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2022 (3) TMI 1134 - AT - Income TaxLevy 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.
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