TMI Blog2020 (8) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... future tax liability. On the said premises, it was observed that in a case of understatement of income under the general provisions of the Act, would thus, result in larger amount of such credit becoming available to the assessee for set off in future years. As observed that, where concealment of income as computed under the general provisions has taken place, penalty under clause (c) of sub-section (1) of section 271 should be leviable even if the tax liability of the assessee for the year has been determined under provisions of section 115JB or 115JC of the Income-tax Act. But then, we find that the said amendment to Explanation 4 to Sec. 271(1)(c) had explicitly been provided to be effective from 1st April, 2016 and thus will accordingly apply, in relation to the assessment year 2016-17 and subsequent assessment years. As the case of the assessee before us is for A.Y 2014-15 therefore, the post-amended Explanation 4 to Sec. 271(1)(c) would not be applicable in its case. As the issue involved in the present case is squarely covered by the judgment in the case of CIT Vs. Nalwa Sons Investments Ltd. [ 2010 (8) TMI 40 - DELHI HIGH COURT] we thus respectfully follow the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,55,545/- and bid development cost of ₹ 6,24,76,800/ - was not accepted but the appellant was allowed to capitalize the same to respective asset and depreciation was granted thereon. 5. The Ld. CIT (A) failed to appreciate that the issue whether the payment made for interest cost of ₹ 23,55,545/ - on Compulsory Convertible Debentures and bid development cost of ₹ 6,24,76,800/ - is in nature of capital or revenue expense is a disputable issue and no penal ty can be levied on account of difference of opinion on legal claim made by appellant. 6. The Ld. CIT (A) further erred in not appreciating the fact that though the claim of the appellant treating payment made for bid development fee of ₹ 6,24,76,800/- and interest cost of ₹ 23,55,545/ - on Compulsory Convertible Debentures as revenue expense was not accepted by AO but he had accepted al ternate plea of the appellant that the interest cost should be capitalized to their respective asset in view of explanation 8 to section 43(1) of the Act and depreciation was granted thereon. 7. The Ld. CIT (A) further erred in confirming the penalty levied by AO on the provision for income tax of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces viz. (i) disallowance made on account of treating of payment towards bid development fee as capital expenditure amounting to ₹ 6,24,76,800/-; (ii) disallowance under Sec.36(1)(iii) amounting to ₹ 23,55,545/- on account of capitalisation of interest cost in capital work-in-progress ; and (iii) disallowance under Sec.40(a)(ia) amounting to ₹ 3,12,82,993/- on account of provision of taxes claimed. After making the aforesaid additions/disallowances the A.O assessed the loss of the assessee company under the normal provisions at an amount of Rs (-) 3,09,35,310/-, while for its book profit under Sec. 115JB was worked out at ₹ 14,17,57,489/-. The A.O while culminating the assessment also initiated penalty proceedings under Sec. 271(1)(c) of the Act. On a perusal of the records, we find that the assessee had not assailed the normal assessment any further in appeal before the CIT(A), as a result whereof the assessment order attained finality. 4. The A.O after the culmination of the assessment proceedings called upon the assessee to explain as to why the penalty under Sec. 271(1)(c) of the Act may not be imposed upon it. In reply, the assessee tried to impres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Authorized Representative (for short A.R ) for the assessee took us through the order that was passed by the Tribunal while disposing off the stay application of the assessee, vide its order passed in S.A. No. 105/Mum/2020, dated 28.02.2020. It was submitted by the ld. A.R that as the tax payable on income assessed under the normal provisions in the case of the assessee was less than the tax payable under the deeming provisions of Sec. 115JB of the Act, therefore, the assessee company had paid the tax under the MAT on its book profit under Sec. 115JB of the Act. It was submitted by the ld. A.R that as per the law as was available on the statute during the year under consideration i.e. A.Y. 2014-15, no penalty under Sec. 271(1)(c) of the Act should be imposed for additions/disallowance made under the normal provisions in a case where the assessee had paid the tax on its book profits under Sec.115JB of the Act. It was vehemently submitted by the ld. A.R that the aforesaid position of law was amended vide the Finance Act, 2015, w.e.f 01.04.2016 and hence was thereafter applicable prospectively from A.Y. 2016-17. In order drive home his aforesaid claim, the ld. A.R relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was less than the tax calculated u/s 115JB of the Act, therefore, the assessee had in its return of income calculated the tax on its book profit of ₹ 14,17,57,489/- u/s 115JB of the Act. It was further submitted by the ld. A.R that as the assessee company had been assessed to tax at its deemed income returned u/s 115JB of the Act, therefore, no penalty u/s 271(1)(c) could have been imposed for the additions/disallowances that were made under the normal provisions in the course of its regular assessment for the year under consideration. It was submitted by the ld. A.R that as per Explanation 4 of s. 271(1)(c) of the Act, the penalty is levied with respect to the amount of tax sought to be evaded. Accordingly, it was submitted by the ld. A.R that as the amount of tax was paid by the assessee under the deeming provisions of s. 115JB, no penalty could have been levied in respect of the additions/disallowances made by the A.O under the normal provisions of the Act. It was averred by the ld. A.R, that as per Explanation. 4 of Sec. 271(1)(c) of the Act, the penalty was to be levied with respect to the amount of tax sought to be evaded. It was submitted by the ld. A.R that sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding to the said issue, it was submitted by the assessee that it had disallowed certain amounts u/s 40(a)(ia) i.e for non-deduction of tax at source along with disallowance of a provision for income-tax of ₹ 3,12,82,993/- in A.Y 2013-14. As claimed by the assessee, that as it had during the year under consideration deducted tax at source on the amounts which were disallowed in the preceding year u/s 40(a)(ia), and deposited the same in the government treasury, therefore, it had as per the mandate of law claimed deduction of the said amounts in its computation of income for the year under consideration. But then, due to an inadvertent mistake of its accountant, it is stated by the assessee that deduction of the entire amount of ₹ 31,84,55,511/- (including provision for income-tax of ₹ 3,12,82,993/-) was claimed in the computation of income for the year under consideration. On the basis of the said facts, it was the claim of the assessee that on learning about the said mistake it had suo motto disclosed the said fact in the course of the assessment proceedings. It is the claim of the assessee, that as it was during the year assessed to tax under the deeming pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticulars of such income, or he may direct that such person shall pay by way of penalty,- (iii) in the cases referred to in cl. (c) or cl. (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits. Explanation 4-For the purposes of cl. (iii) of this sub-section, the expression 'the amount of tax sought to be evaded'- (a) In any case where the amount of income in respect of particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; (b) In any case to which Expln. 