2016 (7) TMI 579 - AT - Income Tax

Penalty u/s. 271(1)(c) - provisions for leave encashment and provisions for gratuity added back to book profit u/s 115JB - Held that - We find that the CBDT has issued circular no. 25/2015 dated 31-12-2015 explaining that the pursuant to the judgment of Hon ble Delhi High Court in the case of Nalwa Sons Investment Ltd (2010 (8) TMI 40 - DELHI HIGH COURT ) and the substitution of Explanation 4 of section 271 of the Act with prospective effect, it is now settled position that prior to 1-4-2016, where 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 MAT provisions of the Act, then penalty u/s. 271(1) ( c) of the Act is not attracted with reference to additions/disallowances made under the normal provisions of the Act. The CBDT has clarified that in cases prior to 1-4-2016, if any adjustment is made in the income computed for the purpose of MAT, then the levy of penalty u/s. 271(1) ( c) of the Act, will depend on the nature of adjustment. The CBDT has also directed the revenue authorities that no appeal may henceforth be filed on this ground and appeals already filed, if any, on this issue before various courts/tribunals may be withdrawn or not pressed upon. Thus penalties deleted - Decided in favour of assessee

Summary

Issues:
Levy of penalties under section 271(1)(c) of the Income Tax Act on provisions for leave encashment and provisions for gratuity added back to book profit under section 115JB.

Analysis:
1. The appeals arose from orders of CIT (A) confirming penalties under section 271(1)(c) of the Act regarding provisions for leave encashment and gratuity added back to book profit. The AO noted the provisions made by the assessee were not based on actuarial provisions as per Accounting Standard-9. While the AO accepted the business profit computation, he added these provisions to book profits under section 115JB. Penalty proceedings were initiated by the AO.

2. The main issue was the confirmation of penalties by CIT (A) on the mentioned provisions. The assessee contended that penalties were unjustified as the liabilities were not accrued or ascertained during the year. The CIT (A) upheld the penalties, relying on a Supreme Court decision. The assessee then appealed to the Tribunal.

3. The Tribunal found in favor of the assessee, citing a Supreme Court judgment and a CBDT circular. The Supreme Court judgment highlighted that when income is assessed under section 115JB, penalties under section 271(1)(c) may not be applicable if the concealed income does not impact the tax payable. The CBDT circular further clarified the non-applicability of penalties in such cases before April 1, 2016.

4. Referring to the CBDT circular, the Tribunal concluded that penalties were not warranted in this case and deleted the penalties imposed by the AO and confirmed by CIT (A). Consequently, the appeals of the assessee were allowed, and the penalties were removed.

This detailed analysis of the legal judgment highlights the key issues, arguments presented, judicial decisions, and the final outcome in favor of the assessee based on relevant legal provisions and precedents.