THE DY. COMMISSIONER OF INCOME TAX CIRCLE-1(1)(2), AHMEDABAD vs. M/S. D.B. CORP. LTD., AHMEDABAD

आदेश/O R D E R

PER PRADIP KUMAR KEDIA - AM:

The captioned appeal has been filed at the instance of the

Revenue against the order of the Commissioner of Income Tax

(Appeals)-1, Ahmedabad (‘CIT(A)’ in short), dated 30.08.2016

arising in the penalty order dated 28.05.2015 passed by the

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Assessing Officer (AO) whereby penalty imposed by the AO

amounting to Rs. 1,03,66,151/- levied under s. 271(1)(c) of the

Income Tax Act, 1961 (the Act) concerning assessment year 2007-

08.

2007-08 declaring loss as per the normal provisions of the Act at

Rs.84,99,417/- but however, computed book profit at

Rs.67,29,80,215/- under the provisions of Section 115JB of the

Act. The assessment was completed under s.143(3) of the Act

determining the book profit under s.115JB of the Act at

Rs.74,67,04,328/- after making following adjustments to the book

profit:

1 Adjustment of deferred tax liability 2,16,37,588 2 Provision for doubtful debts 6,84,79,558 3 Provision for doubtful advances 22,72,803 4 Provision for doubtful encashment 29,71,752

deleted in the quantum appeal. The AO however imposed penalty

for addition to the book profits in respect of other three

adjustments listed above and determined the penalty at

Rs.1,03,66,151/-.

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assessee and cancelled the penalty. The relevant operative para of

the order of the CIT(A) reads as under:

“2.3. I have carefully considered the penalty order and submission filed by the appellant. The Company has filed return of income for AY 2007-2008 on 31 October 2007 declaring a loss as per normal computation of Rs 84,99,417/- and income under Section 115JB at Rs 67,29,80,215/-. The return of income was revised on 26 December 2007, wherein the income was declared same as per original return of income; however the income as per Section 115JB was reduced to Rs.65,13,42,627/-.The assessing officer while passing the assessment order made the following adjustments to book profits and determined the book profits under Section 115JB of the Act as Rs 74,67,04,328:-

• Addition of deferred tax liability- Rs 2,16,37,588 • Addition of provision of doubtful debts - Rs 6,84,79,588 • Addition of provision of doubtful advances - Rs 22,72,803

However, the Finance Act 2008 has amended the Explanation 1 to Section 115JB with retrospective effect from 1 April 2001 to provide that book profit should be increased by deferred tax and provision thereof. Further Finance (No 2) Act, 2009 also amended Explanation 1 to Section 115JB retrospective effect from 1 April 2001 to provide that book profits should be increased by amount set aside as provision for diminution in the value of any asset. Accordingly, while passing the assessment order under the provisions of Section 143(3) of the Act the amounts of deferred tax liability provisions, provisions of doubtful debts and provision of doubtful advances were added to the book profits as per the clause (h) and clause (i) of Explanation 1 to section 115JB of the Act (inserted vide Finance Act, 2008 and vide Finance (No 2) Act, 2009 respectively with retrospective effect from 1 April 2001).

2.4. In view of the above facts, the A.O. has stated that the assessee has not added back the above provisions while working out the book profits. As the provisions has to be added back while working out the book profit, the same were added to the book profit and penalty proceedings for furnishing inaccurate particulars of income was initiated. It is worthwhile to note that in view of explanation 1 to section 115JB, it has been categorically mentioned under clause (c) and clause (i) that amount of provision is to be increased while computing book profit. In view of legal position discussed, the assessee is held to have furnished inaccurate particulars of income in the return of income filed by him and as per decision of Hon'ble Supreme Court in the case of Reliance Petroproduct (P) Ltd., the

ITA No.2880/Ahd/16 [DCIT vs. M/s D.B. Corp. Ltd.] A.Y. 2007-08 - 4 -

liability of penalty arises. In view of the above facts the A.O. was satisfied that the assessee had furnished inaccurate particulars of income and was liable for penalty u/s 271(1)(c) of the Act. Therefore, penalty @100% the amount of tax sought to be evaded on account of filing of inaccurate particulars of income, which works out of Rs.1,03,66,151/- against the maximum penalty of Rs. 3,70,98,453/- on the assessee, was levied by the A.O. 2.5. On the other hand, the appellant has submitted that the demand raised by the AO vide the penalty order arises out of the following retrospective amendment made to Section 115JB of the Act:- • The amount of deferred tax and provision therefore [inserted vide Finance Act 2008 with retrospective effect from 1 April 2001]; • The amount or amounts set aside as provision for diminution in the value of any asset [inserted vide Finance Act [No.2] of 2009 with retrospective effect from 1 April 2001] It is noteworthy that prior to such amendments and as per law which stood at the time of filing of the return for the A.Y. 07-08, no adjustment with respect to (i) provision for deferred tax liability and (ii) provision for doubtful debts and/or doubtful advances were required to be made. The afore-mentioned position is supported by the following judicial precedents: c. In respect of provision for deferred tax liability [illustrative]: • CIT v Balarampur Chini Mills Limited [316 ITR 374] [Cal]

d. In respect of provision for doubtful debts/advances [illustrative]: • HCL Comnet Systems [305 ITR 409] [SC]; • Eicher Ltd [159 Taxman 293] [DEL]; • CIT v Hewlett Packard India Private Limited [314 ITR 55] [DEL] At the outset, it is submitted that the AO has not challenged/disallowed the (i) provision for deferred tax (ii) provision for doubtful debts and (iii) provision for doubtful advances on merits i.e. the additions/adjustments to the book profit computed under Section 115JB of the Act have been made only by relying upon the retrospective amendments made under the Act. 2.6 The appellant has further submitted that there is a fair clarity that there can be no retrospective levy of a penalty, nor can an ingredient of offence be created retrospectively. In this regard, Article 20(1) of the Constitution of India provides as under:

