Penalty under Section 271(1)(c) for additions when tax paid under MAT; bookprofits computation bars penalty

When taxable income is computed on book profits under the minimum alternate tax regime and not under normal provisions, the statutory explanation applicable to that computation must be applied; consequently additions made under the normal provisions are irrelevant and cannot support imposition of a penalty under the penalty provision for concealment or inaccurate particulars. Relying on prior High Court authority, the consequence is that penalty proceedings based on additions under normal provisions are barred, and the decision was rendered in favour of the assessee.

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Issues:
Assessment under Section 115JB of the Income Tax Act, 1961; Imposition of penalty under Section 271(1)(c) for inaccurate particulars furnished.

Analysis:
The case involves an appeal under Section 260A of the Income Tax Act, 1961, for Assessment Year 2005-06 arising from a tribunal's order. The substantial question of law framed was whether the penalty under Section 271(1)(c) is justified when the appellant-assessee was assessed and paid tax under Minimum Alternative Tax (MAT) provisions. The appellant-assessee had reported a loss under normal provisions but earned a profit under Section 115JB. The Assessing Officer disallowed a donation claimed as expenditure, leading to penalty proceedings under Section 271(1)(c).

The appellant argued that the donation was given to charitable organizations and was assessable under Section 80G, claiming it was an inadvertent error in not adding back the amount while computing taxable income. The Commissioner (Appeals) confirmed the penalty, which was upheld by the tribunal. However, relying on the decision in Commissioner of Income Tax versus Nalwa Sons Investments Limited, it was held that under Section 115JB, Explanation (4) must be applied, making additions under normal provisions irrelevant for penalty imposition.

The court found in favor of the appellant-assessee, citing the application of Explanation (4) under Section 115JB and the irrelevance of additions made under normal provisions for penalty purposes. The judgment answered the question of law in favor of the appellant-assessee, leading to the disposal of the appeal with no costs imposed.

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