Income Tax Appellate Tribunal - Chandigarh
A.B. Sugars Ltd., Chandigarh vs Department Of Income Tax on 16 February, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH,CHANDIGARH
BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT
AND Ms. RANO JAIN, ACCOUNTANT MEMBER
ITA No. 1107/CHD/2014
Assessment Year: 2007-08
The DCIT, Vs M/s A.B. Sugars Ltd.,
Circle - I(1), House No. 77,
Chandigarh. Sector 11-A,
Chandigarh.
PAN: AABCG3045M
Department by : Shri Manjit Singh
Assessee by : Ms. Meha Kansal
Date of Hearing : 17.02.2016
Date of Pronouncement : 19.02.2016
O R D E R
PER H.L.KARWA,V.P. This appeal filed by the revenue is directed against the order of ld. CIT(Appeals), Chandigarh dated 10.09.2014 in canceling the penalty of Rs.60,19,895/- levied under section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act' ) for assessment year 2007-08.
2. In this appeal, the assessee has taken the following grounds :
1. The order of the learned CIT (A) is erroneous & contrary to facts & law.
2. The Ld. CIT has erred in deleting the penalty on the issue of disallowance of interest u/s 36(l)(iii) by relying on the decision of the Hon'ble Supreme Court in the case of Reliance Petro Products Ltd. when the AO had clearly established that the claim of the assessee was malafide to the extent that 2 the diversion of funds to sister concerns, on which interest was forgone, was without any business expediency.
3. The Ld. CIT has erred in deleting the penalty on the issue of disallowance of interest u/s 36(l)(iii) by relying on the decision of the Hon'ble Supreme Court in the case of Reliance Petro Products Ltd. when the claim of the assessee was malafide and the decision of the Hon'ble Delhi High Court in Zoom Communications Pvt. Ltd. (2010 327 ITR 510) was applicable to the case.
4. The Ld. CIT(A) erred in deleting the penalty on the issue of reduction of deferred tax from net profit for the purpose of arriving at book profit for MAT on the plea that the amendment to Section 115JB of the Act was made after the assessee had filed ITR, when it was outrightly illogical and malafide to reduce the amount of deferred tax from net profit which was never credited to the P&L account.
5. The Ld. CIT(A) erred in deleting the penalty on the issue of reduction of deferred tax from net profit for the purpose of arriving at book profit for MAT on the plea that the amendment to Section 115JB of the Act was made after the assessee had filed ITR, when sub-clauses (h) and (viii) of Explanation-1 to that section were inserted by the same amendment and there was no basis for the assessee to have reduced the deferred tax amount from net profit for the purposes of MAT at the time of filing of ITR."
3. Briefly stated the facts of the case are that the assessee submitted its return of income on 28.10.2007 for the assessment year 2007-08 declaring total income at Rs. 1,65,41,079/-. The first issue relates to the disallowance of the interest on account of diversion of funds to sister concern. During the course of assessment 3 proceedings, the Assessing Officer noticed that the assessee had advanced loans to M/s K. Sons & Associates which, as on 31.03.2007 was at Rs. 3341.26 lacs. The Assessing Officer observed that on one hand the assessee had raised huge secured and unsecured loans and on the other hand, the assessee had diverted funds to its sister concern without any commercial expediency. So the Assessing Officer disallowed interest @ 2.55% on the monthly debit balances in the account of this concern. Accordingly, the Assessing Officer disallowed interest of Rs. 65,72,728/- under section 36(1)(iii) of the Act. 3(i) In the assessment order, the Assessing Officer made another addition on account of deferred tax amounting to Rs. 3,35,63,811/- to the book profit under section 115JB of the Act. According to the Assessing Officer, the amount of deferred tax can be reduced from the book profit under section 115JB of the Act only if the provision of deferred tax has been credited to the Profit & Loss Account. According to the Assessing Officer, there was no credit entry related to the deferred tax in the P&L account, therefore, the Assessing Officer did not allow deduction of Rs. 3,35,63,811/- of deferred tax for the purpose of calculation of MAT under section 115JB of the Act. The Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act. The Assessing Officer afforded an opportunity of being heard to the assessee by issuing letter dated 22.03.2013. In response to the said letter, the assessee submitted its written submissions vide 4 letter dated 25.03.2013 stating that Assessing Officer has disallowed part of the interest expenses as notional interest on advances under section 36(1)(iii) of the Act and advances were business advances. As regards the addition on account of deferred tax, the assessee submitted that he treated deferred tax as book profit for the purpose of calculation of MAT under section 115JB as this amendment was made by Finance Act, 2008 applicable retrospectively from 2001.
4. The Assessing Officer did not accept the contention of the assessee and levied the penalty under section 271(1)(c) of the Act.
5. On appeal, the ld. CIT(Appeals) cancelled the penalty levied under section 271(1)(c) of the Act on addition of notional interest under section 36(1)(iii) of the Act, observing as under :
"5.2 I have considered the submission of the Ld. Counsel. The concealment penalty has been levied on account of proportionate disallowance of interest on amount advanced to the sister concern. The disallowance has been made by the Assessing Officer on proportionate/estimated basis. The appellant had not concealed the particulars of its income or had not furnished inaccurate particulars and so the concealment penalty on such disallowance cannot be levied in view of the judgement of Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (322 ITR 158). Hence, the concealment penalty levied on this issue is cancelled. Ground of appeal No. 3 is allowed."
