Income Tax Act, 1961

--Penalty under section 271(1)(c)Concealment Nature of amendment in Explanation 4--Assessee filed appeal against penalty order taking a view that levy of penalty for concealment in case where the assessed income is loss is not permissible under law. Revenue submitted that even in the case of an assessee filing a loss return, the provisions of section 271(1)(c) were attracted in view of section 271(1)(c)(iii) and Explanation 4 thereof. Revenue further submitted that Explanation 4 to section 271(1)(c)(iii) which was substituted by the Finance Act, 2002 with effect from 1-4-2003 was clarificatory in nature and would apply to all assessments years even prior to assessment year 2003-04 i.e., prior to 1-4-2003, the date on which it was brought into force. Held: In view of the Supreme court decision rendered by the three judge Bench in CIT v. Gold Coin Health Food (P.) Ltd. 2008 TaxPub(DT) 2223 (SC) : (2008) 304 ITR 308 (SC), the penalty under section 271(1)(c) would be attracted for the relevant assessment year and could be levied even in a case where the assessed income was a loss.

On consideration of the recommendations of the Wanchoo Committee, pursuant to which Explanation 4(a) was inserted, the Central Board of Direct Taxes Circular No. 204, dated 24-7-1976, the Finance Act, 1979, the relevant clauses of the Finance Act, 2002, and the case law dealing with interpretation of statutes being prospective or retrospective, the three-judge Bench in Gold Coin Health Food (P.) Ltd., reversed Virtual Soft Systems Ltd., and held (page 314 of 304 ITR): 'A combined reading of the Committee's recommendations and the circular makes the position clear that Explanation 4(a) to section 271(1)(c) intended to levy the penalty not only in a case where after addition of concealed income, a loss returned, after assessment becomes positive income but also in a case where addition of concealed income reduces the returned loss and finally the assessed income is also a loss or a minus figure. Therefore, even during the period between 1-4-1976 and 1-4-2003, the position was that the penalty was leviable even in a case where addition of concealed income reduces the returned loss. [Para 7]