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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
These two appeals by the assessee are arising out of the different orders of CIT (A)-19, Mumbai passed in appeal Nos.CIT (A)-19/IT.T-274 & 175/9(1)/2012-13, both of even date 08-10-2012. In both the cases, assessments were framed by the DCIT, Circle- 8(1), Mumbai for the assessment years 2003-04 and 2004-05 vide his orders dated 16-02-2006 and 13-12-2006 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the (“Act”). Penalties under dispute were levied by the ACIT, Circle- 9(1) u/s 271(1) (c) of the Act vide his orders, both dated 24-03-2011. At the outset, the learned Counsel for the assessee stated that the facts and circumstances are exactly identical in both the years in regard to levy of penalty by the AO u/s 271 (1) (c) of the Act. Identical grounds are raised by the assessee and identical orders are passed by the CIT (A), hence, we pass this consolidated order for the sake of convenience.
2. The only issue in these appeals of assessee is as regards to the orders of CIT (A) confirming levy of penalties u/s 271 (1) (c) of the Act on the issues of provisions for leave encashment and provisions for gratuity added back to book profit u/s 115JB of the Act.
Briefly stated, the facts are that the assessee is engaged in the business of manufacturing and trading in textile suiting and shirting fabrics. The AO, during the course of assessment proceedings, while observing from the accounts of the assessee, noticed that the assessee made provisions of Rs.2,73,007/- on account of leave encashment and provisions for gratuity amounting to Rs.6,90,677/-. According to the AO, these provisions are not made on the basis of actuarial provisions as per Accounting Standard-9 (AS-9). According to the AO, the method adopted by the assessee, for exact valuation of liabilities, was not scientific one and the liability on these two counts cannot be said to have accrued during the year. Accordingly, AO has not touched the normal computation of business profit and accepted the same as per computation of income filed by the assessee for the reason that the assessee itself has accounted for these two provisions in the computation of income and taxes are paid on the same. However, the assessee has not included these two provisions while computing book profits and hence, the AO added these two provisions while computing book profits as per the provisions of Section 115JB of the Act. The AO initiated penalty proceedings u/s 271 (1) (c) of the Act in respect of the following items including these two provisions:- i) Ad-hoc Miscellaneous exp. Rs. 60,000/- ii) Addition u/s 35D Rs.73,57,252/- iii) Provision for leave encashment Rs. 2,73,003/- iv) Provision for gratuity Rs. 6,53,688/-
Learned Counsel for the assessee before us explained that the CIT (A) has deleted the levy of penalty in respect to other additions and only confirmed the penalty in respect to these two items i.e. provision for leave encashment and provisions for gratuity added by the AO while computing book profit u/s 115JB of the Act. The AO levied penalty for the simple reason that the assessee has not added back the provisions to the book profit despite the fact that these liabilities have not accrued or ascertained during the year. Aggrieved, the assessee preferred appeal before the CIT (A), who also confirmed the levy of penalty by relying on the decision of the Hon’ble Supreme Court in the case of CIT Vs. Nalwa Sons Investment Ltd. [(2012) 21 taxmann.com 184 (SC)]. Aggrieved against the order of the CIT (A), confirming the levy of penalty, the assessee came in second appeal before the Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that this issue is squarely covered in favour of assessee and not the department as held by CIT(A). Ld. Counsel taken us through 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.”
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 271 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.
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. 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 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. 6. 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 before various Courts/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice of all concerned.
In term of the above, we delete the impugned penalties levied by the AO and confirmed by the CIT(A). Accordingly, we allow these appeals of the assessee.
In the result, both the appeals of the assessee are allowed.
Order pronounced in the open court on 08 /07/2016.