COMMISSIONER OF INCOME TAX-I LUDHIANA vs. M/S VARDHMAN ACRYLICS LTD

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 14.6.2013, Annexure A.IV passed by Income Tax Appellate Tribunal, Chandigarh Bench ‘A’, Chandigarh (in short, “the Tribunal') in ITA No.988/CHD/2012, for the assessment year 2005-06, claiming following substantial questions of law:- “i) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is justified in law in upholding cancellation of penalty under section 271(1) (c) even though the claim of the assessee treating sales tax subsidy was contrary to the decision of juri ictional High Court in the case of Abhishek Industries 286 ITR 1 (P&H) and also in assessee’s own case? ii) Whether on the facts and in the circumstances of the case, the claim of the assessee amounted to furnishing of inaccurate particulars in view of direct judgment of juri ictional High Court in the case of Abhishek Industries 286 ITR 1? iii) Whether on the facts and the circumstances of the case, the Hon’ble ITAT was justified in law in upholding the order of learned CIT(A) in which penalty imposed under section 271(1) (c) was deleted by the learned CIT(A) ignoring the fact that though the income has been assessed under section 115JB of Income Tax Act, 1961 any additions made to the income of assessee has effect on computation of total income as per normal provision and thus affecting the carry forward of losses and MAT credit available with the assessee in the future, thereby involving the issue of concealment of income?”

A few facts relevant for the decision of the controversy involved, as narrated in the appeal, may be noticed. The assessee is a sole proprietor who is engaged in the business of manufacturing of the Acrylic Staple Fibre and Tow. It filed its return of income for the assessment year 2005-06 on 28.10.2005 declaring nil income. The assessee paid tax under section 115JB of the Act on book profit of ` 23,80,40,824/-. The Assessing Officer completed assessment under section 143(3) of the Act on 28.12.2007, Annexure A.1 at nil income. Penalty under section 271(1)(c) of the Act was imposed vide order dated 23.3.2011, Annexure A.II for furnishing inaccurate particulars for treating the sales tax subsidy/exemption amounting to ` 4,09,86,935/- as capital receipt instead of revenue receipt. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 4.7.2012, Annexure A.III, the CIT(A) allowed the appeal and quashed the penalty order levied against the assessee and deleted the penalty of `1,49,98,144/-. Aggrieved by the order, the revenue filed appeal before the Tribunal. Vide order dated 14.6.2013,Annexure A.IV, the Tribunal dismissed the appeal. Hence the instant appeal by the revenue.

Learned counsel for the appellant-revenue relying upon The relevant observations of the Delhi High Court read thus:- “The question, however, in the present case, would be, as to whether furnishing of such wrong particulars had any effect on the amount of tax sought to be evaded. Under the scheme of the Act, the total income of the assessee is first computed under the normal provisions of the Act and tax payable on such total income is compared with the prescribed percentage of the “book profits” computed under section 115JB of the Act. The higher of the two amounts is regarded as total income and tax is payable with reference to such total income. If the tax payable under the normal provisions is higher, such amount is the total income of the assessee, otherwise, “book profits” are deemed as the total income of the appellant in terms of section 115JB of the Act.” It was also recorded:- “No doubt, there was concealment but that had its repercussions only when the assessment was done under the normal procedure. The assessment as per the normal procedure was, however, not acted upon. On the contrary, it is the deemed income assessed under section 115JB of the Act which has become the basis of assessment as it was higher of the two. Tax is thus paid on the income assessed under section 115JB of the Act. Hence when the computation was made under section 115JB of the Act, the aforesaid concealment had no role to play and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all.” We are fully in agreement with the view expressed in the aforesaid pronouncement.

The Tribunal placing reliance on judgment of Delhi High Court in Nalwa Sons Investments Limited's case (supra) noticed as under:- “7. We have heard the rival submissions carefully and find that Hon’ble Delhi High Court has clearly held that once the income is assessed under MAT provisions then there cannot be any concealment and penalty cannot be levied under section 271(1) (c) of the Act. The observation of the Hon’ble Delhi High Court is as under:- 'Under the scheme of the Income Tax Act, 1961, the total income of the assessee is first computed under the normal provisions of the Act and tax payable on such total income is computed with the prescribed percentage of the book profits computed under section 115JB of the Act. The higher of the two amounts is regarded as total income and tax is payable with reference to such total income. If the tax payable under the normal provisions is higher, such amount is the total income of the assessee, otherwise the book profits are deemed as the total income of the assessee in terms of section 115JB of the Act. Where the income computed in accordance with the normal procedure is less than the income determined by legal fiction namely, the book profits under section 115JB of the Act and the income of the assessee is assessed under section 115JB and not under the normal provisions, the tax is paid on the income assessed under section 115JB of the Act. Concealment of income would have no role to play and would not lead to tax evasion. Therefore, penalty cannot be imposed on the basis of disallowance or additions made under the regular provisions.' We further find that the decision of Hon’ble Delhi High Court by holding that there was no concealment. However Hon’ble High Court reversed that decision. This decision is distinguishable because in case of CIT v Nalwa Sons Investment Limited (supra) penalty has been deleted by holding that no concealment can be inferred where income has been assessed under section 115JB of the Act. Accordingly, following the decision of Hon’ble Delhi High Court in CIT v Nalwa Sons Investments Ltd. (supra), we hold that the learned CIT(A) has correctly deleted the penalty.”

In view of the above, we do not find any ground to differ with the approach adopted by the Tribunal. Consequently, no substantial question of law arises and the appeal stands dismissed. (Ajay Kumar Mittal) Judge August 04, 2014 (Fateh Deep Singh) Judge ‘gs’ 6