2020 (8) TMI 199 - AT - Income Tax

Penalty u/s 271(1)(c) - tax payable on income assessed under the normal provisions in the case of the assessee was less than the tax payable under the deeming provisions of Sec. 115JB - HELD THAT - On the basis of the amendment, w.e.f Asst. Year 2016-17, even in a case where there are certain additions/disallowances under the normal provisions of the Act, penalty u/s 271(1)(c) can be imposed, irrespective of the fact that the assessee is assessed as per the deeming provisions of Sec. 115JB or Sec. 115JC of the Act. In fact, a careful perusal of the aforesaid amendment reveals that the machinery proviso for quantification of penalty had now been rendered as workable. On a perusal of the Explanatory Notes to the Provisions of the Finance Act, 2015 . As such, the legislature observed that in a case where tax was paid by an assessee under the deeming provisions of Sec. 115JB or 115JC, the excess of such tax paid over and above its tax liability under the general provisions would thereafter be available as credit for set off against its future tax liability. On the said premises, it was observed that in a case of understatement of income under the general provisions of the Act, would thus, result in larger amount of such credit becoming available to the assessee for set off in future years. As observed that, where concealment of income as computed under the general provisions has taken place, penalty under clause (c) of sub-section (1) of section 271 should be leviable even if the tax liability of the assessee for the year has been determined under provisions of section 115JB or 115JC of the Income-tax Act. But then, we find that the said amendment to Explanation 4 to Sec. 271(1)(c) had explicitly been provided to be effective from 1st April, 2016 and thus will accordingly apply, in relation to the assessment year 2016-17 and subsequent assessment years. As the case of the assessee before us is for A.Y 2014-15 therefore, the post-amended Explanation 4 to Sec. 271(1)(c) would not be applicable in its case. As the issue involved in the present case is squarely covered by the judgment in the case of CIT Vs. Nalwa Sons Investments Ltd. 2010 (8) TMI 40 - DELHI HIGH COURT we thus respectfully follow the same. As such, now when the assessee company had been assessed to tax under the deeming provisions of Sec. 115JB of the Act, therefore, on the basis of our aforesaid observations no penalty u/s 271(1)(c) in respect of additions/disallowances made under the normal provisions of the Act could have been imposed upon the assessee. We thus in the backdrop of our aforesaid deliberations quash the penalty imposed by the A.O u/s 271(1)(c). - Decided in favour of assessee.

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of penalty under Section 271(1)(c) when tax is paid under MAT as per Section 115JB.
3. Validity of penalty order due to non-specification of the limb for initiation of penalty under Section 271(1)(c).
4. Furnishing inaccurate particulars of income related to interest on compulsory convertible debentures and bid development costs.
5. Disputable nature of expenses as capital or revenue.
6. Acceptance of alternate plea to capitalize interest cost and grant of depreciation.
7. Penalty on provision for income tax claimed as deduction due to clerical error.
8. Incorrect reliance on findings regarding capitalization of interest cost.
9. Overall validity of penalty imposed under Section 271(1)(c).

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The appeal concerns the confirmation of a penalty of ?3,26,69,600/- levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed for alleged concealment of income or furnishing inaccurate particulars of income.

2. Applicability of Penalty under Section 271(1)(c) when Tax is Paid under MAT:
The assessee argued that since it was assessed and paid tax under Minimum Alternate Tax (MAT) as per Section 115JB, no penalty under Section 271(1)(c) should be imposed for additions made under normal provisions. The amendment to Explanation 4 of Section 271, applicable from 01-04-2016, was argued to be prospective and not applicable to the assessment year 2014-15. The Tribunal agreed, citing the Delhi High Court judgment in CIT Vs. Nalwa Sons Investments Ltd., which held that penalty under Section 271(1)(c) could not be imposed when the income was assessed under Section 115JB.

3. Validity of Penalty Order Due to Non-Specification of Limb:
The assessee contended that the penalty order was null and void as the notice under Section 274 read with Section 271(1)(c) was issued mechanically without specifying whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. This procedural lapse was argued to invalidate the penalty proceedings.

4. Furnishing Inaccurate Particulars of Income:
The AO disallowed the assessee's claim for revenue expenses on account of interest paid on compulsory convertible debentures and bid development costs, recharacterizing them as capital expenditures. The CIT(A) upheld the AO's finding that the assessee had furnished inaccurate particulars of income, justifying the penalty under Section 271(1)(c).

5. Disputable Nature of Expenses:
The assessee argued that the nature of expenses (capital or revenue) was disputable and based on a difference of opinion on a legal claim. The Tribunal noted that a mere making of a claim which is not sustainable in law does not amount to furnishing inaccurate particulars of income, referencing the Supreme Court judgment in CIT Vs. Reliance Petroproducts (P) Ltd.

6. Acceptance of Alternate Plea:
The AO accepted the alternate plea of the assessee to capitalize the interest cost and granted depreciation thereon. This acceptance was argued to indicate the bona fide nature of the assessee's claim, which should not attract penalty.

7. Penalty on Provision for Income Tax:
The AO imposed a penalty on the provision for income tax of ?3,12,82,993/- claimed as a deduction due to a clerical error. The assessee argued that this was a bona fide mistake and did not result in any revenue loss as the tax was paid under MAT. The Tribunal found merit in this argument, referencing the Supreme Court judgment in Price Waterhouse Coopers (P) Ltd. Vs. CIT.

8. Incorrect Reliance on Findings:
The CIT(A) wrongly held that the assessee had agreed during assessment proceedings to the mistake of not capitalizing the interest cost to work in progress of assets. The Tribunal found this to be a misinterpretation of the facts.

9. Overall Validity of Penalty:
The Tribunal concluded that the penalty under Section 271(1)(c) could not be imposed as the assessee was assessed under Section 115JB and the additions/disallowances were made under normal provisions. The penalty order was quashed, and the appeal was allowed.

Conclusion:
The Tribunal quashed the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, on the grounds that the assessee was assessed under the deeming provisions of Section 115JB, and the additions/disallowances were made under normal provisions. The appeal was allowed, and the penalty order was set aside.

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