2016 (5) TMI 636 - AT - Income Tax

Penalty u/s 271(1)(c) - tax on total assessed income was lesser than the tax paid by the assessee on the basis of book profit u/s 115JB - Held that - Assessee squarely falls within the four corners of the CBDT Circular No.25/2015 F.NO.279/MISC./140/2015/ITJ which clearly says that 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 section 271(1)(c) of the Act, is not attracted with reference to additions /disallowances made under normal provisions and same is the case of assessee and, therefore, assessee should not have been visited with penalty u/s 271(1)(c) of the Act - Decided in favour of assessee

Summary

Issues:
- Deletion of penalty u/s 271(1)(c) for failure to corroborate claims during assessment proceedings
- Disallowance of warranty provisions and suppressed sales
- Application of Explanation 4 to determine tax evasion and penalty imposition
- Applicability of CBDT Circular No.25/2015 on penalty under section 271(1)(c)
- Upholding the order of the ld. CIT(A) in deleting the penalty

Analysis:
1. The appeal was filed by the Revenue against the order of the ld. CIT(A) deleting the penalty imposed under section 271(1)(c) of the IT Act for the assessment year 2005-06. The Revenue contended that the assessee failed to corroborate its claims during assessment proceedings, leading to the deletion of the penalty by the ld. CIT(A).

2. The assessee, a limited company in the business of manufacturing plastic processing machinery, filed its return showing NIL income after adjusting brought forward losses and paying tax on book profits under section 115JB of the Act. The case underwent scrutiny assessment, resulting in the assessment of taxable income at Rs. 1,25,26,430. Penalty proceedings under section 271(1)(c) were initiated due to discrepancies in provisions for warranty and suppressed sales.

3. The ld. CIT(A) confirmed certain additions, including provisions for warranty, suppressed sales, and disallowance of software expenses. The penalty of Rs. 41,51,041 was imposed by the Assessing Officer based on these additions. However, the ld. CIT(A) allowed the appeal of the assessee, citing previous cases where penalties were deleted for similar disallowances.

4. The ld. CIT(A) justified the deletion of penalty by referring to the decision in CIT vs. Nalwa Sons Investment Limited, where it was held that penalties cannot be imposed when tax payable under normal provisions is less than tax payable under section 115JB of the Act. The Supreme Court dismissed the Revenue's appeal against this decision, further supporting the deletion of penalty in the present case.

5. The Revenue challenged the deletion of penalty, but the Tribunal upheld the ld. CIT(A)'s decision. The Tribunal considered the CBDT Circular No.25/2015, which clarified that penalties under section 271(1)(c) are not attracted when tax payable under normal provisions is less than tax payable under section 115JB. As the assessee's case fell within the scope of this circular, the penalty deletion was upheld.

6. The Tribunal dismissed the Revenue's appeal, citing the applicability of the CBDT circular and the precedent set by the decision in CIT vs. Nalwa Sons Investment Limited. The Tribunal found no infirmity in the ld. CIT(A)'s order and upheld the deletion of penalty under section 271(1)(c) for the assessee.

This comprehensive analysis highlights the key issues involved in the legal judgment and the detailed reasoning behind the decision to delete the penalty imposed on the assessee.