TMI Blog2022 (3) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uing 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. - I.T.A. No. 251/JAB/2018 - - - Dated:- 23-3-2022 - Shri Sanjay Arora, Hon ble Accountant Member An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant including citation in support of its claim. I find that the AO has not appreciated the entire facts of the case in right perspective before levying the penalty u/s 271(1)(c). The AO in the penalty order has stated that the netting of prior period expenditure of ₹ 2,38,29,432/-with prior period income of ₹ 68,74,31,814/- was not in order. The AO accepted the prior period income of ₹ 68,74,31,814/- however rejected expenses of ₹ 2,38,29,432/- which is not correct. After considering the entire facts and circumstances of the case, I am of the opinion that the AO is not justified in levying penalty of ₹ 71,48,830/- as all the information has been reflected in the audit report and the appellant has not concealed any particulars of its income. The penalty levied at ₹ 71,48,830/- u/s 271(1)(c) is directed to be deleted.' 3. The respective cases Before us, the assessee's case, as before the first appellate authority, was that there has been no furnishing of inaccurate particulars; the details of prior period expenses having been duly disclosed in the final accounts. It was not open for the AO to, while bringing the prior perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the income determined under the general provisions is less than the income declared for the purpose of MAT u/s.115JB of the Act. The substituted Explanation 4 is applicable prospectively w.e.f. 01.04.2016. 5. Accordingly, in view of the Delhi High Court judgment and substitution of Explanation 4 of section 271 of the Act with prospective effect, it is now a settled position that prior to 1/4/2016, where the income-tax payable on the total income as computed under the normal provisions of the Act is less than the tax payable on the book profits u/s. 115JB of the Act, then penalty under 271(1)(c) of the Act, is not attracted with reference to additions/disallowances made under normal provisions. It is further clarified that in cases prior to 1.4.2016, if any adjustment is made in the income computed for the purpose of MAT, then the levy of penalty u/s 271(1)(c) of the Act, will depend on the nature of adjustment. 6. The above settled position is to be followed in respect of section 115JC of the Act also. 7. Accordingly, the Board hereby directs that no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the issue of maintainability of penalty would be governed by the substituted Explanation 4, interpretation of which, considering the acceptance by the Revenue of the view expressed in Nalwa Sons Investment Ltd. (supra) and, in fact, instructing its' officers accordingly, which is binding thereon u/s. 119(2)(a), gets resolved as per the said view. Needless to add, no submissions were made by the ld. Sr. DR, Sh. Halder, on this aspect of the assessee's case, argued without prejudice (refer para 3). 4.3 We may, before parting, however, if only for the sake of completeness of our order, record our view on the merits of the case, also argued before us. Section 271(1)(c) in its relevant part, reads as under: 271. Failure to furnish returns, comply with notices, concealment of income, etc. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- (a) (omitted) (b) has failed to comply with a notice Under 'sub-section (2) of section 115WD or under sub-section (2) of section 115WE or under sub-section (1) of section 142 or sub-section (2) of section 143 or fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, or in the hands of the right person but for another year, is no ground for it being not taxed in the hands of the right person or the right year (CIT v. British Paints India Ltd. [1991] 144 ITR 88 (SC)). The assessment of income, on the other hand, is governed by section 5, so that where the assessee chooses to return it for the current year, on receipt basis, as in the present case, the AO may not insist on it being assessed for the year to which it actually relates, i.e., on accrual basis. There could also be an issue as to the realizability of income; 'prudence' being a fundamental accounting assumption. Sure, strictly speaking, the same would not in that case qualify as a 'prior period adjustment' in accounts, inasmuch as application of AS is mandatory, but we are only highlighting a possibility and, more important, to a basic difference between accounting of income and expenditure, marked by 'prudence' and 'conservatism' respectively. In fact, assessing the income for the current year works to, in most cases, the assessee's benefit inasmuch as tax incidence for a preceding year would be accompanied by interest liability as well. The two, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-08 (PB pgs.39-42), while the position is not clear for AY 2009-10 (PB pgs. 43-46); 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. 4.6 As regards the reliance on Reliance Petroproducts (supra), the same does not, and neither it is claimed, alter the settled law, i.e., with reference to Explanation 1 to section 271(1)(c). The said Explanation 1 is to be read along with the main section, even if not specifically mentioned in the show cause notice, and not de hors the same. The case law in the matter is legion (viz. Mak Data (P.) Ltd. vs. CIT [2013] 358 ITR 593 (SC); Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC); K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC); B.A. Balasubramaniam Bros. v. CIT [1999] 236 ITR 977 (SC); Addl. CIT vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC); CIT vs. K.R. Sadayappan [1990] 185 ITR 49 (SC)), so that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deciding if the adjustment to the returned income in assessment would attract penalty or not, and which covers cases of both concealment of, as well as furnishing inaccurate, particulars of income, which signify acts of omission and commission respectively. Why, the penalty was in fact confirmed on facts in Nalwa Sons Investment Ltd. (supra), the decision - rendered post Reliance Petroproducts (supra), being relied upon before us by the assessee, in view of the assessee-respondent being unable to substantiate its' case with facts, i.e., failing the test of Explanation 1, and was allowed relief by the Hon'ble Court on the basis of Explanation 4. In the facts of the instant case, the assessee has in the past suo motu disallowed prior period expenses. Further, the findings in the assessment proceedings, though not binding inasmuch as penalty proceedings are separate and distinct proceedings, are yet extremely relevant for penalty proceedings, and more so where admitted, and toward which we have cited the decision in S.S. Ratanchand Bholanath (supra). 