NEW DELHI. Larger Bench of Supreme Court vide a significant ruling reported by allindiantaxes site vide AIT-2008-286-SC has overruled the decision of Supreme Court in case of Virtual Soft Systems Ltd. V. Commissioner of Income Tax, Delhi AIT-2007-83-SC and has ruled that the penalty under Section 271 (1) (c) of the Income Tax Act, 1961 can be levied if the returned income is a loss holding that Explanation 4 to Section 271(1)(c) of Income Tax Act is clarificatory and not substantive and the view expressed to the contrary in Virtual’s case AIT-2007-83-SC is not correct..
The Ruling has been pronounced on August 18, 2008 in case of Commissioner of Income Tax-I, Ahmedabad Versus Gold Coin Health Food Pvt. Ltd AIT-2008-286-SC by the Larger Bench comprising of Arijit Pasayat J, P. Sathasivam J and Aftab Alam J
In case of Virtual Soft Systems Ltd. V. Commissioner of Income Tax, Delhi AIT-2007-83-SC; the SC held as under
“Prior to its amendment by Finance Act, 2002 in the absence of any positive income and no tax being levied, penalty for concealment of income could not be levied. The view taken by the Karnataka High Court in P.R. Basavapaa & Sons v. CIT and CIT v. Chemiequip Ltd. , does not lay down the correct law.The position stands altered after the amendment in law by the amendment of Section 271(1)(c) and Explanation 4(a) by the Finance Act, 2002 w.e.f. 1.4.2003.”
Expressing doubt about the correctness of the judgment rendered by a Division Bench of this Court in Virtual Soft Systems Ltd. V. Commissioner of Income Tax, Delhi AIT-2007-83-SC , a reference was made by another Division Bench by order dated 7.4.2008 to a larger Bench. The question which was decided in Virtual’s case was as to whether the penalty under Section 271 (1) (c) of the Income Tax Act, 1961 can be levied if the returned income is a loss. This question has to be considered in the background of the amendment made by Finance Act, 2002 w.e.f. 1.4.2003 in Explanation 4 to Section 271(1)(c)(iii) of the Act. In Virtual’s case the department placed reliance on Notes on Clauses relating to the aforesaid amendment to submit that the amendment was clarificatory in nature and consequentially it was applicable retrospectively. This argument was rejected by SC in para 52 of the judgment. The Division Bench while making reference was of the view that the true effect of the amendment was not considered, as it was prima facie of the view that merely because the amendment was stated to take effect from 1.4.2003 that cannot be a ground to hold that the same did have the retrospective effect.
SC also observed that “Law is well settled that the applicable provision would be the law as it existed on the date of the filing of the return. It is of relevance to note that when any loss is returned in any return it need not necessarily be the loss of the concerned previous year. It may also include carried forward loss which is required to be set up against future income under Section 72 of the Act. Therefore, the applicable law on the date of filing of the return cannot be confined only to the losses of the previous accounting years.”
(Click here for full text of Ruling AIT-2008-286-SC)
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(Source: Allindiantaxes)
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