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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member)
The Captioned appeal by Assessee for Assessment Year [AY] 2010- 11 assails the order of Ld. Commissioner of Income Tax (Appeals)-8 [CIT(A)], Mumbai dated 27/02/2015 qua confirmation of penalty of Rs.16,65,513/- u/s 271(1)(c) of the Income Tax Act,1961.
2. The registry has noted that the appeal is time barred by 17 days. However, the Ld. Counsel for Assessee [AR] drew our attention to the fact that the order of the Ld. CIT(A) was passed on 27/02/2015 and the same was communicated to the assessee on 09/04/2015 and the assessee has filed the appeal on 15/05/2015 which is within the statutory time period of 60 days and therefore, there was no delay in filing the appeal. The assessee inadvertently mentioned the wrong date of communication or order in Form No. 36 which has since been revised. The Ld. DR fairly conceded the same and could not controvert the said fact. Therefore, finding the appeal being filed within the statutory time limit, we proceed with the same on merits. 3. Facts leading to the dispute are that the assessee, being resident corporate assessee engaged in financial services, was assessed for impugned AY u/s 143(3) on 07/02/2013 at Rs. ‘Nil’ under normal provisions after set-off of unabsorbed depreciation and brought forward business losses of Rs.11.15 crores. In the quantum assessment, one of the addition Axis Capital Limited Assessment Year 2010-11 of Rs.49,00,010/- was related with expenses claimed for increase in authorized share capital, the same being capital in nature. Consequently, penalty proceedings were initiated against the same for furnishing of inaccurate particulars of income and finally the assessee was saddled with impugned penalty of Rs.16,65,513/- u/s 271(1)(c) read with Explanation-1 vide Assessing Officer [AO] order dated 30/08/2013. 4. Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 27/02/2015 where the assessee attributed the claim to inadvertent error while filing the return of income. It was further contended that since the assessee paid tax on book profits u/s 115JB, being higher than the normal profits and therefore, no penalty could be levied in view of Hon’ble Delhi High Court decision in the case of Nalwa Sons Investments Ltd. [327 ITR 543]. However, not convinced, the Ld CIT(A) confirmed the penalty against which the assessee is in appeal before us. 5. The Ld. AR drew our attention to CBDT circular No. 25/2015 dated 31/12/2015 issued in consequence to the cited judgment of Hon’ble Delhi High Court. The Ld. AR explained that the assessee’s returned income was ‘Nil’ under normal provisions after set-off of unabsorbed depreciation and brought forward losses of earlier years and therefore, the assessee paid taxes on book profits of Rs.6.32 crores u/s 115JB. In the quantum assessment, the assessee suffered additions of Rs.69.63 Lacs in total out of which penalty proceedings were initiated against addition of Rs.49.00 Axis Capital Limited Assessment Year 2010-11 Lacs on account of expenses debited to Profit & Loss Account towards increase in authorized capital. However, the same were inadvertently claimed and the assessee upon noticing the error, accepted the quantum additions and did not file any further appeal before First Appellate Authority. However, the said addition / adjustment did not affected the assessee’s tax liability since the assessee was liable to pay tax on higher Book Profit u/s 115JB in view of the fact that it had unabsorbed depreciation and brought forward business losses which reduced the normal income to Rs.‘Nil’. Therefore, the tax liability as per returned income and assessed income being the same, no penalty could be levied on the assessee.
Per contra, Ld. DR drew our attention to the fact that the assessee fully knowing the expenses to be capital in nature, debited the same to Profit & Loss Account and claimed the same in the return of income and wrongly attributed the same to inadvertent error. Further, the action of debiting the said expenditure to Profit & Loss account has resulted into lowering of Book Profits u/s 115JB and tax liability of the assessee and therefore, the reliance on the said CBDT circular and the cited case law was misconceived.
