2010 (8) TMI 40 - HC - Income Tax

Penalty under s.271(1)(c) not imposed where income assessed under s.115JB MAT and misstatement didn't affect tax

Commissioner of Income Tax Versus M/s. Nalwa Sons Investments Ltd.

HC held that penalty under s.271(1)(c) could not be imposed where income was assessed under s.115JB (MAT) and not under normal provisions. Although there ... Penalty proceedings under Section 271(1)(c) - Minimum alternate tax (MAT) - adjustments to book profit by AO - Penalty consequent to such adjustments - legal fiction namely 'book profits' - Whether furnishing of such wrong particulars had any the effect on the amount of tax sought to be evaded. - Held that:- The income of the assessee was thus assessed under Section 115 JB and not under the normal provisions. It is in this context that we have to see and examine the application of Explanation 4. - 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 115 JB 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 115 JB of the Act. Hence, when the computation was made under Section 115 JB 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. – Penalty not to be imposed. Issues Involved:1. Penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.2. Disallowance of depreciation.3. Addition towards provident fund contribution.4. Disallowance under Section 80HHC of the Income Tax Act.5. Application of Explanation 4 to Section 271(1)(c) in the context of Section 115JB.Detailed Analysis:1. Penalty Proceedings under Section 271(1)(c):The appeal concerns penalty proceedings initiated by the Assessing Officer (AO) for the assessment year 2001-02. The respondent-assessee initially declared a loss of Rs. 43.47 crores, later revising the return to an income of Rs. 3,86,82,128/- under Section 115JB of the Income Tax Act, 1961. The AO framed the assessment at a loss of Rs. 36.95 crores as per normal provisions and at book profits of Rs. 4,01,63,180/- under Section 115JB. The AO made various additions and disallowed certain claims, leading to the initiation of penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income.2. Disallowance of Depreciation:The AO disallowed depreciation of Rs. 32,51,906/- on certain plants and machinery, concluding that these assets were not put to use during the relevant assessment year. The assessee failed to produce supporting evidence to prove the usage of the machinery. The CIT (A) set aside the penalty, relying on an earlier order from the assessment year 1999-2000, which stated that disallowance of a claim does not automatically prove the furnishing of inaccurate particulars. The Tribunal affirmed this view. However, the court found that the assessee had claimed depreciation without evidence of usage, thus furnishing inaccurate particulars. Yet, the penalty could not be sustained due to the application of Section 115JB.3. Addition Towards Provident Fund Contribution:The AO added Rs. 3,030/- towards the provident fund, treating it as income due to belated payment. The CIT (A) and ITAT held that the claim was debatable and not necessary to interfere with due to the meager amount involved. The court agreed, noting the minimal impact of this addition.4. Disallowance under Section 80HHC:The AO disallowed the deduction under Section 80HHC, arguing that the assessee did not adjust the loss incurred on exported goods against incentives. The CIT (A) and ITAT found that the issue was debatable, with varying judgments from different High Courts. The Tribunal relied on CIT vs. International Audio Visual Company, asserting that penalty under Section 271(1)(c) could not be imposed when the law was unsettled. The court upheld this view, noting the prevailing two opinions at the time.5. Application of Explanation 4 to Section 271(1)(c) in the Context of Section 115JB:The court examined whether the penalty could be levied when the tax was paid under Section 115JB, which deems 'book profits' as the total income. The assessee argued that penalty should only apply to adjustments made while computing 'book profits.' The court referenced the Supreme Court's judgment in CIT vs. Gold Coin Health Care Limited, which clarified that penalty could be imposed even if the assessed income and returned income both show a loss. However, in this case, the income was assessed under Section 115JB, making the concealment irrelevant for tax evasion. The court concluded that the penalty could not be imposed as the concealment did not affect the tax liability under Section 115JB.Conclusion:The court dismissed the appeal, sustaining the Tribunal's order on different grounds. It held that penalty under Section 271(1)(c) could not be imposed in respect of the depreciation claim due to the assessment under Section 115JB, which rendered the concealment irrelevant for tax purposes.