TaxTMI 
TaxTMI 
2020 (8) TMI 199
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....could be imposed for additions made under normal provisions. The amendment made by substitution of Explanation 4 to subsection (1) of section 271 is applicable prospectively w.e.f. 01-04-2016. 3. The Ld. CIT (A) further erred in upholding the penalty order passed under sect ion 271(1)(c) which is null and void since the notice u/s 274 r.w.s. 271(1)(c) was issued by learned AO mechanically without specifying for which limb the penalty under section 271(1)(c) is sought to be initiated i.e. for concealment of income or for furnishing inaccurate particulars of income. 4. The Ld. CIT (A) further erred in confirming the finding of the AO that appellant has furnished inaccurate particulars of income and therefore liable for penalty under section 271(1)(c) of the Act when a bonafide and genuine claim of the appellant company for allowing the revenue expense on account of interest paid on compulsory convertible debentures of Rs. 23,55,545/- and bid development cost of Rs. 6,24,76,800/ - was not accepted but the appellant was allowed to capitalize the same to respective asset and depreciation was granted thereon. 5. The Ld. CIT (A) failed to appreciate that the iss....
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....e or at the time of hearing. 2. Briefly stated, the assessee company which is engaged in the business of operating duty free retail outlets at the Mumbai and Delhi international airports for the sale of various products viz. liquor, tobacco and fashion products etc., had e-filed its return of income for A.Y. 2014-15 on 28.11.2014, declaring its total income at (-) Rs. 12,70,50,647/- and book profit under Sec. 115JB of Rs. 14,17,57,489/-. Since, the tax payable on the normal income was less than the tax calculated under Sec.115JB of the Act, the tax was calculated on book profit of Rs. 14,17,57,489/- as per Sec.115JB of the Act. The return of income filed by the assessee was processed as such under Sec.143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2) of the Act. 3. In the course of the assessment proceedings the A.O made certain additions/disallowances viz. (i) disallowance made on account of treating of payment towards bid development fee as capital expenditure amounting to Rs. 6,24,76,800/-; (ii) disallowance under Sec.36(1)(iii) amounting to Rs. 23,55,545/- on account of capitalisation of interest cost in 'capit....
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....fy its aforesaid claim the assessee had relied upon the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. Nalwa Sons Investments Ltd. (2010) 327 ITR 543 (Del). Further, it was brought to notice of the appellate authority that the 'Special Leave petition' (SLP) filed by the revenue before Hon'ble Supreme Court was dismissed as CIT Vs. Nalwa Sons Investments Ltd. [SLP (Civil) NO(s). 18564/2011; dated 04.05.2012]. However, the CIT(A) after deliberating on the contentions advanced by the assessee was not inclined to accept the same. Accordingly, finding no merit in the contentions advanced by the assessee on merits, as well as the validity of the penalty imposed under Sec. 271(1)(c) of the Act, the CIT(A) dismissed the appeal. 6. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. At the very outset of the hearing of the appeal the ld. Authorized Representative (for short 'A.R') for the assessee took us through the order that was passed by the Tribunal while disposing off the stay application of the assessee, vide its order passed in S.A. No. 105/Mum/2020, dated 28.02.2020. It was submitted by the ld. A.R that as the....
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....urned by the assessee company under the normal provisions was scaled down to an amount of Rs. (-) 3,09,35,310/-. At this stage, we may herein observe that the 'book profit' reflected by the assessee u/s 115JB at Rs. 14,17,57,489/- remained as such and no addition was made to the same. As observed by us hereinabove, the A.O after culminating the assessment had imposed penalty u/s 271(1)(c) of Rs. 3,26,69,600/- on the assessee for the additions/disallowances that were made in its hands under the normal provisions while framing the assessment. 8. Ld. A.R at the very outset of the hearing of the appeal submitted, that the A.O while imposing penalty u/s 271(1)(c) had traversed beyond the jurisdiction that was vested with him under the said statutory provision during the year under consideration. It was submitted by the ld. A.R that since the tax payable on the normal income was less than the tax calculated u/s 115JB of the Act, therefore, the assessee had in its return of income calculated the tax on its 'book profit' of Rs. 14,17,57,489/- u/s 115JB of the Act. It was further submitted by the ld. A.R that as the assessee company had been assessed to tax at its deemed income returned ....
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....ould have justifiably been imposed. Apart from that, it was submitted by the assessee that even otherwise as it had with it internal accruals in excess of the value of the CWIP, therefore, the disallowance of interest expenditure in itself was not free from doubts. In support of its contention that a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars of income, the assessee had relied on the judgment of the Hon'ble Apex Court in CIT Vs. Reliance Petroproducts (P) Ltd. 322 ITR 158 (SC). In so far the disallowance of 'provision for tax' claimed by the assessee in its 'computation of income' as a deduction u/s 40(a)(ia) of the Act was concerned, it was submitted by the ld. A.R that the same was the 'provision for tax' for the immediately preceding year i.e A.Y 2013-14. Adverting to the facts attending to the said issue, it was submitted by the assessee that it had disallowed certain amounts u/s 40(a)(ia) i.e for non-deduction of tax at source along with disallowance of a 'provision for income-tax' of Rs. 3,12,82,993/- in A.Y 2013-14. As claimed by the assessee, that as it had during the year under consideration d....