3 applies, means the tax on the total income assessed as reduced by the amount of advance tax, TDS, tax collected at source and se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s condition is satisfied, quantum of penalty is to be levied as per cl. (iii) of s. 271(1)(c) which stipulates that the penalty shall not exceed three times the amount of tax sought to be evaded . The expression the amount of tax sought to be evaded is clarified and explained in Expln. 4 thereto, as per which it has to have the effect of reducing the loss declared in the return or converting that loss into income. It is in this context that in Gold Coin (supra) the Supreme Court explained the legal position as under : Reference to the Department Circular No. 204, dt. 24th July, 1976 reported in 1978 CTR (Jourl) 1 : (1977) 110 ITR 21 (St) has also substantial relevance. Same reads as follows : New Expln. 4 defined the amount of tax sought to be evaded . According to the definition, this expression will ordinarily mean the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed. In a case, however, where on setting off the concealed income, against any loss incurred by the assessee under other head of income or br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is compared with the prescribed percentage of the book profits computed under s. 115JB of the Act. The higher of the two amounts is regarded as total income and tax is payable with reference to such total income. If the tax payable under the normal provisions is higher, such amount is the total income of the assessee, otherwise, book profits are deemed as the total income of the appellant in terms of s. 115JB of the Act. 22. In the present case, the income computed as per the normal procedure was less than the income determined by legal fiction namely book profits under s. 115JB of the Act. On the basis of normal provision, the income was assessed in the negative i.e. at a loss of ₹ 36,95,21,018. On the other hand, assessment under s. 115JB of the Act resulted in calculation of profits at ₹ 4,01,63,180. 23. In view thereof, in conclusion, the assessment order records as follows : Assessed at ₹ 4,01,63,180 under s. 115JB, being higher of two. Interest under ss. 234B and 234C has been charged as per the provisions of IT Act, 1961. Penalty proceedings under s. 271(1)(c) of the IT Act, 1961 have been initiated. Issue necessary forms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that was assessed under s. 115JB of the Act, as it was higher of the two, therefore the concealment based on the additions /disallowances made under the normal provisions of the Act had no role to play and were totally irrelevant. We may herein observe, that the Special Leave Petition (SLP) filed by the revenue against the aforesaid judgment of the Hon ble High Court of Delhi had thereafter been dismissed by the Hon ble Supreme Court in CIT Vs. Nalwa Sons Investment Ltd. [SLP (Civil) No(s). 18564/2011; dated 04.05.2012]. 11. At this stage, we may herein observe, that the legislature in all its wisdom after considering the aforesaid shortcoming in the Explanation 4 to Sec. 271(1)(c), had therein came forth with an amendment vide the Finance Act, 2015, w.e.f 01.04.2016, which therein reads as under: Explanation 4.- For the purposes of clause (iii) of this sub-section,- (a) the amount of tax sought to be evaded shall be determined in accordance with the following formula- (A - B) + (C - D) where, A = amount of tax on the total income assessed as per the provisions other than the provisions contained in section 115JB or section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71(1)(c) can be imposed, irrespective of the fact that the assessee is assessed as per the deeming provisions of Sec. 115JB or Sec. 115JC of the Act. In fact, a careful perusal of the aforesaid amendment reveals that the machinery proviso for quantification of penalty had now been rendered as workable. On a perusal of the Explanatory Notes to the Provisions of the Finance Act, 2015 , we find that the same reads as under: 55. Amount of tax sought to be evaded for the purposes of penalty for concealment of income under clause (iii) of sub-section (1) of section 271 55.1 The provisions contained in clause (c) of sub-section (1) of section 271 of the Act, before amendment by the Act, provided that penalty for concealment of income or furnishing inaccurate particulars of income is to be levied on the amount of tax sought to be evaded , which has been defined, inter-alia, as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income. 55.2 Problems have arisen in the computation of amount of tax sought to be evaded where the concealment of income or furnishin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB or 115JC, the excess of such tax paid over and above its tax liability under the general provisions would thereafter be available as credit for set off against its future tax liability. On the said premises, it was observed that in a case of understatement of income under the general provisions of the Act, would thus, result in larger amount of such credit becoming available to the assessee for set off in future years. Accordingly, it was observed that, where concealment of income as computed under the general provisions has taken place, penalty under clause (c) of sub-section (1) of section 271 should be leviable even if the tax liability of the assessee for the year has been determined under provisions of section 115JB or 115JC of the Income-tax Act. But then, we find that the said amendment to Explanation 4 to Sec. 271(1)(c) had explicitly been provided to be effective from 1st April, 2016 and thus will accordingly apply, in relation to the assessment year 2016-17 and subsequent assessment years. As the case of the assessee before us is for A.Y 2014-15 therefore, the post-amended Explanation 4 to Sec. 271(1)(c) would not be applicable in its case. As the issue involve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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