COMMISSIONER OF INCOME TAX vs N. EMSHNAN

OM PRAKASH, C. J. Heard counsel for the parties.

At the instance of the Revenue the Tribunal referred the following question relating to the asst. yr. 1978-79 for the opinion of this Court:

" 1. Whether, on the facts and in the circumstances of the case and also in view of the pendency of appeal before the Tribunal at the time of passing the order of, penalty, the penalty order is barred by limitation?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that no penalty is leviable in the case of negative income?"

The facts, as briefly, found by the Tribunal are that the assessee-a dealer in cashew and running a toddy shop-filed return of income on 25th March, 1998 showing loss at Rs. 10,08,764. The assessee offered net income from toddy business at Rs. 5,000 on estimate. The net income was, however, assessed at Rs. 75,000 from the toddy shop. Subsequently the assessee was called upon to file a cash flow statement of the financial year 1977-78, relevant to the assessment year under review. In the cash flow statement income from toddy shop was credited at Rs. 40,000 as against Rs. 5,000 offered by the assessee. The AO therefore, concluded that the assessee had concealed income from toddy business to the extent of Rs. 35,000. In cashew business, the quantitative details furnished by the assessee showed that the assessee had sent 3,200 lbs. of cashew kernels on consignment, but no such sale had been credited to the P&L a/c for the year ending 31st March, 1978. The assessee having failed to account for the consignment sales, the AO fixed the value of such sales at Rs. 36,570 and added the same to the trading results disclosed by the assessee. This addition was not challenged before the appellate authority and hence the same was confirmed. Since the assessee had not disclosed the above two items of receipts in his return, he was called upon to explain why penalty should not be imposed under s. 271(1)(c) for concealment of income to that extent. Not being satisfied with the explanation furnished by the assessee, the AO levied penalty of Rs. 30,000 under s. 271 order was confirmed.

The dispute was then carried to the Tribunal further in appeal, challenging the penalty order on two counts; (1) that the penalty order was barred by limitation; and (2) that ultimately loss having been assessed no penalty was sustainable. The Tribunal accepted both the contentions.

The Tribunal found as under:

"...Though the loss got reduced from the loss originally claimed, still it was only a loss that was finally assessed. In such cases, penalty is not leviable..."

To come to such conclusion the Tribunal relied on an order of the Chandigarh Bench of the Tribunal in ITO vs. Sudhar Pharmaceutical (P) Ltd. (1983) 17 TTJ (Chd) 518. It is amply clear from the perusal of s. 271(1)(c) that penalty could be determined with reference to the amount of tax and unless tax is determined penalty could not be quantified. In the case of the assessee, assessment having been made at loss the question of determining the amount of tax did not arise and, therefore, no penalty could be determined. When penalty cannot be quantified in the absence of determination of tax, it goes without saying that no penalty could be imposed. Even if there were concealment, assessments having been made at loss, no penalty could be imposed.

For these reasons and confining to the facts and circumstances of this case, we agree with the conclusion arrived at by the Tribunal. This being the legal position, we need not enter into the question of limitation.

of the IT Act. On appeal the penalty In the result question No. 1 is returned unanswered and question No. 2 is answered in the affirmative, that is, in favour of the assessee and against the Revenue.