2024 (9) TMI 1674 - AT - Income Tax

Rectification of mistake u/s 254 - Penalty u/s 271(1)(c) - Levy confirmed on assessee being held liable to pay taxes on its book profits computed in terms of section 115JB by including therein long term capital gains as mandated by law, which the assessee had failed to do while levy deleted on Disallowance of certain expenses claimed by the assessee while computing its income under the normal provisions of the Act - HELD THAT - The order, while dealing with ground no.2, notes the assessee to have stated the issue to be squarely covered in its favour in CIT Vs. Stock Home India Ltd 2015 (2) TMI 669 - PUNJAB HARYANA HIGH COURT but goes on to distinguish it by finding that while in the facts of the case before the Hon ble High Court the assessee was noted to have filed a revised return including therein calculation of Book Profits u/s 115JB of the Act and also filing Form No. 29B, the same was not done by the assessee in the present case. Assessee has pointed out that both the acts could not have been done by the assessee as per law itself since the limitation prescribed in law for filing revised return and form No 29B had expired by the time the assessee became aware of the lapse on its part during assessment proceedings. Ld.DR was unable to controvert this contention of assessee. Clearly the distinction made for not applying the decision of the Hon ble High court has been demonstrated to be incorrect. Also while finding the assessee to have acted malafidely by not paying taxes on book profits by including therein exempt long term capital gain, the ITAT we have noted has not dealt with the explanation of the assessee that inclusion of exempt capital gain in Book Profits was by way of amendment in law applicable from the impugned year onwards and therefore missed out for its consideration. We agree with assessee that there was a mistake apparent on record in the order of the ITAT finding the assessee to have acted malafidely by only considering the fact that the assessee had consistently been disclosing computation of book profits as per section 115JB of the Act in preceding years while not doing so in the impugned year, without dealing with the aforestated explanation of the assessee of exempt income being included in Book Profits being a recent amendment. This explanation of the assessee not only addresses non-disclosure of Book Profits in the impugned year but also the fact why it was consistently disclosed in earlier years. Not dealing with this explanation of the assessee has resulted in there being a mistake in the order of the ITAT. There is a clear mistake in the order of the ITAT, while holding the assessee to have not established its bona fides for escaping the levy of penalty, on ground no.2 raised by the assessee. MA filed by the assessee on this issue also, we hold, is maintainable.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment addresses the following core issues:

Issue 1: Whether the ITAT erred in not adjudicating a specific ground raised by the assessee challenging the validity of the penalty order, treating it as a general ground.

Issue 2: Whether the ITAT's confirmation of the penalty on the assessee for not including long-term capital gains in the computation of book profits under section 115JB was based on incorrect assumptions of fact and law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Non-adjudication of Specific Ground

Relevant legal framework and precedents: The issue revolves around section 254(2) of the Income Tax Act, 1961, which allows for rectification of mistakes apparent from the record. The assessee cited precedents where non-specification of penalty charges rendered orders invalid.

Court's interpretation and reasoning: The ITAT acknowledged that the ground raised by the assessee was specific and not general. The court found that the ITAT's failure to adjudicate this ground constituted a mistake apparent from the record.

Key evidence and findings: The assessee provided documents and averments challenging the validity of the penalty order, which were not considered by the ITAT.

Application of law to facts: The court applied section 254(2) to conclude that the ITAT's treatment of the ground as general was incorrect and required rectification.

Treatment of competing arguments: The Revenue argued that the ITAT had addressed the validity of the order in subsequent paragraphs, but the court found no evidence of this in the order.

Conclusions: The ITAT's order was recalled for de novo adjudication of the specific ground raised by the assessee.

Issue 2: Confirmation of Penalty on Book Profits

Relevant legal framework and precedents: The issue pertains to the interpretation of section 115JB of the Income Tax Act, concerning the inclusion of long-term capital gains in book profits. The assessee referenced a decision by the Punjab & Haryana High Court.

Court's interpretation and reasoning: The court found that the ITAT failed to consider the assessee's explanation regarding the recent amendment to section 115JB and its impact on the computation of book profits.

Key evidence and findings: The ITAT's findings were based on the assessee's failure to revise its return and file Form No. 29B, which the court found to be an incorrect application of law.

Application of law to facts: The court determined that the ITAT's decision was based on an incorrect understanding of the legal requirements for revising returns and filing necessary forms.

Treatment of competing arguments: The Revenue argued that the ITAT's decision was detailed and correct, but the court found that the ITAT had not adequately addressed the assessee's explanations.

Conclusions: The ITAT's order was recalled for fresh adjudication on the issue of penalty for non-inclusion of long-term capital gains in book profits.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The non-adjudication of ground No. 1 raised by the assessee treating it as general in nature is a mistake apparent on record in the order passed."

Core principles established: The judgment reinforces the principle that specific grounds raised in appeals must be adjudicated and that failure to do so constitutes a rectifiable mistake. It also highlights the importance of considering recent amendments in law when assessing penalties.

Final determinations on each issue: The ITAT's order was recalled for de novo adjudication on both the specific ground challenging the validity of the penalty order and the issue of penalty related to the computation of book profits under section 115JB.

The judgment emphasizes the need for careful consideration of legal grounds and explanations provided by the assessee, particularly in light of recent legislative amendments. The ITAT is directed to re-evaluate the issues with these considerations in mind.