Penalty for concealment of income under section 271(1) ( c )- not applicable in case tax payable is imposed by way of MAT – says the Supreme Court by dismissing appeal of revenue .

[C.A. DEV KUMAR KOTHARI]

Relevant references:

Section 271(1)( c ) and S. 115JB.

CIT Vs  M/s. Nalwa Sons Investments Ltd. 2010 (8) TMI 40 (HC):

CIT Vs  M/s. Nalwa Sons Investments Ltd. 2012 (5) TMI 150 (SC)

Orders of the Supreme Court:

From the website of the Supreme Court we find the following orders and judgments in relation to the case:

ITEM NO.18  COURT NO.1  SECTION IIIA

S U P R E M E   C O U R T  O F  I N D I A

RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (Civil) No(s).18564/2011

(From the judgement and order dated 26/08/2010 in ITA No.1420/2009 of The HIGH COURT OF DELHI AT N. DELHI)

C.I.T  Petitioner(s)

VERSUS

M/S NALWA SONS INVESTMENT LTD.  Respondent(s)

(With appln(s) for c/delay in filing SLP, prayer for interim

relief and office report)

Date: 04/05/2012    This Petition was called on for hearing today.

CORAM :

HON'BLE THE CHIEF JUSTICE

HON'BLE MR. JUSTICE A.K. PATNAIK

HON'BLE MR. JUSTICE SWATANTER KUMAR

For Petitioner(s)  Mr.  Gourab Banerji,ASG.

Mr.   T.M. Singh,adv.

Mr.   Praveen Chaturvedi,Adv.

Ms.   Anil Katiyar,Adv.

for   Mr. B.V. Balaram Das,Adv.

For Respondent(s)           Mr. Ajay Vohra,Adv.

Ms. Kavita Jha,Adv.

UPON hearing counsel the Court made the following

O R D E R

Delay condoned.

The special leave petition is dismissed.

[ T.I. Rajput ]  [ Madhu Saxena ]

A.R.-cum-P.S. Assistant Registrar

ITEM NO.6  COURT NO.1 SECTION IIIA

S U P R E M E     C O U R T   O F    I N D I A

RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (Civil)....../2011

(CC 10505/2011)

(From the judgement and order dated 26/08/2010 in ITA No.1420/2009

of The HIGH COURT OF DELHI AT N. DELHI)

C.I.T.    Petitioner(s)

VERSUS

M/S NALWA SONS INVESTMENT LTD.   Respondent(s)

(With appln(s) for c/delay in filing SLP and office report)

Date: 11/07/2011    This Petition was called on for hearing today.

CORAM :

HON'BLE THE CHIEF JUSTICE

HON'BLE MR. JUSTICE K.S. PANICKER RADHAKRISHNAN

HON'BLE MR. JUSTICE SWATANTER KUMAR

For Petitioner(s)           Mr.   Gourab Banerji,ASG.

Ms.   Sonia Mathur,Adv.

Mr.   Sushil Kumar Dubey,Adv.

Mr.   B.V. Balaram Das,Adv.

For Respondent(s)           Mr. Ajay Vohra,Adv.

Ms. Kavita Jha,Adv.

UPON hearing counsel the Court made the following

O R D E R

Issue  notice  on   the  application  for condonation of delay as also on the special leave petition.

[ T.I. Rajput ]               [ Madhu Saxena ]

A.R.-cum-P.S.              Assistant Registrar

Analysis of orders:

On perusal of  the above orders we find as follows:

On 11.07.2011,after hearing counsels (four counsels for revenue including ASG) the court orders to “Issue  notice  on   the  application  for condonation of delay as also on the special leave petition.”

Thereafter on 04.05.2012 after hearing counsels for parties  (including five counsels including ASG for revenue) the Supreme Court condoned delay and  admitted the SLP and thereafter the SLP was dismissed.

Thus it is a case of dismissal of SLP on merit therefore this amount to confirming the orders/ judgment of lower courts in the matter. Accordingly the findings and order of lower court become final and attains approval of the Supreme Court.

Now we discuss the matter involved and provisions with help of judgments of lower courts:

Penalty for concealment of income:

Penalty for concealment of income  is levied vide section 271 (1) (c ). This section is attracted when an assessee is found to have concealed particulars of income or have furnished inaccurate particulars of income. In view of general awareness of the provision amongst readers, a detailed discussion is not made on this issue as it is not also much relevant for the purpose of present study.

Minimum alternate Tax (MAT) provisions:

We have various provisions from time to time which were introduced and were in force with a view to levy some tax on companies who had book profit but no taxable income as per normal provisions of computation. We can  recall some indirect  provisions to restrict deductions under Chapter VIA, provisions to restrict depreciation allowance or to restrict setoff of brought forward losses and deprecation in case of companies etc. these were also with a view to collect at least some tax from companies.

Specific provisions for MAT:

Direct provisions to levy MAT are found in form of three independent sections namely  115J, 115JA and 115JB. First two of these sections were in force at relevant times earlier and now they are not in force however litigation on applicability of MAT, computation of book profit, MAT penalty etc. are still continuing even for old provisions. S. 115JB is in force from assessment year 2001-02. Each of these sections constitutes integrated code of charging section and computation provisions. The basic purpose of these provisions has been to levy some tax on highly profitable companies which are regularly paying huge dividend, but are not liable to pay any income tax under normal computation provisions. 

