Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN, JUDICIAL & HON’BLE SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE HON’BLE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA No. 6437/Mum/2017 (Assessment Year: 2006-07)
In the matter of Deputy Commissioner of Income Tax 3(2)(1), Aayakar Bhawan, M.K. Rd, ……………. Appellant New Marine Lines, Mumbai
v/s Mukund Ltd, Bajaj Bhavan, 3rd Floor, 226 Nariman Point, Mumbai ……………. Respondent PAN-AAACM5008R
Revenue by :Shri. D.G. Pansari, Sr. AR CIT Assessee by :Shri. Kirit Kamtar & Parth Achwal, Advs Date of Hearing- 22.4.2019 Date of Order – 14.05.19
ITA No. 6437/Mum/2017
O R D E R SANDEEP GOSAIN, JUDICIAL MEMBER.
This appeal filed by the Revenue against the order of Commissioner of Income Tax-(Appeals)-8, Mumbai dated 14th August, 2017 relating to Assessment Years 2006-07.
All the grounds no. 1 to 4 raised by the Revenue are inter related and inter connected and relates to challenging the orders of Ld. CIT(A) in deleting the penalty of Rs. 34,41,671/- levied under section 271(1)(c) of the Income Tax Act. Therefore, we thought it fit to dispose of these grounds by the present consolidated order.
The brief facts of the case are that the assessee filed its return of income on 10.11.2006 declaring income of Rs. NIL. During the course of assessment proceedings, it was observed by the AO that the assessee had not added back to the book profit an amount of Rs. 4,06,19,842/- being expected loss on assets and as the same was nothing, but a provision on account of assets, the Assessing Officer added the same to income u/s 115 JB of the Act. Also an addition of Rs. 69,852/- was made as the same was receipts that had not been accounted by the company in its books of accounts
ITA No. 6437/Mum/2017
which were reflected in AIR information. Therefore, initiated the penalty proceedings.
Although the assessee had challenged the quantum proceedings, but Ld. CIT(A) dismissed the appeal and confirmed the additions. Therefore considering these facts, AO levied penalty upon the assessee.
Aggrieved by the order of penalty, assessee preferred appeal before the learned CIT(A) and learned CIT(A) after considering the case of both the parties allowed the appeal filed by the assessee and deleted the penalty imposed by the AO.
Aggrieved by the order of learned CIT(A), the Revenue has filed the present appeal.
We have heard the counsel of both the parties and also perused the orders passed by the Revenue authorities, judgments cited by both the parties and material placed on record. After we decide the merits of the case, it is necessary to evaluate the orders passed by learned CIT(A) while dealing with the above grounds. Learned CIT(A) has dealt with these grounds in para no. 3 to 6 and its order, the relevant portion is contained in para no. 5.1 to 5.1.7 of its order and the same are reproduced below:-
5.1 Ground No. 1-6 3
ITA No. 6437/Mum/2017
5.1.1 All the grounds of appeal relate to levy of penalty u/s 271(1)(c) of Income Tax Act, 1961 amounting to Rs. 34,41,671/-. The Assessing Officer has observed that, “the assessee had not added back to the book profits an amount of Rs. 4,06,19,842/- being expected loss on assets and the same was nothing but a provision on account of impairment of assets, the Assessing Officer added the same to the income u/s 115JB of the Income Tax Act. Also, an addition of Rs. 69,852/- was made as the same was the receipts that had not been accounted by the company in its books of accounts which were reflected in AIR are information”. Addition u/s 115 JB was confirmed in 1st appeal whereas the additions w.r.t. AIR mismatch were partly allowed subject to verification. The assessing officer has imposed penalty u/s 271(1)(c) on the above additions. 5.1.2 It is not in dispute that the first basis of penalty was adjustment to book profit u/s 115 JB. In deciding this issue, I place reliance on the Apex Court's verdict in the case of CIT Vs Nalwa Sons Investment Ltd. [ 2012] 21 taxmann.com wherein SLP against judgment of Delhi High Court in CIT vs. Nalwa Sons Investment Ltd. [2010] 194 Taxman 387 was dismissed. The Hon'ble Delhi High court held that when assessment was made on income computed under section 115JB and tax had been paid on income so computed, penalty under section 271(1)(c) would not be imposed with reference to additions that would have been made taking into account concealment made by assessee while making assessment under normal procedure. 5.1.3 While pronouncing the above verdict, the Hon'ble Delhi High Court distinguished the decision of CIT v Gold Coin Health Food (P.) Ltd 304 ITR 308 (SC) as follows: The judgment in the case of Gold Coin Health Food (P.) Ltd. obviously, does not deal with such a situation. What was held by the Supreme Court in that case is that even if in the income-tax return filed by the assessee losses are shown, penalty can still be imposed in a case where on setting off the concealed income against any loss incurred by the assessee under other head of income or brought forward from earlier years, the total income is reduced to a figure lower than the concealed income or even is a minus figure. The Court was of the opinion that 'the tax sought to be evaded' will mean the tax chargeable not as if it was the total income. Once this rationale given by the - Supreme Court to the Explanation 4 was applied to the instant case, it would be difficult to sustain the penalty proceedings. Reason was simple. No doubt, there 4
ITA No. 6437/Mum/2017
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 in the instant case. On the contrary, it was deemed income assessed under section 115JB which had become the basis of assessment, as it was higher of the two. Tax was, thus, paid on the income assessed under section 115JB. Hence, when the computation was made under section 115JB, the aforesaid concealment had no role to play and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all.
