Per Shri P. K. Mehta, Accountant Member - The assessee, a private limited company, is in appeal for the assessment year 1973-74 against the order of the Commissioner (Appeals) sustaining a penalty of Rs. 1,82,221 out of a penalty of Rs. 2,00,000 imposed by the ITO under section 271(1) (c) Income-tax Act, 1961 (the Act). The hearing of the appeal was fixed on 20-9-1983 and on the same day a telegram was received on behalf of the assessee from Shri Gopal Krishan Monga, Advocate, requesting for adjournment of the case but without giving any reason for seeking adjournment. This bald requested for adjournment without any reasons in its support was rejected and the appeal was heard. It is disposed of after hearing the departmental representative and perusal of of records. At our asking the departmental representative furnished the copies of assessment order dated 28-7-1976, order of the Commissioner (Appeals) in the quantum appeal dated 10-3-1976 and the assessees explanation dated 27-6-1980 furnished in response to penalty show-cause notice.
2. It is seen from the assessment order that the assessee-company had furnished a return declaring total loss of Rs. 9,96,209 including brought forward losses. The ITO, however, first computed the loss for the assessment year 1973-74. She proceeded on the basis of the net loss as per profit and loss account amounting to Rs. 2,86,111. After making the addition of Rs. 1,82,221 on account of unexplained cash credits in the names of Shri Jagir Singh and Gurdial Singh (on the basis of which the penalty under appeal is levied) and making other additions she still computed a net loss of Rs. 73,384. In spite of the computation of net loss, the ITO started penalty proceedings under section 271(1) (c) for concealing the particulars/furnishing inaccurate particulars of income. This action resulted in the levy of a penalty of Rs. 2,00,000 by the ITO. The assessee went in appeal and the Commissioner (Appeals) restricted the amount of penalty to minimum imposable, i.e., being equal to the concealed income which was Rs. 1,82,221. Against the penalty sustained by the Commissioner (Appeals), the assessee has come in further appeal to the Tribunal.
3. In the grounds of appeal, the assessee has challenged the levy of penalty on the ground that no case has been made out that the company was guilty of concealment of income or of filing inaccurate particulars thereof and that the onus that lay on the department to prove the guilt before imposing penalty had not been discharged. It is further stated that the revenue has not proved that the company had earned income and having earned it has concealed it in its return. Lastly, it is stated that the explanation of the company has been summarily rejected by the ITO, which has resulted in miscarriage of justice. The contention of the revenue was that this was a case to which Explanation to section 271(1) (c) was attracted and the assessee has not been able to establish that failure to return the correct income was not on account of any gross or wilful neglect on his part. Reliance was placed on the penalty order of the ITO and the order of the Commissioner (Appeals) confirming the penalty.
4. Amritsar Bench, of which one of us (Accountant Member) had been a Member, has considered the question whether penalty for concealment of income can be imposed in the case of an assessee in whose case the returned income is a loss and the assessed income is also a loss after making the addition of so-called concealed income. The was the case of Pritipal Singh & Co., Ludhiana and the Tribunals order in IT appeal No.280 (Chd.) of 1977-78 of August, 1978 was reported in Taxes and Planning, 15-12-1978 issue at page 563 onwards. The had held that in the case of the type under consideration Explanation to section 271(21) (c) will not be attracted and further no penalty under the main provision for concealment of income could be levied. We quote the relevant paragraphs from that order of the Tribunal and rely on the same : "8. Shri Chandhas second contention was that Explanation to section 271(1) (c) of the Income-tax Act, 1961, has been wrongly invoked in the assessees which is that of returned and assessed loss and there was no question of any income being suppressed by the assessee. It was contended that the Explanation deals with the cases of positive income only not the cases of loss and the word income used therein cannot be held to include loss as is suggested by the IAC in his penalty order.
It was stated that the Explanation is not properly read and understood when the word income is substituted by the loss wherever it occurs in it. It was contended that the word income has to be understood in the context of a particular section and invariably in the Income-tax Act, it cannot be held to include loss as well. Shri Chandha pointed out that the definition of word in section 2(24) of the Income-tax Act was inclusive and was subject to the condition of requirements of the context. Shri Chandha illustrated his submission by pointing out that in the context of sections 80B, 80C, 80M, etc. the word income has always to be construed positive income, not negative income or loss.
In support of this proposition, decision of the Calcutta High Court in National Engg. Industries Ltd. v. CIT  113 ITR 252 was cited.
Reliance was also placed on a Single Member Bench decision of Income-tax Appellate Tribunal, Delhi Bench D in the case of Mehrauli Dehat Transport Co. (P.) Ltd. v. ITO 1974 Tax 36(6)-83 and a decision of the Gauhati High Court in CIT v. Ahmed Tea Co. (P.) Ltd.  113 ITR 74, on behalf of the revenue, the arguments given by the IAC in this penalty order were relied upon.
9. We find force in the submissions made on behalf of the assessee and are inclined to hold that, in the circumstances of the assessees case, the Explanation in section 271(1) (c) will not be attracted. The decision of the Delhi Bench D was delivered in a case which is of the type of assessees by Shri Ranganathan (as he then was). We will quote the relevant observations which occur at page 84 : Further, in the present case, as pointed out on behalf of the assessee.
it is highly doubtful whether the terms of the Explanation would apply.
