Taxable liability

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Suresh Kumawat (Querist)
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05 February 2013 taxable liability in case of expense which are disallowed even though the income from business remains under loss after such dis allowances. ??????

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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05 February 2013 The Tax liability may not arise but in case of tax evasion or wrong claims made, penalty may be levied.
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Disallowance made on the discretionary basis by A O are not subject to penalty. Some thing cogent should be brought on the record for invoking penalty.
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Suresh Kumawat

Suresh Kumawat (Querist)
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05 February 2013 Penalty could not be levied where the Total Income of the Assessee is in negative i.e.
loss after the completion of the Assessment Proceedings under the Income-tax Act,
1961. Commissioner of Income Tax vs. Rajasthan Vanaspati Product Limited, (2008) 8
DTR (Raj) 282, were it has been held that, Penalty under section 271(1)
(c)—Concealment—Assessment at loss—Penalty under s. 271(1)(c), prior to amendment
of Explanation 4 thereof by the Finance Act, 2002, w.e.f. 1st, April, 2003, could not be
imposed in cases where, even after adding the concealed income, the assessed income
remained a loss. And concluded that, Penalty under s. 271(1)(c), prior to amendment of
Explanation 4 thereof by the Finance Act, 2002, w.e.f. 1st April, 2003, could not be
imposed in cases where, even after adding the concealed income, the assessed income
remained a loss.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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26 July 2025 Hey! Here's a clear summary about taxable liability when expenses are disallowed but business still shows a loss:

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### Situation:

* **Expenses disallowed by Assessing Officer (AO)**
* Business income remains a **loss even after disallowance**

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### Tax Liability:

* **No tax liability arises** if the total income after disallowance is still a loss.
* Since no taxable income remains, **income tax payable is zero**.

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### Penalty Implications:

* **Penalty under Section 271(1)(c)** (for concealment or furnishing inaccurate particulars) **cannot be levied if income remains negative (loss) after disallowance.**
* This is supported by case law:

* **Commissioner of Income Tax vs. Rajasthan Vanaspati Product Limited (2008) 8 DTR (Raj) 282**
* The court held that **penalty cannot be imposed if, even after adding concealed income, assessed income remains loss** (before 1 April 2003).
* However, discretionary disallowances by AO without strong basis usually **do not attract penalty**.
* Penalty will only be invoked if there is **evidence of concealment or willful misstatement**.

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### Summary:

| Condition | Tax Liability | Penalty |
| ----------------------------------------- | ------------------- | ------------------------------------------- |
| Loss after disallowance remains loss | No tax payable | No penalty under 271(1)(c) |
| Income becomes taxable after disallowance | Tax on added income | Penalty possible if concealment established |

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If you want, I can help you draft a written explanation or find more case laws on this. Let me know!

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