2016 (5) TMI 52 - AT - Income Tax

Penalty under section 271(1)(c) - taxes were paid u/s 115JB on book profit - Details of capital loss to be disallowed u/s 94(7) - for the assessment year 2005-06 the form meant for filing the return of income did not contain column required for giving the particulars in respect of dividend stripping under section 94(7) or 94(8). - Held that - In the present case the assessee has given the full and complete details of the short-term loss accrued to it and also dividend earned by him. The assessee has paid the tax on the book profit and was not assessed under the normal provisions of the Income-tax Act. If the assessee was to be assessed under normal provisions of the Act, there is no tax liability. The Assessing Officer while computing the tax liability has given the calculation under normal provisions of law as well as under minimum alternate tax. From the perusal of order it is crystal clear that the failure on the part of the assessee to give effect to section 94(7) has no bearing on the payment of tax to be paid, therefore no penalty can be imposed on the basis of tax sought to be evaded, as there is no evasion of any tax liability - Decided in favour of assessee

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Applicability of section 94(7) pertaining to dividend stripping.
3. Assessment under section 115JB (Minimum Alternate Tax) versus normal provisions.
4. Full and true disclosure in the return of income.
5. Relevance of the Delhi High Court judgment in CIT v. Nalwa Sons Investments Ltd.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The primary issue in this case is whether the penalty imposed under section 271(1)(c) for furnishing inaccurate particulars of income is justified. The assessee was penalized for not applying section 94(7) and claiming a capital loss that should have been disallowed. The penalty amount was Rs. 8,50,287, which is 100% of the tax sought to be evaded.

2. Applicability of Section 94(7) Pertaining to Dividend Stripping:
The Assessing Officer (AO) identified that the assessee had claimed a short-term capital loss while also receiving dividend income, which should have been disallowed under section 94(7). The AO disallowed the loss of Rs. 23,23,664 and initiated penalty proceedings for furnishing inaccurate particulars of income.

3. Assessment under Section 115JB (Minimum Alternate Tax) versus Normal Provisions:
The assessee was assessed under section 115JB, which pertains to Minimum Alternate Tax (MAT). The assessee contended that since it was taxed on book profits and not under normal provisions, the penalty under section 271(1)(c) should not apply. This argument was supported by the Delhi High Court judgment in CIT v. Nalwa Sons Investments Ltd. [2010] 327 ITR 543 (Delhi), which held that penalty under section 271(1)(c) is not leviable when income is assessed under section 115JB.

4. Full and True Disclosure in the Return of Income:
The assessee argued that it had made a full and true disclosure of all relevant facts in its return of income, including the short-term capital loss and dividend income. The absence of a specific column for section 94(7) in the return form for the assessment year 2005-06 was highlighted as a reason for not explicitly applying the section.

5. Relevance of the Delhi High Court Judgment in CIT v. Nalwa Sons Investments Ltd.:
The Tribunal heavily relied on the judgment in CIT v. Nalwa Sons Investments Ltd., where it was held that if an assessee is assessed under section 115JB, penalty under section 271(1)(c) is not applicable. The Tribunal noted that since the assessee's tax liability was determined under section 115JB and not under normal provisions, there was no tax evasion, and thus, no penalty could be imposed.

Conclusion:
The Tribunal concluded that the assessee had provided full and accurate details in its return and was assessed under section 115JB. Following the precedent set by the Delhi High Court in CIT v. Nalwa Sons Investments Ltd., the Tribunal held that penalty under section 271(1)(c) was not applicable. Consequently, the appeal was allowed, and the penalty order was set aside. The Tribunal also noted that the judgments cited by the Revenue were not relevant as they did not pertain to cases assessed under section 115JB. The order was pronounced in the open court on September 30, 2015.