4.7 The assessee's case is wholly unproved on facts and against the settled law. 4.8 We may finally also consider the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of which income have been concealed or furnished inaccurate, i.e., as specified in the former provision, so that penalty is to be levied only in respect thereof, also referred to herein as 'relevant income', to be determined, save in cases directly covered by other Explanations, on the anvil of Explanation 1. Explanation 4 defines the expression 'the amount of tax sought to be evaded', with reference to which, at a percentage, in the range specified, penalty is to be levied. Clause (a) is applicable in the instant case inasmuch as against a returned income of (-) ₹ 344.98 lacs, it has been finally assessed at (-) ₹ 106.69 lacs vide assessment dated 21/3/2016. The penalty, thus, as per the substituted Explanation 4, which would apply, is the tax chargeable on the said increase in income (by way of reduction in loss), being the prior period expenditure disallowed, i.e., ₹ 238.29 lacs. Where and what, one may ask, is the ambiguity, either on facts or in law? The Apex Court in CIT v. Gold Coin Health Foods (P.) Ltd. [2008] 304 ITR 308 (SC), a decision by its' larger bench, reversed the decision by the Hon'ble Gujarat High Court wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of addition of concealed income the returned loss stands reduced and even if the final assessed income is a loss, still penalty was leviable thereon even during the period 1st April, 1976 to 1st April, 2003. Even in the Circular dated 24th July, 1976, referred to above, the position was clarified by Central Board of Direct Taxes (in short 'CBDT'). It is stated that in a case where on setting off the concealed income against any loss incurred by the assessee under any other head of income or brought forward from earlier years, the total income is reduced to a figure lower than the concealed income or even to a minus figure the penalty would be imposable because in such a case the tax sought to be evaded will be tax chargeable on concealed income as if it is total income .' (emphasis, supplied) The reading of the provision (s.271(1)(c)), coupled with Explanation 4, and its elucidation in Gold Coin Health Foods (supra), makes it abundantly clear that there is no requirement in law that for the levy of penalty (w.r.t. the tax sought to be evaded), the tax liability for the relevant year has actually increased to that extent in assessment, i.e., on account of adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich, 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 for the Hon'ble Court in Nalwa Sons Investment Ltd. (supra) 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; the relevant part of its' decision reading as: (pgs. 552-553) '21. The question, however, in the present case, would be, as to whether furnishing of such wrong particulars had any effect on the amount of tax sought to be evaded. Under the scheme of the Act, the total income of the assessee is first computed under the normal provisions of the Act and tax payable on such total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is not a concomitant of the penalty u/s. 271(1)(c); the said Explanation effectively delinking the two. And which position obtained even prior to the insertion of the words 'if any' in sec. 271(1)(iii) w.e.f. 01/4/2003, being held as only clarificatory. The incidence of tax payable being rendered irrelevant, how would it matter whether the tax payable, where so, is under the regular provisions or the MAT provisions? The 'total income' referred to in Explanation 4(a) is not to be confused with the 'total income' as defined u/s. 2(45) r/w 5, or even s.115-JB(1) for that matter. The same is only for the purpose of sec. 271(1)(iii), defining and computing 'the amount of tax sought to be evaded' per Explanation 4 thereto. It would be a different matter where, on the other hand, the reduction of loss in assessment on account of relevant income results in a positive income, so that it results in a tax liability, which though gets subsumed in the tax payable under MAT, so that, indubitably, no tax can be regarded as evaded irrespective of the applicability of Explanation 4(a). This is as the vital condition of 'by reason of , occurring in s. 271(1)(iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set of provisions is referred to in the amended Explanation 4 as 'total income', albeit under the relevant provisions, as indeed is the case as both satisfy the test of s. 2(45) r/w s.5. Again, it cannot be lost sight of that 'income' includes 'loss' (CIT v. Harprasad Co. (P.) Ltd. [1975] 99 ITR 118 (SC)). Its carry forward (for being set off against the income for the subsequent year/s) - which is not lost on the tax being paid under MAT, is only on that premise and, further, as it forms part of the total income for the relevant year. It cannot but be otherwise. It is precisely for this reason that an assessment order bears the year-wise detail of the brought forward loss/es under different heads of income, as also that, if any, assessed for the current year, as well as that to be, after set off, carry forward. It is well-settled that all the parts of a statute are to be construed together (Prakash Nath Khanna v. CIT [2004] 266 ITR 1 (SC)). To say that the income is not 'acted upon', as held in Nalwa Sons Investment Ltd. (supra) (para 25), would thus be valid only in case of an assessed positive income inasmuch as tax, though chargeable thereon, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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