AARTI DRUGS LTD,MUMBAI vs. ASST CIT RG 6(1), MUMBAI

2. The assessee has raised several grounds of appeal wherein one of the grounds is against the confirmation of levy of penalty of Rs.3,66,279/- by the ld.CIT(A) by overlooking the fact that the disallowance of provisions for doubtful debts u/s 36(1)(vii) of the Income Tax Act, 1961 of Rs.9,51,373/- was made under the normal provisions of the Act whereas the assessee was assessed to tax under the provisions of section 115JB of the Act. The ld. AR submitted before the Bench that the disallowance for doubtful debts was made to the tune of Rs.9,51,373/- under the normal provisions of Act assessing the total income at Rs.1,64,04,377/- whereas as per the provisions of section 115JB of the Act the total income was assessed at Rs.2,42,56,832/-.

The ld.AR drew our attention to the circular No.25/20 (F No.279/Misc./140/2015/ITJ, dated 31.12.2015, wherein it has been held that 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 profit u/s 155JB of the Act, then penalty under section 271(1)(c) of the Act, is not attracted with reference to additions/disallowance made under normal provisions.

The ld. DR also appears to be fairly agreed with the contentions of the ld.AR.

We have carefully considered the rival contentions and perused the material placed before us including the orders of authorities below and case law relied upon by the ld. AR. We find that the CBDT has brought out notification that no penalty shall be levied in this case where tax payable based on total income under the normal provisions of Act is less than the tax payable on the books profit u/s 115JB of the Act. The relevant extract of the circular (supra) is reproduced below: “CIRCULAR NO. 25/2015 F.No.279/Misc./140/2015/ITJ Government of India Ministry of Finance Central Board of Direct Taxes

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 o[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. 3 In this context, Hon'b1e Delhi High Court in its judgment dated 26.8.2010 in of 2009 in the case of Nalwa Sons Investment Ltd. (available in NJRS as 2010-LL-0826-2), held that when the tax payable on income computed under normal proceduTe is less than the tax payable under the deeming provisions of Section 115.IB of the Act, then penalty under section 271(1)(c) of the Act could not be imposed with reference to additions /disallowances made under normal provisions. The judgment has attained finality. 4. 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. 01.04.2016. 5. 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 271(1)(c) of the Act, is not attracted with reference to additions /disallowances made under normal provisions. It is further clarified 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.