Penalty for concealment of income under section 271(1) ( c )- not applicable in case tax payable is imposed by way of MAT.

[C.A. DEV KUMAR KOTHARI]

Penalty for concealment of income under section 271(1) ( c )- not applicable in case tax payable is imposed by way of  MAT.

Relevant references:

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

CIT Vs  M/s. Nalwa Sons Investments Ltd. 2010 -TMI - 78023(Del):

Section 271 (1) (c )- penalty for concealment of income:

This section is attracted when an assessee is found to have concealed particulars of income or have furnished inaccurate particulars of income. The readers are well aware of the provision and therefore, 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 may 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. These were intended to levy at least some tax on profit making companies.

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. S. 115JB is in force from assessment year 2001-02. Each of these sections constitutes integrated code of charging section and computation provisions.

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 ahs 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?

CIT Vs  M/s. Nalwa Sons Investments Ltd. 2010 -TMI - 78023(Del):

The above questions arose in this case.The tax was imposed by way of MAT as it was more than normal tax. The AO  made various additions and disallowances in normal computation some of which were confirmed. 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. 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: -

A.     The Assessing Officer disallowed the depreciation to the extent of Rs.32,51,906/-.

B.      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.

C.      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 assessee had no gross total income, assessee could not avail benefits of chapter VIA, the assessee had no tax payable on normally computed income (loss), it is also likely that the assessee was not a dividend paying company. 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.