TMI Blog2014 (6) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... ut not offered for taxation – Held that:- The assessee earned such interest income but instead of showing it as income directly took it to reserve account - When a particular item of income earned by the assessee is routed to balance sheet without passing through the Profit and loss account, the natural interference which is to be drawn is that the assessee did not intend to offer such amount to tax - No explanation has been advanced on behalf of the assessee as to under which circumstances the amount was not offered for taxation but straightway taken to the reserve account in balance sheet- It is a clear cut case of concealment of income warranting the imposition of penalty - By overturning the order, the penalty was rightly imposed by the AO on the amount – the order of the CIT(A) is set aside. Abandonment reserve – Assessee’s 25% share in expenses from PSC for the exploration of crude oil – Held that:- The amount of abandonment cost fell on the assessee at the end of each year though it was to be discharged at the end of the stipulated period - Under the mercantile system of accounting, an expense is allowed as deduction on incurring the liability irrespective of the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd income of Rs. 22,52,830/- u/s 115JA of the Act. The assessment was concluded u/s 143(3) of the Act by computing a positive total income under the normal provision of the Act at Rs. 1,83,56,802/- and income u/s 115JA at Rs. 34,03,022/-. In such assessment, the Assessing Officer made the following additions/disallowances: i) Excess Expenses : Rs. 8,59,553/- ii) Production Bonus : Rs. 47,50,000/- iii) Disallowance u/s 43B : Rs. 35,183/- iv) Interest earned : Rs. 2,996/- v) Abandonment Reserve : Rs. 5,30,875/- vi) Interest expenses : Rs. 98,391/- vii) Reduction in exemption u/s 10A : Rs. 2,23,148/- Total : Rs. 65,00,146/- 3. On the basis of the above additions/disallowances, the Assessing Officer imposed penalty to the tune of Rs. 23 lakh by observing that the assessee accepted the additions at serial No. i to vi above without raising any objection in appeals and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this issue. The relevant portions from the tribunal order on this issue have also been extracted in the impugned order. In the absence of any distinguishing feature having been brought to our notice by the ld. DR on the facts of the instant year vis- -vis those of the succeeding year, we are of the considered opinion that no fault can be found with the view canvassed by the ld. CIT(A) in deleting penalty on this issue. The same, is therefore, upheld. 8. The next item is interest income of Rs.2,996 which was earned but not offered for taxation. The AO noticed that the assessee directly took such amount to its balance sheet by crediting it to the reserve account. Penalty was imposed on such addition, which was erased in the first appeal. 9. Having heard both the sides on this issue and perused the relevant material on record, we find it as an admitted position that the assessee, in fact, earned such interest income of Rs. 2,996/- but instead of showing it as income directly took it to reserve account. The ld. AR also candidly admitted that this amount was rightly chargeable to tax. When a particular item of income earned by the assessee is routed to balance sheet without pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere fact of the acceptance or confirmation of an addition cannot foreclose the doors to knock at for the deletion of penalty on such amount. Notwithstanding the fact that the addition was confirmed in the appeal or the assessee accepted such addition due to smallness of the amount or otherwise, the assessee is always entitled to prove in the penalty proceedings that the addition was not called for and consequently no penalty could be levied on it. 10.4. Now coming to the merits of this addition, we find that the assessee along with the Government of India and others under the PSC undertook to restore the site after the prospecting mineral oil etc. at the end of the stipulated period. As per the PSC, the parties were bound to restore the site to its original position by incurring expenses which were estimated on a scientific basis. The amount under dispute is the assessee s share in such estimate of site restoration expenses to be incurred under the PSC. Even though the site was to be restored to the original position at the end of the stipulated period, but the extent of the damage caused to the site on yearly basis was capable of quantification, which exercise was done by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax or advance tax arises on the computation of the profits and gains of business. The tax which is payable is on the assessee s income after the income is determined. This cannot, therefore, be considered as an expenditure for the purpose of earning any income or profits. Interest which is paid for delayed payment of advance tax on such income cannot be considered as expenditure wholly and exclusively for the purpose of business. Under the I.T. Act the payment of such interest is inextricably connected with the assessee s tax liability. If income-tax itself is not a permissible deduction under s. 37, any interest payable for default committed by the assessee in discharging his statutory obligation under the I.T. Act, which is calculated with reference to the tax on income cannot be allowed as a deduction. In view of the fact that the assessee claimed deduction for payment of income-tax by clubbing it with `Interest expenditure , which amount is clearly not allowable even as per the law laid down by the Apex Court way back in 1998, we have absolutely no doubt in mind that the provisions of sec. 271(1)(c) of the Act were rightly magnetized. 