2016 (5) TMI 614 - AT - Income Tax

Penalty under section 271(1)(c) - book profit under section 115JB of the Act as the income declared and tax levied under section 115JB of the Act is more than the income declared under the normal provisions - Held that - As evident that the disallowances on the basis of which penalty under section 271(1)(c) was imposed related to determination of income under the normal provisions of the Act. Therefore, they have no relevance at all as far as computation of book profit under section 115JB and levy of tax thereon. In fact, the issue in dispute has been set at rest by the CBDT circular no.25 of 2015 dated 31st December 2015, wherein it has been clarified that in view of the decision of the Hon ble Delhi High Court in Nalwa Sons Investments Ltd. (2010 (8) TMI 40 - DELHI HIGH COURT) and substitution of explanation 4 to section 271 of the Act, prospectively, if 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 profit under section 115JB of the Act, then penalty under section 271(1)(c) is not attracted with reference to additions / disallowance made under normal provisions. - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2008-09.

Analysis:
The appeal was filed against the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The assessee had initially declared a nil total income under the normal provisions and a book profit of Rs. 1,39,96,811 under section 115JB of the Act for the assessment year 2008-09. The Assessing Officer made disallowances under the normal provisions and completed the assessment under section 115JB as the tax due on book profit was higher than the tax due on income declared under normal provisions. The penalty was imposed based on these disallowances, which were not challenged by the assessee. The first appellate authority confirmed the penalty, albeit reducing it to 100% of the tax on the income sought to be evaded, amounting to Rs. 1,83,987.

The counsel for the assessee argued that since the disallowances leading to the penalty were unrelated to the income determined under section 115JB, the penalty under section 271(1)(c) should not apply. The counsel cited relevant case laws to support this contention. The Departmental Representative supported the decision of the first appellate authority.

Upon review of the facts and evidence, the Tribunal found merit in the counsel's submissions. It was observed that the disallowances for which the penalty was imposed pertained to the determination of income under the normal provisions, which did not affect the computation of book profit under section 115JB. Citing a decision of the Delhi High Court and a CBDT circular, the Tribunal concluded that if the tax payable on total income under normal provisions is less than the tax on book profit under section 115JB, penalty under section 271(1)(c) is not applicable with regard to additions/disallowances made under normal provisions. Therefore, the penalty imposed under section 271(1)(c) was deleted based on the legal precedents and circular provided.

In light of the principles established by the Delhi High Court and the CBDT circular, the Tribunal allowed the appeal of the assessee and set aside the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2008-09.