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"No person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the \irne of the commission of the offence"

Further, it is respectfully submitted that penalty under Section 271(1)(c) cannot be levied in cases which involve a debatable issue or are effected by retrospective amendments made to the Act. The law in this regard is well settled and reliance in this regard is placed by appellant on the following judicial precedents:-

i) CIT vs. Hindustan Electro Graphites Ltd. (243 ITR 48) wherein the Hon'ble Supreme Court has held that no penal action can be brought against an assessee as a result of any retrospective amendment in law, especially when the assessee could not foresee such law at the time of filing of return of income. The relevant extract of the judgment \has been reproduced below:- "An assessee cannot be imputed with clairvoyance. When the return was filed, the assessee could not possibly have known that the decision on the basis of which cash compensatory support had been claimed as not amounting to the assessee's income ceased to be operative by reason of retrospective legislation. "

ii) The Hon'ble Ahmedabad Income Tax Appellate Tribunal in the case of Sun Petrochemicals Pvt. Ltd v ITO [ITA No. 1010/Ahd/2009] have held that no interest can be charged when there is retrospective amendment in the Act. If no interest can be charged then the question of levy of penalty does not arise in view of retrospective amendment.

iii) CIT v Yahoo India Pvt. Ltd (ITA 2014 of 2012) wherein the Hon'ble Bombay High Court has recently held that a retrospective amendment to the Act is an indicator of the fact that the concerned issue was debatable and therefore, there can be no levy of penalty under Section 271(1)(c) in such cases.

iv) The Hon'ble Ahmedabad Income Tax Appellate Tribunal in its very recent ruling pronounced on 2 May 2016 in the case of ITO v N.K. Industries Ltd [ITA No. 1910/Ahd/2011] have held that penalty cannot be levied under Section 271(1)(c) of the Act due to additions made by virtue of retrospective amendments in the Act.

2.7. It is seen that demand raised by the penalty order arises out of the following retrospective amendment made to Section 115JB of the Act on i), the amount of deferred tax and provision therefore

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[inserted vide Finance Act 2008 with retrospective effect from 1 April 2001]; ii) the amount or amounts set aside as provision for diminution in the value of any asset [inserted vide Finance Act [No.2] of 2009 with retrospective effect from 1 April 2001]. It is seen that prior to such amendments and as per law which stood at the time of filing of the return, for the subject AY, no adjustment with respect to (i) provision for deferred tax liability and (ii) provision for doubtful debts and/or doubtful advances were required to be made. This fact is also supported by the judicial pronouncements (as supra). There can be no retrospective levy of a penalty, nor can an ingredient of offence be created retrospectively as provided in Article 20(1) of the Constitution of India. CIT vs. Hindustan Electro Graphites Ltd. (243 ITR 48) wherein the Hon'ble Supreme Court has held that no penal action can be brought against an assessee as a result of any retrospective amendment in law, especially when the assessee could not foresee such law at the time of filing of return of income. CIT v Yahoo India Pvt. Ltd (ITA 2014 of 2012) wherein the Hon'ble Bombay High Court has recently held that a retrospective amendment to the Act is an indicator of the fact that the concerned issue was debatable and therefore, there can be no levy of penalty under Section 27(1)(c) in such cases. The Hon'ble Ahmedabad Income Tax Appellate Tribunal in its very recent ruling pronounced on 2 May 2016 in the case of ITO v N.K. Industries Ltd [ITANo. 1910/Ahd/2011] have held that penalty cannot be levied under Section 271 (1)(c) of the Act due to additions made by virtue of retrospective amendments in the Act. The ratio of Hon'ble Supreme Court in the case of CIT, Ahmedabad vs. Reliance Petroproduct (P) Ltd. (322 ITR 158) is not applicable in the instant case as cited by the A.O. This case is on different footings and the A.O. has missed this point. In view of the above facts of the case and the judicial ratios of the Courts, it is seen that in all the cases, it has been held that a retrospective amendment to the Act is an indicator of the fact that the concerned issue was debatable and therefore, there can be no levy of penalty under Section 271(1)(c) in such cases. The A.O. is directed to delete the penalty levied of Rs.1,03,66,151/-. The ground of the appellant is allowed.”

can be imposed on various adjustments made to the book profit

ITA No.2880/Ahd/16 [DCIT vs. M/s D.B. Corp. Ltd.] A.Y. 2007-08 - 7 -

consequent upon retrospective amendment in the Act. It is

noticed that the return of income was filed on 31.10.2007.

Thereafter, by virtue of Finance Act, 2008, the Explanation 1 to

Section 115JB of the Act was amended with retrospective effect

from 01.04.2001 to provide book profit under s.115JB of the Act

should be increased by the deferred tax liability as well as

towards provisions for diminution in the value of any asset

including provisions for doubtful debts and provision for doubtful

advances. The retrospective amendment resulted in increase in

the ‘book profit’ determined by the assessee as per the pre-

existing law prevailing at the time of filing return of income. It is

ostensible in the circumstances, where additional tax liability is

fastened upon the assessee owing to a retrospective amendment of

law, the penalty on sum flowing from retrospective amendment

under s.271(1)(c) of the Act is inconceivable and cannot be

comprehended by any stretch of imagination. The CIT(A) in its

detailed order has rightly held that the action of the AO has no

semblance of acceptability.

culpability on the part of the assessee, the action of the AO is

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overtly unjustified. We thus decline to interfere with the order of

the CIT(A).

This Order pronounced in Open Court on 19/12/2018

Sd/- Sd/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 19/12/2018 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।