The Ld. AR rebutted the same by contending that book Profit u/s 115JB computed by the assessee has not been disturbed by the revenue at any stage and therefore the revenue, at this stage, could not bring out altogether new facts / grounds to justify the penalty in the assessee’s appeal and the Ld. DR could not improve upon the case of lower authorities Axis Capital Limited Assessment Year 2010-11 from new angles. Further, the penalty has been initiated and levied only for quantum addition in normal income and therefore, the same stood squarely covered by the said circular.
We have heard the rival contentions and perused the relevant material on record. It is evident from the record that the returned income and assessed income under normal provisions have been computed as ‘Nil’ after set-off of unabsorbed depreciation and brought forward business losses. The quantum addition of Rs.69.63 Lacs has resulted into adjustment in the figures of unabsorbed depreciation & brought forward business losses. The tax payable figures of Rs.1.07 crores on book profits u/s 115JB has been accepted by the revenue as evident from ‘Income Tax Computation Form’ issued pursuant to assessment u/s 143(3) as placed on Page No. 54 of the paper book.
At this juncture, it would be prudent to extract the relevant portion of CBDT circular No. 25/2015 dated 31/12/2015 which reads as follows:- “Penalty under section 271(1)(c) wherein additions/disallowances made under normal provisions of Act but tax levied under MAT provisions under section 115JB/115JC, for cases prior to assessment year 2016-17 - Section 115JB of the Act is a special provision for levy of Minimum Alternate Tax on Companies, inserted by Finance Act, 2000 with effect from 1-4-2001.
Under clause (iii) of sub-section (1) of section 271 of the Act, penalty for concealment of income or furnishing inaccurate particulars of income is determined based 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 or income in respect of which inaccurate particulars had been filed.
In this context, Hon'ble Delhi High Court in the case of CIT v. Nalwa Sons Investments Ltd. [2010] 194 Taxman 387, held that when the tax payable on income computed under normal procedure is less than the tax payable under the deeming provisions of section 115JB of the Act, then penalty under section 271(1)(c) of the Act Axis Capital Limited Assessment Year 2010-11 could not be imposed with reference to additions/disallowances made under normal provisions. The judgment has attained finality.
Subsequently, the provisions of Explanation 4 to sub-section (1) of section 271 of the Act have been substituted by Finance Act, 2015, which provide for the method of calculating the amount of tax sought to be evaded for situations even where the income determined under the general provisions is less than the income declared for the purpose of MAT u/s 115JB of the Act. The substituted Explanation 4 is applicable prospectively w.e.f. 1-4-2016.
Accordingly, in view of the Delhi High Court judgment and substitution of Explanation 4 of section 271 of the Act with prospective effect, it is now a settled position that prior to 1-4-2016, where the income tax payable on the total income as computed under the normal provisions of the Act is less than the tax payable on the book profits u/s 115JB of the Act, then penalty under section 271(1)(c) of the Act, is not attracted with reference to additions/disallowances made under normal provisions. It is further clarified that in cases prior to 1-4-2016, if any adjustment is made in the income computed for the purpose of MAT, then the levy of penalty u/s 271(1)(c) of the Act, will depend on the nature of adjustment.
Upon perusal of the same, we find that the said proposition of law as laid down by Hon’ble Delhi High Court in cited case law has been accepted by the revenue. We further find that the revenue contested the said decision of Delhi High Court before Hon’ble Apex Court by way of Special Leave Petition (Civil) No. 18564 of 2009 dated 04/05/2012 but the same was dismissed. Therefore, we conclude that the assessee stood benefitted by the said circular coupled with decision of the Hon’ble Delhi High Court in the cited case laws and therefore, by deleting the impugned penalty, we allow assessee’s appeal.
Axis Capital Limited Assessment Year 2010-11 10. Resultantly, the assessee’s appeal stands allowed.
Order pronounced in the open court on 07th June, 2017.
Sd/- Sd/- (C. N. Prasad) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated : 07.06.2017 Sr.PS:- Thirumalesh आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent 2. आयकर आयु�(अपील) / The CIT(A) 3. आयकर आयु� / CIT – concerned 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6.