2016 (2) TMI 1253 - AT - Income Tax

Penalty u/s 271(1) (c) - addition of notional interest under section 36(1) (iii) - HELD THAT - The impugned penalty has been levied on account of proportionate disallowance of the interest on amount advanced to the sister concern. It is also true that the disallowance was made on estimated basis. In that view of the matter we hold that the CIT(Appeals) has correctly held that the assessee had not committed any default within the meaning of Sect ion 271(1) (c) of the Act. In the case of CIT Vs Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT has observed that Where no information given in the return is found to be incorrect or inaccurate the assessee cannot be held guilty of furnishing inaccurate particulars. . Also Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1) (c) of the Act. Addition of declared tax liability to the book profit under section 115JB - HELD THAT - Assessee vehemently argued that clause (viii) was inserted in Explanation- I below Section 115JB(1) by Finance Act 2008 but with retrospective effect from 01.04.2001 and so the assessee could not have known in the year in question that the deferred tax liability was not to be reduced for the purpose of calculation of book profit which was credited to the Profit Loss Account. In our opinion there is merit in the above contention of assessee and therefore we hold that the ld. CIT(Appeals) was fully justified in canceling the penalty on the addition of declared tax liability. Also the tax as per MAT is more than the regular tax calculated by the Assessing Officer. Hence the assessee company was assessed on the book profits under section 115JB of the Income Tax Act 1961. Recently the CBDT has issued circular No. F.279/Misc./140/2015/ITJ dated 31.12.2015 wherein i t is stated that when the tax payable on income computed under normal procedure is less than the tax payable under the deeming provisions of Sect ion 115JB of the Act then penalty u/s 271(1) (c) of the Act could not be imposed with reference to additions /disallowances made under normal provisions. - Assessee appeal allowed.

Summary

Issues:
1. Disallowance of interest on diversion of funds to sister concern.
2. Reduction of deferred tax from net profit for MAT purposes.

Issue 1: Disallowance of Interest on Diversion of Funds to Sister Concern

The appeal was against the cancellation of a penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2007-08. The Assessing Officer disallowed interest on funds diverted to a sister concern, citing lack of commercial expediency. The penalty was challenged on the grounds that the disallowance was not concealment of income or furnishing of inaccurate particulars. The CIT(A) canceled the penalty, citing the decision in Reliance Petroproducts Pvt. Ltd. case by the Supreme Court. The Tribunal upheld the CIT(A)'s decision, emphasizing that no concealment or furnishing of inaccurate particulars occurred. The Tribunal agreed that the penalty was unjustified as no incorrect or false details were provided in the return.

Issue 2: Reduction of Deferred Tax from Net Profit for MAT Purposes

The Assessing Officer added deferred tax to the book profit under section 115JB of the Act, claiming it should only be reduced if credited to the Profit & Loss Account. The penalty under section 271(1)(c) was levied, but the CIT(A) canceled it, noting that the amendment regarding deferred tax was made retrospectively. The Tribunal agreed with the CIT(A), stating that the assessee could not have known about the amendment in the relevant year. Additionally, a circular by CBDT clarified that where tax under normal provisions is less than under MAT provisions, no penalty should be imposed. The Tribunal upheld the CIT(A)'s decision, emphasizing that prior to the amendment, no penalty could be levied in such cases.

In conclusion, the Tribunal dismissed the appeal, upholding the CIT(A)'s decision to cancel the penalty under section 271(1)(c) for both issues related to interest disallowance and deferred tax reduction. The Tribunal's decision was based on the lack of concealment or furnishing of inaccurate particulars and the retrospective nature of the relevant amendment affecting the assessee's knowledge.