2016 (7) TMI 837 - AT - Income Tax

Penalty u/s.271(1)(c) - assessee s claim for unabsorbed deposition in the computation of its book profit u/s. 115JB a little over 100% - Held that - The balance brought forward (from the earlier years) can only be one, single balance, carried forward as at the end of the immediately preceding year, 31.3.2005 in the instant case. This is axiomatic, and there cannot conceivably be two (or more) balances, either of brought forward loss or unabsorbed deposition. All that one needs to look at is at the balance of the profit and loss account as at the end of the immediately preceding year, or, equally at the beginning of the current year, and which would reflect the profit or, as the case may be, loss carried forward to, i.e., brought forward from the immediately preceding year, the current year. It is a cumulative balance, which subsumes the credits (on account of profits) or debits (on account of losses) to the P & L account, itself a balance-sheet item. If it is a positive balance, implying a cumulative profit, there is no question of any unabsorbed depreciation, which is thus nil in-as-much as depreciation is debited to the P & L account. If not, i.e., is a negative figure, the amount of depreciation included therein is to be segregated, so that the two, the unabsorbed depreciation and the balance loss are separately known, and the lower of the two set off. If the gross loss is lower than depreciation charged to the P&L A/c (be it for one or more years preceding the current year), it implies there is no loss, other than depreciation, so that it is nil, making the provision of clause (iii) of Explanation 1 to s. 115-JB inapplicable. Notably, the provision does not employ the word losses . In fact, even if it did, it would only imply losses for all the preceding years, taken cumulatively, as reduced by the cumulative profit (for all these years). And, at any rate, may give rise to some doubt only in such a non-existent case. The assessee adverts to there being no concept of carry backward of losses under the in Indian tax laws, which contemplate only carry forward of losses argument, though based on a truism, is both invalid and misconceived. There is, further, nothing in the language of the provision of clause (iii) of Explanation 1 to section 115 JB that suggests or gives room to any ambiguity, much less of the sort being canvassed by the assessee. The profit or loss brought forward (to any year) is, as afore-stated, a balance-sheet which statement is a tabulation of the account balances in a manner so as to depict the (financial) state of affairs of the reporting enterprise as at the value date, generally the end of the account period, item. It thus reveals the sources of funds with it, and their application. The claim should not be banal or a ruse and the penalty cannot be deleted under the guise or pretence of a legal opinion used as a smokescreen or fa ade. Allowing this will be stretching and making the requirement to prove a bona fide conduct illusionary and ineffective and would fail to check and stop fanciful and incredible claims. It is noticeable, it continued, that most of the income tax returns are accepted without scrutiny or regular assessment and self-compliance of tax provisions is a rule required to be followed (reference in this regard is made to paras 16, 17 and 18 of the decision). In the present case, we have already shown that no ambiguity exists and the clear language of the provision does not, at any rate, admit of the interpretation sought to be provided to it by the assessee. - Decided against assessee.

Issues Involved:
1. Validity of the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Furnishing inaccurate particulars of income regarding excessive depreciation claims.
3. Acceptance of the decision by the appellant and the absence of further appeals.
4. Excessive depreciation claims for a helipad not used for business purposes.

Issue-wise Detailed Analysis:

1. Validity of the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal concerns the validity of the penalty levied under Section 271(1)(c) on the assessee’s claim for unabsorbed depreciation in the computation of its book profit under Section 115JB. The assessee argued that the lower of the unabsorbed depreciation and unabsorbed loss was adjusted in computing the book profit. The law, under clause (iii) of Explanation 1 to Section 115JB, does not provide for the loss as per the balance sheet to be adjusted, which could be regarded as brought forward. The assessee’s explanation on merits is only for penalty proceedings, which are distinct from quantum proceedings. The provision requires a plausible explanation and disclosure of all material facts to avoid penalty.

2. Furnishing inaccurate particulars of income regarding excessive depreciation claims:
The CIT(A) confirmed the penalty, holding that the appellant furnished inaccurate particulars of income by claiming excessive depreciation not in accordance with the books of accounts maintained as prescribed under Parts II and III of Schedule VI of the Companies Act. The relevant clause of Explanation 1 to Section 115JB specifies that only permitted adjustments to the profit or loss as per the profit and loss account can be made. The assessee’s profit and loss account and balance sheet did not support the claim of unabsorbed depreciation as per the books of account.

3. Acceptance of the decision by the appellant and the absence of further appeals:
The CIT(A) noted that the appellant accepted the decision and no further appeals were pending on this matter, making it an undisputed issue of furnishing inaccurate particulars of income. The assessee’s explanation was found to lack bona fides, as it did not align with the clear language of the provision, which does not admit the interpretation sought by the assessee. The law requires the balance of the profit and loss account to be consistent and in agreement with the books of account, which was not the case here.

4. Excessive depreciation claims for a helipad not used for business purposes:
The CIT(A) observed that the appellant excessively claimed depreciation, knowing that the helipad was never used for business purposes in the initial year of its claim. The assessee’s argument that there is no concept of carry backward of losses under Indian tax laws was found to be invalid and misconceived. The balance brought forward from the earlier years can only be one single balance, and the provision of clause (iii) of Explanation 1 to Section 115JB does not support the assessee’s interpretation. The assessee’s claim was found to be without merit, and the Revenue’s stand was upheld.

Conclusion:
The assessee’s appeal was dismissed, and the penalty under Section 271(1)(c) was upheld. The Tribunal found no merit in the assessee’s claim and upheld the Revenue’s stand, emphasizing the need for a bona fide explanation and accurate disclosure of material facts to avoid penalty. The order was pronounced in the open court on June 30, 2016.

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