By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
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Section 271(1)(c) of the Income-tax Act 1961 – Penalty cannot be levied when additions were made while computing the total income under normal provisions of the Income-tax Act but finally the assessee’s income was determined on the basis of book profit u/s. 115JB.
Facts
For the relevant assessment year, the Assessing Officer made disallowances/additions to the assessee’s income as per normal provisions of the Income Tax Act. Finally, however, income was determined and tax was computed u/s. 115JB. The Assessing Officer, thereafter, levied penalty on all the disallowances/additions. The CIT(A) deleted the penalty on certain additions, while confirming the same on other additions.
Held
The Tribunal, relying on the decisions in the following cases, deleted the penalty:
a. CIT vs. Nalwa Sons Investments Ltd.(2010) 235 CTR (DEL.) 209/(2010) 45 DTR (Del.) 345/(2010) 327 ITR 543 (Del.)
b. Ruchi Strips & Alloys Ltd. vs. Dy. CIT ITA Nos.6940 & 6941 (Mum.) 2008 The Tribunal noted as under:
1. If book profits are deemed to be the total income of the assessee in terms of section 115JB and is more than income under the normal provisions of the Act, then by legal fiction such a book profit will be deemed to be the total income of the assessee.
2. Therefore, if tax has been imposed and collected on the deemed income u/s. 115JB in the assessment, then the tax under the normal provisions/computation is not leviable or charged.
3. Therefore, if any addition or disallowance has been made in the normal provisions/computation of the Income Tax Act and finally assessment has not been completed or tax has not been levied on such normal computation, then such additions/disallowances cannot be a subject matter of penalty because no tax has been levied on such additions/disallowances.
4. When income tax is paid on the book profits by a legal fiction, such a legal fiction has to be taken to its logical conclusion and it cannot be held that for the purpose of penalty, normal computation would be considered even though tax has not been levied under the normal provision/ computation. Therefore, penalty u/s. 271(1)(c) cannot be imposed because there was no tax sought to be evaded.
