TaxTMI 
TaxTMI 
2022 (3) TMI 1134
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.... interest Rs. 9.98 lacs) at Rs. 102.50 lacs on the latter income, at which income the same was assessed u/s. 143(3) on 16.12.2010. Subsequently, it was observed that prior period income of Rs. 6636.02 lacs, credited to the profit and loss account and duly returned as income for the year, was at net of prior period expenditure for Rs. 238.29 lacs, which was accordingly disallowed, assessing the income (under the regular provisions) at (-) Rs. 1,06,68,638 vide order u/s. 147 r/w s. 143(3) dated 21.3.2016. The same was further modified u/s.154 (on 11.01.2017) to bring on record the income under Minimum Alternate Tax (MAT) regime at Rs. 817.29 lacs, which income had remained unchanged. The said reassessment and modification were not challenged in appeal', attaining finality. 2.2 In the penalty proceedings, initiated on 21.3.2016, the assessee's explanation (dated 24.8.2016/PB pg. 93) of it being a Government company, which cannot, therefore, be attributed with the intent of concealing income, and that it had in fact incurred a loss for the* relevant year, was not found satisfactory by the Assessing Officer (AO). He, accordingly, levied penalty u/s. 271(1)(c) on the sum of Rs....
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....finality. Further-more, the Revenue, accepting the legal position, has issued a Circular (No. 25/2015, dated 3.12.2015/copy on record), stating so, and with reference to the amendment to Explanation 4 to section 271(1)(c) - which defines the term 'the amount of tax sought to be evaded' occurring in section 271(1)(c), by Finance Act, 2016, w.e.f. 01.04 2016, whereby the tax assessed under MAT provisions is also sought to be provided for the purpose of reckoning tax sought to be evaded, clarified that prior to 01.4.2016 no appeal be filed or pressed in such cases. 4. We have heard the parties, and perused the material on record. 4.1 The relevant part of the Board Circular 25/2015 reads as under: '3. In this context, Hon'ble Delhi High Court in its judgment dated 26.8.2010 in ITA No.1420 of 2009 in the case of Nalwa Sons Investment Ltd. 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 fina....
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.... occasion, Shri Bardia, the learned counsel for the assessee, relying on the decision in Nalwa Sons Investment Ltd. (supra), the Bench had inquired if any SLP had been admitted against it, and if so, its status, inasmuch as dismissal of the SLP by a speaking order would imply a confirmation of the decision relied upon, while, on the contrary, its admission would suggest that the same cannot be relied upon (Kunhayammed & Ors. vs. State of Kerala [2000] 245 ITR 360 (SC)). Though the order dismissing the SLP (not quoted in the Board Circular), was not filed by Sh. Bardia, to practically the same effect is the acceptance by the Revenue of the decision in Nalwa Sons Investment Ltd. (supra) as final, issuing instructions to its' officers not to file or press an appeal for period prior to 01.04.2016, i.e., the date from which the substituted Explanation 4 (by Finance Act, 2015) comes into effect prospectively. This would imply AY 2016-17 onwards, or the previous year commencing 01.4.2015 (refer para 4 of the Circular). This is as with effect from the said, latter date, the substituted Explanation 4, which clarifies the issue in the matter, becomes operative. 4.2 It is well-settled ....
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....otal income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. (emphasis, ours) Explanation 1 to section 271(1)(c) deems concealment of particulars of income where the conditions set out in clause (A) or clause (B) of the said Explanation 1 are not met. The assessee stating of prior period expenses being not liable to be disallowed inasmuch as prior period income had been assessed for the current year, overlooks the fact that the expenditure can be allowed only in the computation of income for a p....
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....ore the ld. CIT(A), whereat it was so contended for the first time, is not substantiated. The default is, in that sense, admitted, precluding contesting the penalty, as explained by the Hon'ble jurisdictional High Court in S.S. Ratanchand Bholanath v. CIT [1994] 210 ITR 682 (MP). Further, where the expenditure is in terms of the relevant contract, its non-approval, being a matter internal to the assessee, may not be of any consequence for determining the accrual of the said expenditure. Further, even so, in case of a doubt or dispute, of which there is no whisper, a provision for expenditure, on the basis of the information available as at the date of the closure of accounts, i.e., as to the conditions as at the end of the relevant year, is to be made under the mercantile system of accounting, which the assessee is admittedly following. The booking of expenditure, adjusting the provision made, would be made in accounts on the resolution of the conflict. The assessee's case is sans any factual basis. That being the case, i.e., as to the facts and law, even an allowance of the prior period expenses for the preceding years may not be of much consequence, as it does not alter t....