11.3. Similar is the position of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esting for the deletion of entire penalty on a legal issue, being the final determination of total income of the assessee u/s 115JA of the Act and the additions sustained pertaining only to the income computed under the normal provisions of the Act. The ld. AR relied on the judgment of the Hon ble jurisdictional High Court in CIT Vs Nalwa Sons Investment Ltd. (2010) 327 ITR 543 (Del) to propel this submission. 14.2. Before proceeding with the matter on merit, it would be apposite to first decide about the maintainability or otherwise of such application. Rule 27 of ITAT Rules, 1963 with its marginal note reads as under :- `Respondent may support order on grounds decided against him. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him. 14.3. The effect of this rule is that a respondent has been entitled to support the order on the ground which has been decided against him. The underlying idea and the spirit of Rule 27 is to arm a respondent, in an appeal filed by the plaintiff, with an option to contest unfavourable decision of the CIT(A) on the aspect(s) of an issue, the final decision on whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided against him, a cross objection u/s 253(4) of the Act is a remedy to the respondent to `challenge the ultimate unfavourable conclusion of the CIT(A). 14.5. A cursory look at the language of rule 27 transpires that a respondent has been empowered to support the order appealed against on any of the grounds `decided against him. In other words, the challenge can be made by a respondent only in respect of a `ground decided against him . In such circumstances, a question arises that if there is no decision at all of the CIT(A) on a particular aspect, which is otherwise germane to the overall issue decided in favour of the respondent, can the respondent espouse such aspect under rule 27 in an appeal filed by the plaintiff ? If we go by the literal interpretation of the Rule, then the answer is in negative that unless the ground is not `decided against the respondent, he cannot take recourse to this provision. However, it is of paramount importance to keep in mind the fundamental object of enshrining rule 27, being giving an opportunity to the respondent to support the impugned order in an appeal filed by the plaintiff. A pragmatic approach on consideration of the object of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction against the order passed by the ld. CIT(A) or to contest that the penalty is also not maintainable because despite there being loss under the normal provisions of the Act, the income was finally determined u/s 115JA of the Act. In support of this proposition that penalty is not sustainable, the ld. AR relied on the judgment of the Hon ble jurisdictional High Court in CIT Vs Nalwa Sons Investment Ltd. (2010) 327 ITR 543 (Del). As the facts of the instant case prima facie appear to have some resemblance to those considered and decided in Nalwa Sons (supra), we admit the application under Rule 27 for consideration on merits. 15.1. At the cost of repetition, we once again note that the assessee filed its return declaring net loss of Rs. 2,07,90,899/- under the normal provision of the Act and declaring income of Rs. 22,52,830/- u/s 115JA of the Act. The assessment was concluded u/s 143(3) of the Act by computing a positive total income under the normal provision of the Act at Rs. 1,83,56,802/- and income u/s 115JA at Rs. 34,03,022/-. The assessee in its application under Rule 27 has stated that after giving effect to the orders of the CIT(A)/ITAT, the income of the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .100 and under the regular provisions of the Act at a loss of Rs. 60. If addition leading to the concealment or furnishing of inaccurate particulars is made, say for a sum of Rs. 10, then the loss of the assessee under the regular provisions of the Act would stand reduced to Rs. 50. Sec. 115JA(3) of the Act provides that : ` Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A. As per the prescription of the sub-section (3), the assessee would be entitled to carry forward loss under the regular provisions of the Act for set off in the subsequent year subject to the relevant provisions. It means that now with the making of addition of Rs.10, the assessee would be entitled to carry forward the amount of reduced loss of Rs.50 to subsequent years for set off, which would otherwise have been at Rs.60 but for the addition. The nitty gritty of the judgment in Nalwa Sons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the current year computed on the basis of income u/s 115JA, but has the effect of restricting the amount of tax credit available to the assessee. As the assessee is still liable to pay tax under the MAT provisions of sec. 115JA on the income of Rs.100 for the current year, applying the essence of the judgment by the Hon ble jurisdictional High Court in the case of Nalwa Sons (supra), no penalty u/s 271(1)(c) of the Act can be levied on the assessee w.r.t. the addition of Rs.10 to the income under the regular provisions of the Act for the current year because the computation made under s. 115JA or sec. 115JB of the Act is unaffected with the concealment of Rs. 10. 15.6. The crucial part of the judgment in the case of Nalwa Sons (supra) is that : `When the computation was made under s. 115JB 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. The ratio decidendi of the decision which ergo follows is that if there is certain concealment of income touching only the computation of income under the normal provisions of the Act but the final income is determined u/s 115JB which is unalter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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