6. The ld. CIT(Appeals) also cancelled the penalty levied under section 271(1)(c) of the Act on addition of declared tax liability to the book profit under section 115JB of the 5 Act, observing as under :
"6.2 I have considered the submission of the Ld. Counsel. Clause (viii) was inserted in Explanation-1 below section 115JB(1) by Finance Act, 2008, but with retrospective effect from 01.04.2001 and so the appellant could not have known in the year in question i.e. 2006-07 that deferred tax liability was not to be reduced for the purposes of calculation of book profit if it was credited to the profit and loss account. Hence, the Assessing Officer was not right in levying the penalty u/s 271(l)(c) on this addition made in calculation of book profit and so the penalty levied on this issue is also cancelled. Ground of appeal No. 4 is allowed."
7. Aggrieved by the order of ld. CIT(Appeals), the revenue is in appeal before the Tribunal.
8. We have heard Ms. Meha Kansal, ld. counsel for the assessee and Shri Manjit Singh, ld. DR at length and have also perused the materials available on record. Ms. Meha Kansal, ld. counsel for the assessee submitted that while framing assessment, the Assessing Officer made certain notional disallowances under section 36(1)(iii) of the Act on advances given to certain parties amounting to Rs. 65,27,728/-. She further submitted that the Assessing Officer has levied the penalty on this notional disallowance. This being notional in nature, there is no concealment of income or furnishing of inaccurate particulars of the income. She also stated that this issue being a debatable issue, no penalty is leviable on the disallowance made by the Assessing Officer under section 36(1)(iii) of the Act. In this case, the impugned penalty has been levied on account of proportionate disallowance of the interest on amount advanced to the 6 sister concern. It is also true that the disallowance was made on estimated basis. In that view of the matter, we hold that the ld. CIT(Appeals) has correctly held that the assessee had not committed any default within the meaning of Section 271(1)(c) of the Act. In the case of CIT Vs Reliance Petroproducts Pvt. Ltd. ( 2010) 322 ITR 158 (S.C), the Hon'ble Supreme Court has observed that, "Where no inf ormation given in the return is f ound to be incorrect or inaccurate, the assessee cannot be held guilty of f urnishing inaccurate particulars." The Hon'ble Supreme Court further held that, "Where there is no f inding th at any details supplied by the assessee in its return are f ound to be incorrect or erroneous or f alse, there is no question of inviting the penalty under section 271(1)(c) of the Act." We fully agree with this observation of the ld. CIT(Appeals) that assessee had not concealed the particulars of income or had not furnished inaccurate particulars of income, and hence, no penalty under section 271(1)(c) of the Act can be levied in this case.
9. As regards levy of penalty under section 271(1)(c) of the Act on addition of declared tax liability to the book profit under section 115JB of the Act, Ms. Meha Kansal, ld. counsel for the assessee vehemently argued that clause (viii) was inserted in Explanation-I below Section 115JB(1) by Finance Act, 2008, but with retrospective effect from 01.04.2001 and so the assessee could not have known in the year in question that the deferred tax 7 liability was not to be reduced for the purpose of calculation of book profit, which was credited to the Profit & Loss Account. In our opinion, there is merit in the above contention of Ms. Meha Kansal, ld. counsel for the assessee and therefore, we hold that the ld. CIT(Appeals) was fully justified in canceling the penalty on the addition of declared tax liability.
10. Before parting this case, we may also observe here that the tax as per MAT is more than the regular tax calculated by the Assessing Officer. Hence, the assessee company was assessed on the book profits under section 115JB of the Income Tax Act, 1961. Recently, the CBDT has issued circular No. F.279/Misc./140/2015/ITJ dated 31.12.2015, wherein it is stated that when the tax payable on income computed under normal procedure is less than the tax payable under the deeming provisions of Section 115JB of the Act, then penalty under section 271(1)(c) of the Act could not be imposed with reference to additions /disallowances made under normal provisions. The aforesaid circular reads as under :
CIRCULAR NO. 25/2015
F.No.279/Misc./140/2015/ITJ Government of India Ministry of Finance Central Board of Direct Taxes New Delhi, 31st December, 2015 Subject: Penalty u/s 271(1)(c) wherein additions/disallowances made under normal provisions of the Income Tax Act, 1961 but tax levied under MAT provisions u/s 115JB/115JC, for cases prior to A.Y. 2016-17-reg.-8
Section 115JB of the Act is a special provision for levy of Minimum Alternate Tax on Companies, inserted by Finance Act 2000 with effect from 1-4-2001.
2. Under clause (iii) of sub-section (1) of section 271 of the Act, penalty for concealment of income or furnishing inaccurate particulars of income is determined based 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 or income in respect of which inaccurate particulars had been filed.
3. In this context, Hon'ble Delhi High Court in its judgment dated 26.8.2010 in ITA No.1420 of 2009 in the case of Nalwa Sons Investment Ltd. (available in NJRS as 2010-LL-0826-2), held that when the tax payable on income computed under normal procedure is less than the tax payable under the deeming provisions of Section 115JB of the Act, then penalty under section 271(1)(c) of the Act could not be imposed with reference to additions /disallowances made under normal provisions. The judgment has attained finality.
4. Subsequently, the provisions of Explanation 4 to sub-section (1) of section 271 of the Act have been substituted by Finance Act, 2015, which provide for the method of calculating the amount of tax sought to be evaded for situations even 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/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice of all concerned.9
Sd/-
(Ramanjit Kaur Sethi) DCIT (OSD) (ITJ), CBDT, New Delhi
12. In view of the above circular also, no penalty under section 271(1)(c) of the Act can be levied in this case.
13. In view of the above discussion, we uphold the order of the ld. CIT(Appeals) in canceling the penalty.
14. In the result, appeal is dismissed.
Order pronounced in the Open Court on 19 t h February, 2016.
Sd/- Sd/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT Dated: 19th February, 2016. 'Poonam' Copy to:
The Appellant, The Respondent, The CIT(A), The CIT,DR Assistant Registrar, ITAT/CHD