The Explanation applies in those cases where the assessee returns an income and the assessed income exceeds the returned income by more than a particular margin. As contended on behalf of the assessee, the Explanation incorporates a rule of evidence reversing the normal rule in criminal and quasi-criminal cases that the burden is on the party, alleging the commission of an offence, to prove it. It should, therefore, be strictly construed. It is highly doubtful whether in a case where the returned figure is a loss and no income has been assessed, the terms of the Explanation would apply.
10. The Gauhati High Court also approved the view of the Tribunal in the case of Ahmed Tea Co. (P.) Ltd. At page 76 in ITR 113, the High Court observed that From the Tribunals order in the quantum appeal it appears that in the relevant assessment year, i.e., 1966-67, there was loss to the assessee. This being so, the Explanation to section 271(1) (c) of the Act is not at all attracted the Tribunal has rightly observed in its order. We also feel that it will be doing violence to the language as well as the concept of Explanation to section 271(1) (c), if the word income is given a meaning to include loss as well.
Accordingly, we are inclined to agree with the view expressed in the two authorities referred to earlier." 12. On a careful consideration, we feel that the submission of the assessees counsel on this point are well founded. Before charge of concealment of income can be attributed to an assessee. it has to be seen whether he had any motive to avoid the tax and whether he had any position income which reference to which the quantum of penalty could be determined.
The madras High Court in Addl. CIT v. Murugan Timber Depot  113 ITR 99, has rightly referred to the basic concept of punishment with reference to the object for which it is visited. Penalty under section 271(1) (c) is designed to act as a deterrent to prevent evasion of tax.
When an assessee is not liable to pay any tax, it is indeed farfetched to think that he has filed a loss return to obtain an advantage in the future. What is required to be seen is whether any motive for concealment existed in the relevant assessment year itself.
A similar reasoning has also found favour with the Allahabad High Court in the case of Chaturbhuj & Co., In re  39 ITR 337. It makes no difference whether that principle was invoked in the background of the Excess Profit Tax Act. The principle laid down is of universal applicability so far as taxation statutes are concerned. In commercial parlance also it is difficult to accept that the effect of reduction of quantum of loss results in any income. The effect of any addition made is to reduce the returned loss and it cannot be said that the assessee has suppressed some income which would have attracted liability to tax.
this also shows that it will be proper to attribute to the word income in clause (iii) of section 272(1) the meaning of a positive income and not a negative income, Such an interpretation will avoid any conflict between the concept of mens rea and the provisions of the clause." A similar question came to be considered by the Madhya Pradesh High Court after the decision of the Tribunal quoted above in CIT v. Jaora Oil Mill  129 ITR 423. The High Court has held that for the purposes of levying penalty for concealment of income the loss returned, which has been later on ignored at the time of assessment and income is computed, cannot be held to be concealed income for the purpose of levy of penalty. The relevant observations of the High Court after quoting the relevant clauses of section 271(1) (v) are quoted below : Income has been defined under section 2(24) of the IT Act. It is an inclusive definition and it covers even such items which are not income in the natural sense of the word. The concept of income has been elaborately discussed by various authorities and we find a useful discussion at pp. 90 to 99 of Kanga & Palkhivalas Book, 7th edn., Vol.
1. It is not necessary for us to discuss in detail the natural or the statutory meaning of the word income, but even in its broadest connotation, it refers to monetary return coming in and is conceptually contradictory to loss. Section 4 of the Act taxes income and not loss.
The contention that a loss can be used to set off the income in a particular year and can be carried forward under certain circumstances to the following assessment years will not by logic convert it into an income." (p. 425) Taking note of the view taken by the Amritsar Bench earlier and the other authorities of the High Court, it has to be held that the assessee cannot be punished for the concealment of income either with or without the help of Explanation to section 271(1) (c).
5. There is another aspect also. Once it is held that Explanation to section 271(1) (c) will not be attracted when both loss is returned and computed, in the assessees case penalty will not normally be leviable in respect of the two cash credits added as per the ratio of the Supreme Court decision in CIT v. Anwar Ali  76 ITR 696. It is clear from the reading of the order of the Commissioner (Appeals) in quantum proceedings that the assessee could not produce more evidence in support of the two cash credits as both the creditors were not available and the addition came to be made for assessees failure to substantiate the explanation given. Further it is seen from the assessees explanation dated 27-6-1980 in response to show-cause notice that it could not produce the two creditors before the ITO as both of them were not available in India when the proceedings were taken up by the ITO for making assessment and that it had led sufficient secondary evidence in support of the genuineness of the cash credits in the shape of advocates letters, statements of creditors brother and copies of bank account, etc. to show that the creditors were men of means and they were in a position to advance the loans, which they, in fact, did, etc. It was also pointed out in the explanation that in addition to the loans the two creditors had also made investment in shares of the assessee-company, which investment was considered to be in order by the ITO and only the loans were doubted. Finally, it was pointed out that the company had suffered loss and was in need of funds and that there was a change in management and in these circumstances, there could not be any occasion for it to introduce cash credits in its books of account. We refer to these circumstances to show that the assessee had led evidence, which it could furnish but that was found to be unacceptable and the loans were treated to be not satisfactorily explained. In such circumstances, no penalty for concealment of income will be attracted.
6. In the result, we delete the penalty of Rs. 1,82,221 sustained by the Commissioner (Appeals) and allow the assessees appeal.