2022 (3) TMI 1134 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Assessee s explanation of it being a Government company which cannot therefore be attributed with the intent of concealing income and that it had in fact incurred a loss for the relevant year was not found satisfactory by the Assessing Officer - CIT-A partly allowing the assessee s appeal - HELD THAT - Where the expenditure is in terms of the relevant contract its non-approval being a matter internal to the assessee may not be of any consequence for determining the accrual of the said expenditure. Further even so in case of a doubt or dispute of which there is no whisper a provision for expenditure on the basis of the information available as at the date of the closure of accounts i.e. as to the conditions as at the end of the relevant year is to be made under the mercantile system of accounting which the assessee is admittedly following. The booking of expenditure adjusting the provision made would be made in accounts on the resolution of the conflict. The assessee s case is sans any factual basis. That being the case i.e. as to the facts and law even an allowance of the prior period expenses for the preceding years may not be of much consequence as it does not alter the settled law only on the basis of which an assessment is to be made and besides on facts the assessee may have been able to prove the facts for those years while for the current year as afore-stated there is no case made out at any stage. The assessee has in fact suo motu disallowed prior period expenditure for AY 2007-08 while the position is not clear for AY 2009-10 the AO having (as for AY 2007-08) accepted the assessee s computation stating so in the assessment order albeit without mentioning the computation details in the body of the order as is the case for AY 2007-08. The assessee s contention of the Revenue acting inconsistent for the current year is thus incorrect; rather it is it the assessee who is doing so. The law presumes the nexus so that the conditions required for such reduction in or evasion of tax to materialize which may only be in future are regarded as satisfied. It is this rational nexus that gets lost or compromised where tax though payable under the regular provisions being lower than that payable under MAT gets paid under the latter. Tax payable under either set of provisions being in a positive sum the increased tax (due to the relevant income) on the income under the normal provisions gets jettisoned or subsumed in the tax payable under the MAT which having not witnessed any change would be in any case levied/paid. It cannot therefore be said and neither is there any basis for a presumption that any tax has been evaded by the increased income under the regular provisions. That is there is a breakdown in the said nexus which is a prerequisite for and therefore must exist for a valid levy of penalty. It is this breakdown so that the very basis for the levy of penalty i.e. the tax sought to be evaded by reason of non-returning the relevant income is absent that was responsible in Nalwa Sons Investment Ltd. 2012 (5) TMI 150 - SC ORDER holding that no penalty could be levied in a case where the adjustment to the returned income is made under the regular provisions while the tax gets finally paid under the MAT provisions. It is well-settled that all the parts of a statute are to be construed together (Prakash Nath Khanna v. CIT 2004 (2) TMI 3 - SUPREME COURT . To say that the income is not acted upon as held in Nalwa Sons Investment Ltd. would thus be valid only in case of an assessed positive income inasmuch as tax though chargeable thereon is yet not payable so that there is tax mitigation - the basis of the said decision - to that extent. And not in a case of assessed loss which stands to be carried forward for set off against future income and thus bears a potential reduction in tax liability (due to non-returning of the relevant income). Assessee s case is thus squarely covered by Explanation 4(a) to s. 271(1)(c) as it stood prior to its amendment by Finance Act 2015. That the said provision may not apply in the other case is no reason for regarding it as not applicable where it actually is. It may not be out of place here to mention that the Hon ble Gujarat High Court in Gold Coin Health Foods (P.) Ltd 2008 (8) TMI 5 - SUPREME COURT disapproved of penalty in case of reduction in loss in assessment and not where the returned loss stands converted into a positive income in which case tax becomes therefore payable. Board construing the decision in Nalwa Sons Investment Ltd. (supra) in a broad manner has issued a Circular (# 25/2015 dated 31/12/2015) instructing its officers not to levy penalty in cases where the tax payable under the regular provisions is lower than that under the MAT provisions and where so desist from filing appeals or pressing the same. The said Circular as afore-noted covers the instant case as it does not carve out any exception for a case of assessed loss under the normal provisions of the Act even as tax becomes payable under the deeming provision of s.115JB(1). Board Circular not binding on the appellate authorities is so on the income tax authorities where favorable to the taxpayer. The Revenue s instant appeal is thus not maintainable. Rather it is this non-binding character (on the appellate authorities) that forms the basis of our expressing our view which is as apparent based on the plain language of the provision and further as explained by the Apex Court in Gold Coin Health Foods (supra). Revenue s appeal is dismissed as not maintainable.

Summary

Issues Involved:
1. Legitimacy of the penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Interpretation and application of Explanation 4 to section 271(1)(c) before and after its amendment by the Finance Act, 2015.
3. Applicability of the Board Circular No. 25/2015.

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty under section 271(1)(c) of the Income Tax Act, 1961:
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) (CIT(A)), which deleted the penalty levied under section 271(1)(c) for Assessment Year (AY) 2008-09. The assessee, a Government company in the business of power generation, had filed a return of income showing a loss under normal provisions but a positive income under section 115-JB. The Assessing Officer (AO) had disallowed prior period expenditure of Rs. 238.29 lacs, leading to the levy of a penalty of Rs. 71,48,830. The CIT(A) deleted this penalty, stating that the AO did not appreciate the facts correctly and that the assessee had not concealed any particulars of its income as all information was reflected in the audit report.

2. Interpretation and application of Explanation 4 to section 271(1)(c) before and after its amendment by the Finance Act, 2015:
The assessee argued that there was no furnishing of inaccurate particulars and that the details of prior period expenses were duly disclosed. It was also contended that the reassessment had no tax impact since the tax was paid based on book profit under the MAT provisions. The Tribunal referred to the Board Circular No. 25/2015, which clarified that prior to 01.04.2016, no penalty under section 271(1)(c) could be imposed with reference to additions/disallowances made under normal provisions if the tax payable under normal provisions was less than the tax payable under section 115JB. The Tribunal noted that the law applicable for the levy of penalty is that as obtaining on the date of filing the original return, which in this case was 29.09.2009. The Tribunal also discussed the interpretation of Explanation 4 to section 271(1)(c) and concluded that the penalty could not be levied based on the facts and circumstances of the case.

3. Applicability of the Board Circular No. 25/2015:
The Tribunal considered the matter as covered by the Board Circular No. 25/2015, which stated that no appeals should be filed or pressed in cases where the tax payable under normal provisions is less than the tax payable under section 115JB. The Tribunal noted that the Circular is binding on the income tax authorities under section 119 of the Act. The Tribunal also observed that the Revenue should not have filed an appeal or pressed the same, as directed by the Circular. The Tribunal emphasized that the Circular, being benevolent, must be followed, and the Revenue's appeal was dismissed as not maintainable.

Conclusion:
The Tribunal dismissed the Revenue's appeal, holding that the penalty under section 271(1)(c) was not maintainable. The Tribunal based its decision on the Board Circular No. 25/2015, the interpretation of Explanation 4 to section 271(1)(c), and the facts of the case, concluding that the assessee had not concealed any particulars of income and that the reassessment had no tax impact due to the MAT provisions. The Tribunal's order was pronounced on March 23, 2022.