2011 (1) TMI 171 - AT - Income Tax

Penalty u/s. 271 (1) (c)- The total income of the assessee is first computed under the normal provisions of the Act and tax payable on such income is compared with the prescribed percentage of the book profits computed under section 115JB - The higher of the two amounts is regarded as total income and tax is payable with reference to such income - If the tax payable under the normal provisions is higher, such amount is the total income of the assessee, otherwise book profits are deemed as the total income of the assessee in terms of section 115JB - Hence, no penalty could have been imposed on the assessee because there was no tax sought to be evaded because the addition in respect of which penalty was imposed was made while computing total income under the normal provisions of the Act and ultimately the total income of the Assessee was determined on the basis of book profits u/s.115JB of the Act - Cancel the penalty imposed by the Assessing Office - Appeals by the Assessee are allowed.

Summary

Issues:
- Imposition of penalty under section 271(1)(c) of the Income Tax Act
- Applicability of Explanation 5 to Section 271(1)(c) of the Act
- Assessment of total income under normal provisions versus under section 115JB of the Act

Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act:
- The appellant challenged the penalty imposed by the AO under section 271(1)(c) of the Act for concealing income.
- The penalty was confirmed by the CIT (Appeals) based on the surrender of additional income during a search operation.
- The appellant argued that the surrender was made to avoid litigation and no tax was payable due to earlier losses.
- The Tribunal considered the grounds of appeal and examined whether penalty can be imposed when the total income is determined under section 115JB of the Act.
- The Hon'ble Delhi High Court clarified that penalty can be imposed even if the income is assessed under the normal provisions but ultimately determined under section 115JB.
- In this case, as the total income was determined under section 115JB, the concealment of income under normal provisions did not lead to tax evasion, resulting in the cancellation of the penalty.

2. Applicability of Explanation 5 to Section 271(1)(c) of the Act:
- The appellant argued that Explanation 5 to Section 271(1)(c) applied as the surrender was made during search proceedings.
- The Tribunal focused on whether the surrender during search proceedings warranted immunity under Explanation 5.
- The judgment highlighted that the surrender, in this case, did not lead to tax evasion due to the computation of total income under section 115JB, rendering the applicability of Explanation 5 irrelevant.

3. Assessment of Total Income under Normal Provisions versus under Section 115JB of the Act:
- The Tribunal analyzed the assessment of total income under normal provisions versus under section 115JB.
- The Hon'ble Delhi High Court's ruling emphasized that penalty can be imposed even if the income is assessed under normal provisions but ultimately determined under section 115JB.
- The concealment of income under normal provisions did not result in tax evasion when the total income was determined under section 115JB, leading to the cancellation of the penalty.

In conclusion, the Tribunal allowed both appeals by the Assessee, canceling the penalty imposed under section 271(1)(c) of the Act. The judgment clarified the application of penalties in cases where income is assessed under different provisions, emphasizing that concealment under normal provisions may not lead to tax evasion if the total income is determined under a different section like 115JB.