No bar on penalty where the assessed income is a loss: Court

The Commissioner of Income-tax is empowered to impose penalty under section 271 (1) © of the Income-tax Act, reiterated the Supreme Court in Commissioner of Income-Tax vs. Unipol Chemicals Intermediates Ltd, even where the assessed income is in the negative. The law authorises the commissioner to impose penalty ranging from 100 per cent to 300 per cent of the tax attempted to be evaded, using his discretion on the basis of the severity of the crime. Though the Apex court has given a terse verdict in this case, it has chosen to refer to its 2008 verdict in CIT vs. Gold Coin Health Food (P) Ltd where it had given cogent reasons for its stand that penalty was leviable even where the result was a loss. The view held by the respondents in both the cases was that penalty presupposes existence of profit inasmuch there possibly cannot be any tax evasion in the face of a loss. But given the fact that the present loss is a sort of insurance against future tax in the sense that it can be carried forward up to a maximum of eight years for set off against positive income during these years, even toning down of the loss from the one claimed in the return by detecting tax evasion measures, becomes a fit case for imposition of penalty. Greater loss claimed than warranted results in loss of future tax revenue to the Government.

(The author is a New Delhi-based chartered accountant)

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