In a case involving Virtual Soft Systems Ltd. v. Commissioner of Income Tax, Delhi, a Division Bench questioned whether a penalty under Section 271(1)(c) of the Income Tax Act, 1961 ... could be imposed if the returned income was a loss. This issue arose after the Finance Act, 2002 amended Explanation 4 to Section 271(1)(c)(iii), with effect from April 1, 2003. The department argued that the amendment was clarificatory and thus had retrospective effect. However, the Court rejected this argument, stating that the amendment, indicated it was not retrospective. The matter was referred to a larger Bench for further consideration of the amendment's true effect.