MAT as deferred advance tax:

One more specific feature of MAT is its nature of one sort of advance tax of a contingent nature. MAT paid in one year  can in some circumstances, and within specified period  be adjusted in future when the assessee company has normal tax liability in excess of its MAT liability in  a future year. Therefore, in fact MAT collection should not be considered as a final collection by revenue, for the reason that in future tax otherwise collectible can be reduced by the amount of MAT now collected. Therefore, MAT is different from tax payable on ‘total income’.

Whether penalty is leviable when the tax liability is by way of MAT:

In normal computation if there is variation between returned income and assessed income and there is increase of assessed income or reduction of loss on assessment, then question arises whether the variations made by the AO by making additions or disallowances constitute or establishes that the assessee has concealed particulars of income. However, when tax is not levied on the basis of income computed as per normal provisions, but on the basis of book profit by way of MAT, then question which arise are  whether in such case section 271(1) (c ) is attracted ? and whether penalty can be levied under this section?

Delhi High Courts judgment approved by the Supreme Court:

In CIT Vs  M/s. Nalwa Sons Investments Ltd. 2010 -TMI – 78023(Del) the above questions arose in this case. In that  case the tax was imposed by way of MAT as it was more than normal tax on ‘total incmoe’ computed under normal procedure of computation of total income. The AO  made various additions and disallowances in normal computation some of which were confirmed by appellate authorities. The AO imposed penalty consequent to such  additions and disallowances holding that the assessee had furnished inaccurate particulars of the income which fell within the purview of the Section 271 (1) (c) of the Act and Explanation 1 thereto.

The income of the assessee was however, assessed under Section 115 JB and not under the normal provisions. Thus levy of tax was only by way of MAT. It is in this context that the court examined the application of Explanation 4.

Court observed that no doubt, there was concealment but that had its repercussions only when the assessment was done under the normal procedure. The assessment as per the normal procedure was, however, not acted upon. On the contrary, it is the deemed income assessed under Section 115 JB of the Act which has become the basis of assessment as it was higher of the two. Tax is thus paid on the income assessed under Section 115 JB of the Act. Hence, when the computation was made under Section 115 JB of the Act, the aforesaid concealment had no role to play and was totally irrelevant.

Therefore, the concealment did not lead to tax evasion at all and penalty could not to be imposed under section 271(1)(c).

Normal assessment:

While computing income as per normal provisions the assessment order was framed by the Assessing Officer under Section 143(3) at a loss of Rs.36.95 crores and  he also ascertained  book profits at Rs.4,01,63,180/- under Section 115 JB of the Act. While doing so, various additions were made by the Assessing Officer including the following: -

1. The Assessing Officer disallowed the depreciation to the extent of Rs.32,51,906/-.
2.  Provident fund collection remaining unpaid till due date  Rs.3,030/- was treated as income, on the ground that this contribution was made belatedly by the assessee.
3.  A disallowance of deduction under Section 80HHC of the Act was made on the ground that the assessee had not adjusted the loss incurred on manufactured and traded goods exported out of India against incentives and had claimed deduction under Section 80HHC of the Act on 90% of the incentives.

          These additions were upheld by the CIT (A) and thus the AO imposed penalty under section 271(1) ( c).

Since there was loss and tax payable was nil on normally computed income, the AO imposed tax on book profits as per provisions of section 115JB.

As per court, when tax was imposed u/s 115JB and computation in normal ascertainment of loss resulted into reduced loss there was no case of tax imposed on such normally computed income,a and  therefore no penalty was leviable.

Section 115JB was not applicable in this case:

The assessment order was framed by the Assessing Officer under Section 143(3) at a loss of Rs.36.95 crores. Therefore, we find that in the above case the loss determined was kept apart for carry forward, assessee had no gross total income and gross total income was not computed, assessee was not eligible to avail benefits of deductions under chapter VIA, if any, total income could not be computed , and tax payable on total income of  the assessee,  on normally computed income (loss) was nil, it is also likely that the assessee was not a dividend paying company. Therefore, any of preconditions for levy of MAT were not existing. Therefore, in this case section 115JB was not at all applicable. However, it seems that this claim was not made by assessee and the learned AO did not allow the same taking advantage of ignorance of the assessee.

Discussions to this article

[Pritam Jain]

Hello Sir,

First of all thnak you for sharing such a valuable knowledge and one of the important case laws.

Sir I didnt get the las para " non-applicability" of Sec.115JB, can you explain in detail.

Obliged

CA Pritam Jain

[DEV KUMAR KOTHARI]

.115JB is a self contained code. This is a charging section as well as computational provision. The conditins  found  in section are  essential conditions, pre-conditions and sine qua non for applicability of S.115JB. This section contenplates that in case of  a company one has to compute total income and tax payable thereon. The computation of total income has certain phases that is computation of  chargeable income under different heads, summing-up such chargeable income to determine Gross Total Income, then from GTI to deduct deductions u/c VI A so as to arrive at Total Income. Then to compute tax payable on such total income. When buisnes loss is computed and kept apart, we find that process of computation comes to a halt, there is no computation of GTI. In absence of GTI  assessee cannot claim deductions u/c VI A, there is no computtaion of Total income. There is no computation of tax payable on total income. The process of computtaion of GTI, Deductions, TI and tax payable are not completed , when a computation as per prescribed manner cannot be computed, the charging section also fails. Furthermore, preconditions for application of S.115JB does not exist.  In such circumstances S.115J, 115JA and 115JB is not attracted.