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.... Sec. 271(1) of the Act, as was available on the statute during the year under consideration i.e prior to its amendment vide the Finance Act, 2015, w.e.f 01.04.2016, did not provide for any penalty in a situation where additions/disallowances were made in the hands of the assessee under the normal provisions of the Act, but the assessee is assessed to tax as per the deeming provisions of Sec. 115JB of the Act. For the sake of clarity, we reproduce herein below the 'Explanation 4' to Sec. 271(1) as was applicable during the year under consideration i.e A.Y 2014-15 : "271. Failure to furnish returns, comply with notices, concealment of income, etc.- (1) If the AO or the CIT(A) or the CIT in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or he may direct that such person shall pay by way of penalty,- (iii) in the cases referred to in cl. (c) or cl. (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of t....
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....ith this issue, had observed, in context of the pre-amended 'Explanation 4' to Sec. 271(1)(c), that in a case where the income of an assessee company was finally assessed at 'book profit' by deeming the same to be the total income of the assessee, then in such a case penalty u/s 271(1)(c) could only be levied in respect of any adjustment /addition /disallowance made while computing such 'book profit' of the assessee company. It was observed by the Hon'ble High Court, as under: "20. We have considered the rival submissions. Judgment of the Supreme Court in Gold Coin (supra) clarifies that even if there are losses in a particular year, penalty can be imposed as even in that situation there can be a tax evasion. As per s. 271(1)(c), the penalty can be imposed when any person has concealed the particulars of his income or furnished incorrect particulars of the income. Once this condition is satisfied, quantum of penalty is to be levied as per cl. (iii) of s. 271(1)(c) which stipulates that the penalty shall not exceed three times "the amount of tax sought to be evaded". The expression "the amount of tax sought to be evaded" is clarified and explained in Expln. 4 thereto, as pe....
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....the circular dt. 24th July, 1976, referred to above, the position was clarified by Central Board of Direct Taxes (in short 'CBDT'). It is stated that in a case where on setting off the concealed income against any loss incurred by the assessee under any 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 to a minus figure the penalty would be imposable because in such a case 'the tax sought to be evaded' will be tax chargeable on concealed income as if it is 'total income'." 21. The question, however, in the present case, would be, as to whether furnishing of such wrong particulars had any effect on the amount of tax sought to be evaded. Under the scheme of the Act, the total income of the assessee is first computed under the normal provisions of the Act and tax payable on such total income is compared with the prescribed percentage of the 'book profits' computed under s. 115JB of the Act. The higher of the two amounts is regarded as total income and tax is payable with reference to such total income. If the tax payable under the normal provisions is higher, such amount is t....
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....d no role to play and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all. 26. The upshot of the aforesaid discussion would be to sustain the order of the Tribunal, though on different grounds. Therefore, while we do not agree with the reasoning and approach of the Tribunal, for our reasons disclosed above, we are of the opinion that penalty could not have been imposed even in respect of claim of depreciation made by the assessee. This appeal is accordingly dismissed.' On a perusal of the aforesaid judgment of the High Court, we find that it was observed that an addition/disallowance in the hands of the assessee may result to concealment, but that had its repercussions only when the assessment was done under the normal procedure. It was observed, that as the assessment as per the normal procedure was, however, not acted upon, and it was the deemed income of the assessee that was assessed under s. 115JB of the Act, as it was higher of the two, therefore the concealment based on the additions /disallowances made under the normal provisions of the Act had no role to play and were totally irrelevant. We may herein observe, that the 'Special....
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....eturn or converting that loss into income, the amount of tax sought to be evaded shall be determined in accordance with the formula specified in clause (a) with the modification that the amount to be determined for item (A - B) in that formula shall be the amount of tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; (c) where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148.' On the basis of the aforesaid amendment, w.e.f Asst. Year 2016-17, even in a case where there are certain additions/disallowances under the normal provisions of the Act, penalty u/s 271(1)(c) can be imposed, irrespective of the fact that the assessee is assessed as per the deeming provisions of Sec. 115JB or Sec. 115JC of the Act. In fact, a careful perusal of the aforesaid amendment reveals that the machinery proviso for quant....
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....t to be evaded shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under the provisions of section 115JB or 115JC of the Income-tax Act. However, if an amount of concealment of income on any issue is considered both under the general provisions and provisions of section 115JB or 115JC then such amount shall not be considered in computing tax sought to be evaded under provisions of section 115JB or 115JC. Further, in a case where the provisions of section 115JB or 115JC are not applicable, the computation of tax sought to be evaded under the provisions of section 115JB or 115JC shall be ignored. 55.5 Applicability: This amendment will take effect from 1st April, 2016 and will accordingly apply, in relation to the assessment year 2016-17 and subsequent assessment years." As such, the legislature observed that in a case where tax was paid by an assessee under the deeming provisions of Sec. 115JB or 115JC, the excess of such tax paid over and above its tax liability under the general provisions would thereafter be available as credit for set off against its future tax liability. On the said premises, it was observed....