(i) “Income” includes “loss” as held in CIT vs. Harprasad 99 ITR 118 (SC). Expl. 4 to s. 271 (1) (c) as it stood prior to the amendment by the Finance Act 2002 has to be understood in this background.

(ii) The recommendations of the Wanchoo Committee and the CBDT Circular make it clear that the amendment to Expl. 4 to s. 271(1)(c) was to make explicit what was otherwise implicit i.e. that penalty can be imposed even in a case where the assessment results in a loss.

(iii) In interpreting a statute, the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and, whether it will have retrospective effect or it was not so.

(iv) Applying this test, the amendment to Explanation 4 to s. 271(1)(c), though made with effect from 1st April 2003, should be treated as clarificatory and retrospective.

(v) Accordingly, Virtual Soft Systems Ltd. vs. CIT 289 ITR 83 is overruled.