effect from 1st April, 1989 and Clause (a) therein was substituted to provide as under : (1A)(a) Where as a result of the adjustments made under the first proviso to Clause (a) of Sub-section (1), (ii) the loss declared by such person in the return is reduced or is converted into income, (A) in a case where the increase in income under Sub-clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under Sub-section (1) by an additional income-tax calculated at the rate of twenty per cent on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under Sub-clause (i) of Clause (a) of Sub-section (1); (B) in a case where the loss so declared is reduced under Sub-clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate the sum (hereinafter referred to as additional income-tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under Sub-clause (i) of Clause (a) of Sub-section (1); (C) where any refund is due under Sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under Sub-clause (A) or Sub-clause (B), as the case may be." 12. The aforesaid amendment in Section 143(1A) had been proposed by Clause 23 of the Finance Act, 1992 wherein it was clearly mentioned that Sub-section (ii) of the new Clause (a) of Section 143(1A) seeks to omit the then existing Explanation to the said section. It is thus apparent that the intention of the legislative was always there from the very inception of Section 143(1A) to levy additional tax in a case of reduction of returned loss also and, therefore, amendment to that effect was specifically made in Section 143(1A) with retrospective effect from 1st April, 1989 by substituting Explanation to that section with Sub-clause (ii) of Clause (a) of Section 143(1A) as explained above. On the other hand, no change was made in Section 271(1)(c) to this effect and the similar provisions contained in Expln. 4 to that section remain unaltered. The learned counsel for the assessee has contended before us that had the intention of the legislature been to levy concealment penalty in the case of reduction of loss also suitable changes, as were made in Section 143(1A) would have been made in Section 271(1)(c) also and having consciously not done so, the legislature has demonstrated its intention to levy penalty only in the case of positive income and not in the case where merely the loss has been reduced as a result of assessment. After giving a thoughtful consideration to the relevant enactments as discussed above and in view of the settled legal position that penalty provisions are to be construed rather strictly, we find merits in the contentions of the learned counsel for the assessee.
13. Under Section 271(1)(c), penalty is imposable on any person if he has concealed the particulars of his income. In the case of Indo-Gulf Fertilizers & Chemicals Corpn. Ltd. v. Union of India (1992) 195 ITR 485 (All), the Hon'ble Allahabad High Court has observed that the word "Income" occurring in Clauses (c) and (iii) of Section 271 of the IT Act, 1961, refers to positive income only. In the case of CIT v.Prithipal Singh & Co. (supra), the Hon'ble Punjab and Haryana High Court also expressed the similar view and further observed that in a case where only loss has been reduced as a result of assessment, the assessee cannot be said to have concealed any income which would have attracted liability to tax. The Hon'ble High Court, therefore, proceeded to hold to that the question of imposition of penalty in such case did not arise because penalty is a deterrent measure to prevent evasion of tax and when there was no tax payable, there could not be any such evasion so as to provide a scope for levying any penalty. It is pertinent to note here that the said decision of the Hon'ble Punjab and Haryana High Court in the case of Prithipal Singh & Co. (supra), has been affirmed by the Hon'ble Supreme Court vide its judgment Prithipal Singh (supra). In these circumstances, even if it is assumed for the sake of arguments that the Prithipal Singh's case was related to asst. yr. 1970-71 i.e., prior to the date of insertion of Expln. 4 to Section 271(1)(c) w.e.f. 1st April, 1976, and that the purpose of said Explanation, as mentioned in para 61.11 of Circular No. 204, dt.
24th July, 1976 issued by the CBDT is to cover the cases where even after the relevant additions, the assessed income is still a loss then it appears that an attempt has been made by inserting the said explanation to enlarge to scope of main section by defining the expression "income" used therein so as to include "loss" also. It is a settled position that the "Explanation" is a subordinate part of the section and the same cannot be so construed as to widen the scope of the substantive provision. The normal principle in construing an "Explanation" is to understand it as explaining the meaning of the provisions to which it is added especially where the intention of the legislature is not fully conveyed earlier or there has been a misconception about the scope of a provision. As far as the scope and legislative intention of Section 271(1)(c) are concerned, there appears to be no such misconception even prior to insertion of Expln. 4 w.e.f.
1st April, 1976, as discussed in the preceding paras of this order in the light of various judicial pronouncements. In the case of CIT v.Doraiswami Chetty (P) Ltd. (1990) 183 ITR 559 (SC), the Hon'ble Supreme Court has observed that an Explanation normally serves as a legislative exposition of the import of the section to which it is appended. In the case of CIT v. Voltas Ltd. (1994) 205 ITR 569 (Bom) the Hon'ble Bombay High Court has opined that there is no presumption that an Explanation which is inserted subsequently introduced something new which was not present in the relevant section before.
14. In view of the legal position discussed above, we are of the considered opinion that if the main Section 271(1)(c) had no application in a case where both the returned as well as assessed income are loss, as held by the Hon'ble Punjab and Haryana High Court in the case of Prithipal Singh & Co. (supra) and affirmed by the Hon'ble apex Court, then such case cannot be said to have been covered by Expln. 4 to the said section w.e.f. 1st April, 1976, since the said Explanation cannot be so construed as to widen the scope of main Section 271(1)(c) which is a charging section. In that view of the matter, we find no infirmity in the impugned order of the learned CIT(A) cancelling the penalty imposed under Section 271(1)(c) in the present case where both the returned and finally assessed figures were loss. The same is, therefore, upheld.15. As regards the cross-objection filed by the assessee, it is observed that the same is only supportive in nature and as we have upheld the impugned order of the learned CIT(A), it has become infructuous. Accordingly the same is liable to be dismissed.
16. In the result, the appeal of the Revenue as well as the cross-objection of the assessee are dismissed.