5.1.4 Further reliance is placed on following rulings
CIT vs. Aleo Manali Hydro Power (P) Limited 2013 38 taxmann.com 288 (All) CIT vs. Jindal Polyester & Steel Ltd. [2014] 52 taxmann.com 259 (All)
5.1.5. It is also pertinent to note the recent amendment in Explanation 4 of 'sub section (1) of section 271 by Finance Act 2015. The above amendment is applicable from April 01, 2016 and the same has been carried out with a view to overcome abovementioned legal pronouncements. In this regard, reference is invited to Memorandum explaining provisions in Finance Bill 2015. In part G "Rationalization Measures" of the memorandum while explaining the amendment related to amount of tax sought to be evaded for the purposes of penalty for concealment of income under clause (iii) of sub-section (1) of section 271 it is stated as follows: - Under the existing provision contained in clause (c) of sub- section (1) of section 271 of the Act penalty for concealment of income .or furnishing inaccurate particulars of income is levied on the "amount of tax sought to be evaded", which has been defined, inter-alia, as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income. Problems have arisen in the computation of amount of tax sought to be evaded where the concealment of income or furnishing inaccurate particulars of income occurs in the 5
ITA No. 6437/Mum/2017
computation of income under provisions of section 115JB or 115JC of the Act and also under the provisions other than the provisions of section 115JB or 115JC of the Act (hereafter referred as general provisions). Further, courts have held that penalty under section clause (c) of sub-section (1) of section 271 cannot be levied in cases where the concealment of income occurs under the income computed under general provisions and the tax is paid under the provisions of section 115JB or 115JC of the Act. Tax paid under the provisions of section 115JB or 115JC over and above the tax liability arising under general provisions is available as credit for set off against future tax liability. Understatement of income and the tax liability thereon under general provisions results in larger amount of such credit becoming available to the assessee for set off in future years. Therefore, where concealment of income, as computed under the general provisions, has taken place, penalty under clause (c) of sub-section (1) of section 271 should be leviable even if the tax liability of the assessee for the year has been determined under provisions of section 115JB or115JC of the Act. Accordingly, it is proposed to amend section 271 of the Act so as to provide that the amount of tax sought to be evaded shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under the provisions of section 115JB or 115JC. However, if an amount of concealment of income on any issue is considered both under the general provisions and provisions of section 115JB or 115JC then such amount shall not be considered in computing tax sought to be evaded under provisions of section 115JB or 115JC. Further, in a case where the provisions of section 115JB or 115JC are not applicable, the computation of tax sought to be evaded under the provisions of section 115JB or 115JC shall be ignored. This amendment will take effect from 1st April, 2016 and will accordingly apply, in relation to the assessment year 2016-17 and subsequent assessment years." 5.1.6 Thus it is very clear that penalty under section 271(1)(c) is not maintainable for the assessment year 2006-07 wherein the assessment was on income computed under section 115JB and tax 6
ITA No. 6437/Mum/2017
had been paid on so computed and the addition for interest paid to income tax did not lead increased tax. Moreover, the ratio of jurisdictional High Court in CIT vs Yahoo India Private Limited (216 Taxman 66) clearly stated that the very fact that an addition has been made due to a provision which has been amended retrospectively indicates that it was a debatable issue and, therefore, no penalty u/s. 271 (1 )(c) is imposable. 5.1.7 As regards to addition based on AIR, it is contended that the impugned amount has and duly accounted for in the books of the appellant for FY 2006-07 and reflected in return of income filed for AY 2007-08. Therefore, the assessing officer is directed to verify the same. Subject to above verification and respectfully following the ratio of decisions cited above, these grounds of appeal are allowed.
