Income Tax Appellate Tribunal - Ahmedabad
Deputy Commissioner Of Income Tax vs Manish Organics India Ltd. on 27 December, 1999
Equivalent citations: (2000)68TTJ(AHD)504
ORDER
T. N. Chopra A.M. This appeal filed by the Revenue , is directed against the order of the Commissioner (Appeals), dated 23-4-1993, for assessment year 1990-91. The only ground taken by the Revenue is against the direction of the Commissioner (Appeals) that the additional tax under section 143(1A) is not chargeable when total income after making adjustments under section 143(1)(a) is a loss.
2. The facts in brief are that the assessee filed a return for assessment year 1990-91 showing loss of Rs. 75,82,720. The return was processed by the assessing officer under section 143(1)(a) and the loss was determined at Rs. 44,77,989 and the necessary intimation was issued to the assessee requiring the assessee to pay additional tax of Rs. 3,17,000. The assessee filed an application under section 154 against the adjustment made by the assessing officer. The assessing officer rejected the application of rectification. Aggrieved with the order of the assessing officer, the assessee carried matter in appeal before the Commissioner (Appeals). The Commissioner (Appeals) held that since the income after adjustment made by the assessing officer is a loss figure, no additional tax can be charged.
3. We have considered the rival contentions. The additional tax for both the assessment years namely assessment years 1990-91 and 1991-92 has been levied by the assessing officer under the amended provisions of section 143(1A)(a)(ii). Section 143(1A)(a)(ii) has been brought on the statute book in the present form by the Finance Act, 1993, which has been given retrospective effect from 1-4-1989. With reference to clause 23 of the Bill which introduced the amendment, the Notes on clauses in the Finance Bill, 1993, explains it clearly as follows :
"In cases where the loss declared in the return has been reduced as a result of the aforesaid adjustments or the aforesaid adjustments have the effect of converting that loss into income, the assessing officer shall calculate sum (hereinafter referred to as the 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 said additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1) of section 143. Where any refund is due under sub-section (1) of section 143 the assessing officer shall reduce the amount of such refund by an amount equivalent to the additional income-tax calculated as aforesaid."
The memorandum explaining the provision in the Finance Bill says that the amended provisions are to have a deterrent effect and the purpose of the levy of additional income-tax is to persuade all the assessee to file their returns of income carefully. It is also explained that it was passed with a view to overcome certain judicial pronouncements, and what was only a sum calculated at twenty per cent of the tax that would have been chargeable on the amount of the adjustments, as if it has been the total income of the assessee. The additional tax envisaged under the amended section is thus clearly of a character of penalty. Every modern legislation is actuated with some policy. There are legislations which are directed to cure some immediate mischief and provide for redress or compensation to the persons aggrieved. If a statute of this nature merely prohibits the Act by declaring the same as invalid and does not make offender liable to any penalty in favour of state, the legislation would normally be treated as remedial. On the other hand, penal statutes are those which provide for penalties for disobedience of law and provides for fine, forfeiture or other penalty against the offender. Penal statute thus enforces obedience to the command of the law by punishing the offender. In the instant case, the provision providing for levy of additional tax has obviously been enacted so as to enforce compliance with the provisions of the income tax statute and penalise the assessee who filed inaccurate or wrong returns. The nomenclature of an additional tax used by the legislature would not, in any manner alter the intrinsic nature of the levy being a penalty. It has been held by the Hon'ble Supreme Court in the case of Jain Bros. v. Union of India (1977) 77 ITR 107 (SC) that penalty partakes the character of additional tax.
4. The levy of additional tax has apparently been intended by the legislature to be a penalty as amply demonstrated by the fact that Explanation 6 to sub-section (1) of section 271, introduced by the Direct Tax Laws (Amendment) Act, 1989 provides that where any adjustment is made in the income or loss, declared in the return under the proviso to clause (a) of sub-section (1) of section 143 and additional tax charged under that section, the provisions of sub-section (1) of section 271 for imposition of penalty would not apply in relation to the adjustments so made. Once additional tax is charged as a result of the adjustments made, no further penalty was to be imposed on the assessee for not declaring his income correctly in the return in relation to the adjustments made. The imposition of additional tax is thus clearly intended as a penalty for filing inaccurate or wrong returns. The decisions of the Hon'ble Gauhati High Court in the case of Sati Oil Udyog Ltd. v. CIT (1993) 232 ITR 502 (Gau) and Madras High Court in the case of Sukra Diamond Tools (P) Ltd. v. Dy. CIT (1998) 229 ITR 682 (Mad) are direct authorities in support of the view being taken by us here. However, it may be pointed out that a contrary view has been taken by the Hon'ble Madhya Pradesh High Court in the case of Sanctus Drugs Pharmaceuticals (P) Ltd. v. Union of India & Ors. (1997) 225 ITR 252 (MP).
5. It is a cardinal principle of Common Law jurisprudence that for the purpose of imposing penalty for the commission of wrongful act, it was the law operative on the date on which the wrongful act was committed which determined the penalty. This principle has been enunciated with respect to income tax law by the Hon'ble Supreme Court in the case of Brij Mohan v. CIT (1979) 120 ITR 1 (SC). In the instant case, returns for both the assessment years have been filed prior to enactment of amended section 143(1A) and, therefore, the assessee could not be inflicted penal liabilities on account of additional tax for the assessment year under consideration in view of Brij Mohan's case. The amended section 143(1A) has been made operative by the Finance Act, 1993 with effect from 1-4-1989. The retrospective operation of the amended section has been upheld by the following decisions :
(1) Sanctus Drugs Pharmaceuticals (P) Ltd. v. Union of India (supra),.
(2) Sukra Diamond Tools (P) Ltd. v. Dy. CIT (supra);
(3) Banwari Paper Mills (P) Ltd. v. Dy. CIT (1997) 228 ITR 320 (All),. and (4) Kerala State Coir Corpn. Ltd, v. Union of India (1994) 210 ITR 121 (Ker).
A contrary view, however, has been taken by the Hon'ble Gauhati High Court in the case of Sati Oil Udyog Ltd. v. CIT (supra). Since additional tax levied under section 143(1)(a) is, in our opinion, of a nature of penalty, we are inclined to follow with respect the Gauhati High Court decision in the case of Sati Oil Udyog Ltd. (supra) where it has been held that section 143(1A) would not be retrospective in operation. Respectfully following the Hon'ble Gauhati High Court decision cited supra, we uphold the orders of the Commissioner (Appeals) cancelling the levy of additional tax for the assessment years 1990-91.
6. In the result, the appeal of the Revenue is dismissed.