GAWANDE CONSULTANTS P.LTD,MUMBAI vs. DCIT 2(1), MUMBAI

Instant appeal preferred by the assessee is directed against the order dated 14th February 2014, passed by the learned Commissioner (Appeals)–4, Mumbai, confirming penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2008–09.

2. Briefly stated the facts are, the assessee company filed its return of income for the impugned assessment year on 29th September 2008,

Gawande Consultants Pvt. Ltd. 2 declaring total income at nil under the normal provisions and book profit of ` 1,39,96,811 under section 115JB of the Act. While completing assessment under section 143(3), vide order dated 12th October 2010, the Assessing Officer made certain disallowance under the normal provisions, however, since the tax due on book profit is more than tax due on income declared under normal provisions, the Assessing Officer ultimately completed the assessment under section 115JB. The disallowance made under the normal provisions was not challenged by the assessee. On the basis of disallowances under the normal provisions, the Assessing Officer initiated proceedings under section 271(1)(c) and ultimately passed an order imposing penalty of ` 2 lakh under section 271(1)(c). Being aggrieved of the penalty order, assessee preferred appeal before the learned Commissioner (Appeals).

4. Learned Counsel for the assessee submitted, as the disallowances on the basis of which penalty was imposed under section 271(1)(c) had no relevance to income determined under section 115JB, penalty under section 271(1)(c) cannot be imposed. For such proposition, he relied upon the following decisions:–

Gawande Consultants Pvt. Ltd. 3 i) CIT v/s Nalwa Sons Investments Ltd., 327 ITR 543 (Del.); ii) Ruchi Strips and Alloys Ltd. v/s DCIT, Mum./2008 dated 21st January 2011; and iii) BSEL Infrastructures Realty Ltd. v/s ACIT, [2012] 150 TTJ 159.

6. Having considered the facts and material on record, we find merit in the submissions of the learned counsel. As could be seen, the Assessing Officer has completed the assessment by assessing the book profit under section 115JB of the Act as the income declared and tax levied under section 115JB of the Act is more than the income declared under the normal provisions. It is further evident that the disallowances on the basis of which penalty under section 271(1)(c) was imposed related to determination of income under the normal provisions of the Act. Therefore, they have no relevance at all as far as computation of book profit under section 115JB and levy of tax thereon. Therefore, the decision of the Hon'ble Delhi High Court in Nalwa Sons Investments Ltd. (supra) squarely applies to the facts of the present case. In fact, the issue in dispute has been set at rest by the CBDT circular no.25 of 2015 dated 31st December 2015, wherein it has been clarified that in view of the decision of the Hon'ble Delhi High Court in Nalwa Sons Investments Ltd. (supra) and substitution of Gawande Consultants Pvt. Ltd. 4 explanation 4 to section 271 of the Act, prospectively, if 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 section 115JB of the Act, then penalty under section 271(1)(c) is not attracted with reference to additions / disallowance made under normal provisions. For better clarity, the CBDT circular referred to above is extracted hereunder:– “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.

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 11 5JB 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.

Gawande Consultants Pvt. Ltd. 5 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 11 5JB 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.

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.”