After having heard the counsels for both the parties and considering the facts of the present case, we find that the AO had observed that, “the assessee had not added back to the book profits an amount of Rs. 4,06,19,842/- being expected loss on assets and the same was nothing but a provision on account of impairment of assets, the Assessing Officer added the same to the income u/s 115JB of the Income Tax Act. Also, an addition of Rs. 69,852/- was made as the same was the receipts that had not been accounted by the company in its books of accounts which were reflected in AIR are information”. Therefore additions u/s 115 JB was confirmed, whereas the additions w.r.t. AIR mismatch were partly allowed subject to verification. It is an undisputed fact that the first basis of penalty was adjustment to book profit u/s 115 JB. In this respect, we are of the view that Section 271(1)(c) of the Act provides that, 7
ITA No. 6437/Mum/2017
penalty is levied with respect to the amount of tax sought to be evaded. In such a scenario, where no tax is evaded, then the question of levy of penalty would not arise. As per the facts, the assessee has paid tax on deemed income under section 11 5JB of the Act, which is more than the income assessed as per the normal provisions of the Act. Therefore, the addition, if made to the total income as per the normal provisions of the Act, would not have any effect on the tax payable, since tax is payable on the deemed income under section I15JB of the Act. In this regard, we rely upon the decision of Hon’ble Supreme Court in the case of Nalwa Sons Investment Limited (SLP11856412011), wherein it was held that penalty cannot be imposed with reference to additions made while computing normal income since such income pales into insignificance for purpose at içosion of tax. The rd extracts of the decision is reproduced below
'....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 115 JB 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 115 JB of the Act. Hence, when the computation was made under Section 115 JB of the Act, the 8
ITA No. 6437/Mum/2017
aforesaid concealment had no role to play and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all. 26. The upshot of the aforesaid discussion would be to sustain the order of the Tribunal, though on different grounds. Therefore, while we do not agree with the reasoning and approach of the Tribunal, for our reasons disclosed above, we are of the opinion that penalty could not have been imposed even in respect of claim of depreciation made by the assessee. This appeal is accordingly dismissed."
Since Ld. CIT(A) has also relied upon the aforementioned judgments and no contrary judgments have been placed on record, by the revenue, which is applicable on the facts of the present case, therefore we are of the view that Ld. CIT(A) had correctly deleted the penalty. Even otherwise it is also pertinent to note the recent amendment in Explanation 4 of 'sub section (1) of section 271 by Finance Act 2015. The above amendment is applicable from April 01, 2016 and the same has been carried out with a view to overcome abovementioned legal pronouncements. In this regard, reference is invited to Memorandum explaining provisions in Finance Bill 2015. In part G "Rationalization Measures" of the memorandum while explaining the amendment related to amount of tax sought to be evaded for the purposes of penalty for concealment of income
ITA No. 6437/Mum/2017
under clause (iii) of sub-section (1) of section 271 it is stated as follows: -
Under the existing provision contained in clause (c) of sub- section (1) of section 271 of the Act penalty for concealment of income .or furnishing inaccurate particulars of income is levied on the "amount of tax sought to be evaded", which has been defined, inter-alia, as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income. Problems have arisen in the computation of amount of tax sought to be evaded where the concealment of income or furnishing inaccurate particulars of income occurs in the computation of income under provisions of section 115JB or 115JC of the Act and also under the provisions other than the provisions of section 115JB or 115JC of the Act (hereafter referred as general provisions). Further, courts have held that penalty under section clause (c) of sub-section (1) of section 271 cannot be levied in cases where the concealment of income occurs under the income computed under general provisions and the tax is paid under the provisions of section 115JB or 115JC of the Act. Tax paid under the provisions of section 115JB or 115JC over and above the tax liability arising under general provisions is available as credit for set off against future tax liability. Understatement of income and the tax liability thereon under general provisions results in larger amount of such credit becoming available to the assessee for set off in future years. Therefore, where concealment of income, as computed under the general provisions, has taken place, penalty under clause (c) of sub-section (1) of section 271 should be leviable even if the tax liability of the assessee for the year has been determined under provisions of section 115JB or115JC of the Act. Accordingly, it is proposed to amend section 271 of the Act so as to provide that the amount of tax sought to be evaded shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under the 10
ITA No. 6437/Mum/2017
provisions of section 115JB or 115JC. However, if an amount of concealment of income on any issue is considered both under the general provisions and provisions of section 115JB or 115JC then such amount shall not be considered in computing tax sought to be evaded under provisions of section 115JB or 115JC. Further, in a case where the provisions of section 115JB or 115JC are not applicable, the computation of tax sought to be evaded under the provisions of section 115JB or 115JC shall be ignored. This amendment will take effect from 1st April, 2016 and will accordingly apply, in relation to the assessment year 2016-17 and subsequent assessment years."
Thus as per our above discussion, it is very clear that penalty under section 271(1)(c) is not maintainable. No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT. Therefore, there are no reasons for us to interfere into or deviate from the findings so recorded by the Ld. CIT. Hence, we are of the considered view that the findings so recorded by the Ld. CIT are judicious and are well reasoned. Resultantly, these grounds raised by the revenue stands dismissed.
ITA No. 6437/Mum/2017
In the net result, the appeal filed by the revenue stands dismissed with no order as to cost.
Order pronounced in the Open Court on 14.05.2019
Sd/- Sd/- MANOJ KUMAR AGGARWAL SANDEEP GOSAIN ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 14.05.2019
Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file.
By Order SH (Dy./Asstt.Registrar) ITAT, Mumbai