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....d only by Finance Act, 2001. The borrowed capital had been invested by the assessee in shares, stated to be purchased as a matter of business policy as an investment company, which had not yielded any dividend income for the relevant year. The claim, though confirmed for disallowance by the Tribunal, had been allowed by it for AY 2000-01, and admitted in appeal by the High Court for the current year. It was under these facts and circumstances that the Hon'ble Court held that penalty would not follow only because the claim was not sustainable in law, with no details of the expenditure claimed being stated inaccurately. If not so read or understood, it would mean that one could claim any, including admittedly impermissible expenditure, as (say) personal expenditure (not being a contractual obligation incurred for business purposes), as a deductible business expense, and no penalty would arise where the particulars of the personal expenditure claimed, viz. 'marriage expenses', are truthfully reported in the financial accounts, rubbishing the settled law in the matter, and making travesty of all law, reason and justice. Any non-admissible claim, as long as it is stated as s....
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....hich shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits. Explanation I to 3 Explanation 4.-For the purpose of clause (iii) of this sub-section, the expression "the amount of tax sought to be evaded,- (a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the 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; (b) in any case to which Explanation 3 applies, means 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; (c) in any other case, means the difference between the tax on....
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....t from 01.4.1976, accepting the recommendations of the Wanchoo Committee report, adverting to para 2.74 thereof (at pg. 313). With reference to the said provision; the Notes on Clauses; the Board Circular 204 dated 24/7/1976 (reported at [1977] 110 ITR(St.) 21, 48), reproducing the relevant part thereof (at pgs. 313-314), it clarified that the same was only with a view to provide for penalty where the returned loss was reduced, even getting converted thereby into a positive income, so that in either case penalty was to be reckoned with reference to the amount of tax chargeable on the income, particulars in respect of which had been concealed or inaccurately furnished, as if it was the 'total income', giving thus a specific meaning and value to the said term. We may reproduce the relevant part thereof as under: (pg. 314) '10. A combined reading of the Committee's recommendations and the Circular makes the position clear that Expln. 4(a) to s. 271(1)(c) intended to levy the penalty not only in a case where after addition of concealed income, a loss returned, after assessment becomes positive income but also in a case where addition of concealed income reduces....
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....hinged by conditions to be met in future, which may or may not materialize. That, however, is not relevant, as the law presumes an intent to evade tax in the absence of the assessee being able to reasonably explain the adjustment to its' returned income in assessment with facts. This is not to say that 'tax' and 'penalty' bear no relation to each other, or that the penalty could be levied de hors the tax on the relevant income; the sole basis for the latter being only the evasion of the former, as signified by the words 'by reason of' in section 271(1)(iii), providing the rationale for reckoning the penalty with reference to the tax chargeable on the relevant income. What is being sought to be clarified though is that the same is not to be understood to imply a one-to-one correspondence between the tax chargeable on the relevant income and an increase in the assessee' tax liability for the relevant year. A direct correspondence between the two may not be established, and a tax implication of the relevant income is sufficient. The law presumes the nexus, so that the conditions required for such reduction in or evasion of tax to materialize, which may only....
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....e where on setting 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 on the concealed income 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 s. 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.....
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.... So, however, fiscal statutes are to be strictly construed, and the Court cannot make good the deficiency therein. Accordingly, tax on Rs. 12 lacs (for which sum adjustment is made in assessment) cannot be segregated into tax on Rs. 3 lacs - for which there is in fact tax mitigation (due to section 115JB(1)) and that on Rs. 9 lacs, for which there is no tax mitigation, and for which the assessee would have, but for its' default having been detected and neutralized in assessment, stood to gain in terms of reduction of tax by way of carry forward of loss to that extent. The vital condition aforesaid, therefore, cannot be said to be met in such a case for the entire relevant income of Rs. 12 lacs, the deemed total income under Explanation 4(a), and with reference to which the tax sought to be evaded is to be worked out. Continuing further, a confusion could also- again absent in the instant case, arise where adjustments on account of relevant income are made in both assessments, i.e., under the normal and the special provisions, inasmuch as the same would lead to two amounts of tax sought to be evaded in terms of Explanation 4(a), i.e., prior to amendment by Finance Act, 2015, ....