Opinion Of Eminent Legal Luminaries On Controversial Issues

Can Penalty Be Levied U/s. 271(1)(c), If Assessment Is Completed U/s. 115JB?

QUERY: Whether penalty under section 271(1)(c) of the Act can be levied in a case where tax has been paid by the assessee under section 115JB of the Act and amount of tax payable as book profit is the same even as per order of assessment, with reference to variation in the amount of loss or income determined as per normal provisions of the Income-tax Act?
ANSWER: In CIT v. Nalwa Sons Investments Ltd., [327 ITR 543 (Del.)] the facts were the assessee filed return declaring loss of Rs. 43.47 crores. Thereafter, the revised return exhibiting the income at Rs. 3.87 crores were filed under provisions of section 115JB of the Income-tax 1961. The assessment was framed under section 143(3) at loss of Rs. 36.95 crores, after making certain additions as per normal provisions and book profit at Rs. 4.07 crores under section 115JB of the Act.

The Court observed that 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 is less than certain percentage of book profit, then, such book profit shall be deemed to be the total income and tax shall be payable on such deemed income.

Further, the Court has also noted that the Explanation 4 to section 271(1)(c) of the Act, which gives the meaning of the term “the amount of tax sought to be evaded”. That is where the income in respect of which 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 positive income, the tax sought to be evaded shall be the tax that would have been chargeable on the amount of such income if it were the total income.

After considering the scheme as well as Explanation 4 to section 271(1)(c) of the Act the Delhi High Court held that, no doubt there was concealment but that had its repercussions only when the assessment was done under the normal procedure. In the instant case, the assessment as per normal procedure was, not acted upon. On the contrary, it is deemed income assessed under section 115JB of the Act which became the basis of assessment. Tax is paid on the income assessed under section 115JB of the Act. Hence, when the computation was made under section 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. Therefore, penalty cannot be imposed on the basis of disallowance or addition made under normal provisions.

However, explanation 4 to the said section has been amended from Assessment year 2016-17 to provide that “the amount of tax sought to be evaded” shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under the provisions of section 115JB.
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