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Levy of penalty is not tenable on additions made under normal provision, if assessment is itself framed as quantum assessment made u/s 115JB: ITAT

2019-TIOL-1390-ITAT-DEL

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘E’ NEW DELHI

ITA No.1760/DEL/2017
Assessment Year: 2008-09

M/s METENERE LTD
138-19, MAIN ROAD, 138-19, MAIN ROAD
PAN NO:AAACM8484F

Vs

ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-18, NEW DELHI

N K Billaiya, AM & Suchitra Kamble, JM

Date of Hearing: July 03, 2019
Date of Decision: July 04, 2019

Appellant Rep by: None
Respondent Rep by: 
Ms Rinku Singh, Sr. DR

Income Tax – Sections 115JB & 271(1)(c)

Keywords – Circular No. 25/2015 – MAT – Quantum addition

The assessee filed its return for the relevant AY declaring the total income at nil. During the assessment proceedings, the AO computed the tax liability u/s 115JB and finalized the assessment making quantum addition. The AO also initiated the penalty proceedings on the additions made while computing the income under normal provisions of the Act and levied the penalty. The CIT(A) gave part relief to the assessee but confirmed the penalty as imposed by the AO.

On hearing the appeal, the Tribunal held that,

Whether levy of penalty is tenable on the additions made under normal provision where the assessment is itself framed as quantum assessment made u/s 115JB – NO: ITAT

++ no penalty is leviable when income is assessed under the provisions of section 115JB and penalty is levied on the additions made under normal provisions of the Act. Thus, the assessment is ultimately framed u/s 115JB whereas the penalty has been levied on the additions made for computing the income u/s 143(3). Following the High Court ruling in Nalwa Sons Investment Ltd. where the instant issue was settled in favour of the assessee and against the Revenue and CBDT Circular No. 25/2015, the grounds raised by the assessee are allowed.

Assessee’s appeal allowed

Case followed:

CIT vs Nalwa Sons Investment Ltd – 2010-TIOL-890-HC-DEL-IT

ORDER

Per: N K Billaiya:

This appeal by the assessee is preferred against the order of the ld. CIT(A) – 27, New Delhi dated 30.01.2017 pertaining to A.Y 2008-09 .

2. The sum and substance of the grievance of the assessee is that the ld. CIT(A) erred in sustaining the penalty of Rs. 1,39,15,733/- levied u/s 271(1)(c) of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’ for short].

3. We find that the first appellate authority has dismissed the appeal in limine which means that the facts of the case have not been properly appreciated by the ld. CIT(A).

4. The facts on record show that the assessment was framed u/s 143(3) of the Act vide order dated 13.12.2010. Income of the assessee was computed as under:

Income under the head “Business & Profession”
Net Profit as per profit and loss account1152349276
Add: (added by assessee himself)
Provision for leave encashment500182
Prior period expenses218273
ROC Fees1002000
Intt. On TDS4201
Depreciation as per Co. Act188367698190092354
1342441630
Add:Disallowance u/s 14A (as discussed above)10607464
Disallowance u/s. 2(24)(x)595170
Claim of depreciation on fixed assets28005497
Excess claim of deduction of u/s. 80 IB1939572
Claim of donation153703
Claim of bad debts written off234432
41535838
1383977688
Less:Depreciation as per Income Tax Act12522.5239
Share in profit of firm2112864127338103
1256639365
Less:Deduction u/s 80 IB Rs. 12993413441256639365
I .Total income0

Computation of income u/s. 115JB of the Act

Net profit as per profit & loss account1193133338
Add:Provision for leave encashment500182
Prior period expense218273718455
1193851793
Less:Deferred tax assets41654336
Income from partnership firm211236443767200
1150084590
Add:Disallowance u/s 14A (as discussed above)10607464
Total book profit11606,9205
Rounded off11602G50

After discussion the total income of the assessee is computed at ? Nil u/s. 143(3) of the I T Act, 1961, however, the tax liability is computed at Rs. 116,06,92,050/- u/s. 115JB of I T Act. issue, necessary forms after allowing credit for prepaid taxes if any. Charge interest u/s 234A, 234B. 234C & 234D as per law. – Penalty proceedings u/s 271(l){c) have been initiated separately.”

5. Penalty proceedings u/s 271(1)(c) of the Act were initiated on the additions made while computing the income under normal provisions of the Act. It can be seen from the computation of income, as per the assessment order exhibited above, that the tax liability of the assessee is computed u/s 115JB of the Act.

6. Against the quantum addition, the assessee preferred an appeal before the ld. CIT(A) who gave part relief to the assessee and penalty has been levied on the addition sustained by the ld. CIT(A).

7. We are of the considered view that in such a case, no penalty is leviable when income is assessed under the provisions of section 115JB of the Act and penalty is levied on the additions made under normal provisions of the Act. The Assessing Officer has made certain additions while computing the book profit u/s 115JB of the Act. Thus, it can be seen that the assessment is ultimately framed u/s 115JB of the Act whereas the penalty has been levied on the additions made for computing the income u/s 143(3) of the Act. This issue is now well settled in favour of the assessee and against the revenue by the decision of the Hon’ble High Court of Delhi in the case of Nalwa Sons Investment Ltd 327 ITR 543 = 2010-TIOL-890-HC-DEL-IT.

8. The facts of the case in hand are also clearly covered in favour of the assessee and against the Revenue by the following Circular of the CBDT:

CIRCULAR NO. 25/2015

F.No.279/Misc./140/2015/ITJ

Government of India Ministry of Finance Central Board of Direct Taxes New Delhi,

31st December, 2015

Subject: Penalty u/s 2yi(i)(c) wherein additions/disallowances made under normal provisions of the Income Tax Act, 1961 but tax levied under MAT provisions u/s H5JB/ii5JC,for cases prior to A.Y. 2016-17-reg.-

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.

2. Under clause (iii) of sub-section (1) of section 271 of the Act, penalty for concealment of income or furnishing inaccurate particulars of income is determined based on the “amount of tax sought to be evaded” which has been defined inter-alia, as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income or income in respect of which inaccurate particulars had been filed.

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. = 2010-TIOL-890-HC-DEL-IT (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 115JB of the Act, then penalty under section 27i(i)(c) of the Act could not be imposed with reference to additions /disallowances made under normal provisions. The judgment has attained finality.

4. Subsequently, the provisions of Explanation 4 to sub-section (1) of section 271 of the Act have been substituted by Finance Act, 2015, which provide for the method of calculating the amount of tax sought to be evaded for situations even where the income determined under the general provisions is less than the income declared for the purpose of MAT u/s 115JB of the Act. The substituted Explanation 4 is applicable prospectively w.e.f. 01.04.2016.

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 115JB of the Act, then penalty under 27i(i)(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 27i(i)(c) of the Act, will depend on the nature of adjustment.

6. The above settled position is to be followed in respect of section 115JC of the Act also.

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.

(Ramanjit Kaur Sethi) 
DCIT(OSD) (ITJ), CBDT, New Delhi”

9. In the light of the aforementioned Circular of the Board and the decision of the Hon’ble High Court of Delhi in the case of Nalwa Sons Investment Ltd [supra], the AO is directed to delete the penalty of Rs. 1,39,15,733/-. The grounds raised by the assessee are allowed.

10. In the result, the appeal of the assessee in ITA No. 1760/DEL/20176 is allowed.

(The order is pronounced in the open court on 04.07.2019)

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