Loss-making co need not pay penalty for tax evasion
The income tax department cannot levy a penalty on a tax-payer who has concealed his income but incurred losses and has no taxable income to report. This is in accordance with a recent order of a division bench of the Bombay High Court.
By M Padmakshan, TNN |
MUMBAI: The income tax department cannot levy a penalty on a tax-payer who has concealed his income but incurred losses and has no taxable income to report. This is in accordance with a recent order of a division bench of the Bombay High Court.
Suppose a tax-payer reports a loss of Rs 10 lakh and later the figure was found to be exaggerated and the actual loss was only Rs 5 lakh. In such a case, the income tax department had argued that it has the right to impose a penalty on the tax-payer on charges of concealment of income under the Income Tax Act. The I-T Act provides for a penalty for concealment of income, ranging between 100% and 300% of the amount involved.
But the division bench says penalty in such cases is unfair. Since the person is facing a loss and has no taxable income to report, the tax-payer cannot be levied a penalty.
The order in the last week of July was on an appeal filed by the income tax department against Orient Syntex. The department���s appeal was against an order by the Income Tax Appellate Tribunal (ITAT), which cancelled a penalty imposed on the company on the ground that the finally assessed income of Orient Syntex was a loss.
The bench held that the Supreme Court has already addressed the issue in the case of Prithipal Singh & Co. The apex court had decided not to levy a penalty, if there is no taxable income to report.
In the case of Prithipal Singh, the loss reported to the tax authorities was Rs 3.35 lakh. However, it was later found that the actual loss was Rs 34,000. The department had levied a penalty on the company. Both the ITAT and the High Court decided in favour of the tax-payer. The Supreme Court had upheld the HC���s ruling that if there was no taxable income to report, the question of evasion and penalty does not arise.
However, the latest court order was in contrast to another order by a division bench of the Bombay High Court in February ���03 in the case of Chemiequip. In this case, the court favoured levying a penalty for concealment of income, even if the assessee reported a loss.
Suppose a tax-payer reports a loss of Rs 10 lakh and later the figure was found to be exaggerated and the actual loss was only Rs 5 lakh. In such a case, the income tax department had argued that it has the right to impose a penalty on the tax-payer on charges of concealment of income under the Income Tax Act. The I-T Act provides for a penalty for concealment of income, ranging between 100% and 300% of the amount involved.
But the division bench says penalty in such cases is unfair. Since the person is facing a loss and has no taxable income to report, the tax-payer cannot be levied a penalty.
The order in the last week of July was on an appeal filed by the income tax department against Orient Syntex. The department���s appeal was against an order by the Income Tax Appellate Tribunal (ITAT), which cancelled a penalty imposed on the company on the ground that the finally assessed income of Orient Syntex was a loss.
The bench held that the Supreme Court has already addressed the issue in the case of Prithipal Singh & Co. The apex court had decided not to levy a penalty, if there is no taxable income to report.
In the case of Prithipal Singh, the loss reported to the tax authorities was Rs 3.35 lakh. However, it was later found that the actual loss was Rs 34,000. The department had levied a penalty on the company. Both the ITAT and the High Court decided in favour of the tax-payer. The Supreme Court had upheld the HC���s ruling that if there was no taxable income to report, the question of evasion and penalty does not arise.
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However, the latest court order was in contrast to another order by a division bench of the Bombay High Court in February ���03 in the case of Chemiequip. In this case, the court favoured levying a penalty for concealment of income, even if the assessee reported a loss.
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