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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of CIT (A)-12, Mumbai in appeal No. CIT (A)-12/ACIT 6(3)/IT-10/2012-13 dated 22-11-2013. The Assessment was framed by ACIT, Circle 6(3), Mumbai for the A.Y. 2005-06 vide order dated 26-12-2007 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the levy of penalty under section 271(1)(c) of the Act of Rs.31,87,640/-.
At the outset, the learned Counsel for the assessee took us through the assessment order passed by ACIT circle 6(3), Mumbai dated 26-12-2007, whereby income is assessed under section 115JB of the Act as there is nil income under the normal provisions. The learned Counsel for the assessee drew our attention to the computation part made for assessing the income under section 115JB of the Act which are reads as under: -
Mahindra Construction Company Ltd., 2005-06 “subject to the above, assessee’s income under section 115JB is compounded as uder: Net profit as per profit & Loss Account Rs. 3,62,91,565/- a) Adjustments 1st and 2nd proviso under section 115JB - b) Dividend income allocated as discussed above Rs. 1,82,600/- c) Adjustment explanation under section 115JB(2) Rs. 78,65,872/ Adjusted book profit Rs.2,86,08,293 Further, learned Counsel for the assessee drew our attention to the normal computation made by the AO whereby total income is assessed by as nil reads as under: -
Rs. Rs. Total income as per Return 3,68,10,446/- Add: Disallowance/Additions 1. 40(a)&(ia) 12,41,754/- 2. Bad debts & 94,20,000/- Sundry balances w/off 3. Write off opening w.i.p 3,19,000/- 1,36,80,754/- Capital Gains under section 50 5,04,91,200/- 54,176/- Total income 5,05,45,376/- Less: B/F losses & unabsorbed depreciation 5,05,45,376/- Total Income Nil
4. In view of the above the learned Counsel for the assessee stated that the finally income was assessed under section 115JB of Act, but no penalty qua assessment of income under section 115JB of the Act was initiated, whereas penalty was initiated on the items of additions/ disallowance made in normal computation of the income. The learned Counsel for the assessee stated that even otherwise issue is covered by the decision of the Hon’ble Supreme Court in the case of CIT v Nalwa Sons Investment Ltd. [(2012) 21 taxmann.com 184 (SC)].
We have heard the learned Sr. DR and gone through the facts and circumstances of the case. We find that the AO has computed the gross total income
Mahindra Construction Company Ltd., 2005-06 and computed the tax liability on the basis of book profit u/s 115JB of the Act. Admittedly, no adjustment on the basis of disallowance of loss from derivatives was added to the normal computation of income. In such situation, we find that this issue is squarely covered in favour of assessee and against the department as held by CIT (A), by judgment of Hon’ble Supreme Court in the case of Nalwa Sons Investment Ltd. (Supra), wherein the Hon’ble court has dealt with the issue of levying of penalty u/s 271(1) (c) of the Act, when the income was assessed u/s. 115 JB of the Act. The relevant Para 25 of the judgment reads as under:-
25. Judgment in the case of Gold Coins (supra), obviously, does not deal with such a situation. What is 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 settings 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 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 were the total income. Once, we apply this rationale to Explanation 4 given by the Supreme Court, in the present case, it will be difficult to sustain the penalty proceedings. Reason is simple. 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.
6. We find that the CBDT has issued circular no. 25/2015 dated 31-12-2015 explaining that the pursuant to the judgment of Hon’ble Delhi High Court in the case of Nalwa Sons Investment Ltd (supra) and the substitution of Explanation 4 of section Page 3 of 6
Mahindra Construction Company Ltd., 2005-06 271(1)(c) of the Act with prospective effect, it is now 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 profit under MAT provisions of the Act, then penalty u/s. 271(1)(c) of the Act is not attracted with reference to additions/disallowances made under the normal provisions of the Act. The CBDT has 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. The CBDT has also directed the revenue authorities that no appeal may henceforth be filed on this ground and appeals already filed, if any, on this issue before various courts/tribunals may be withdrawn or not pressed upon. We have gone through the CBDT Circular and the same reads as under:-
"CIRCULAR NO. 25/2015 F.No.279/Misc./140/2015/ITJ Government of India Ministry of Finance Central Board of Direct Taxes New Delhi, 31st December, 2015 Subject: Penalty u/s 271(1)(c) wherein additions/disallowances made under normal provisions of the Income Tax Act, 1961 but tax levied under MAT provisions u/s 115JB/115JC, for cases prior to A.Y. 2016- 17-reg.- 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.
Mahindra Construction Company Ltd., 2005-06
3. In this context, Hon'ble 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 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 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. 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 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.
The above settled position is to be followed in respect of section 115JC of the Act also.
7. Accordingly, the Board hereby directs that no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue Page 5 of 6
Mahindra Construction Company Ltd., 2005-06 before various Courts/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice of all concerned.
7. In term of the above, we find that the AO has computed the gross total income and computed the tax liability on the basis of book profit u/s 115JB of the Act. Admittedly, no adjustment on the basis of disallowance of loss from derivatives was added to the normal computation of income. Accordingly, we uphold the order of CIT (A) deleting the penalty levied by the AO. Accordingly, we dismiss the appeal of the Revenue.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 17-02-2017.