Court Dismisses Tax Penalty Appeal: Concealment Irrelevant Under Section 115JB (of Income Tax Act, 1961)

Case Name**: Commissioner of Income Tax vs. Central Warehousing Corporation

**Key Takeaways**:

1. Concealment under normal tax provisions doesn't lead to tax evasion if income is ultimately assessed under Section 115JB (of Income Tax Act, 1961).

2. The court followed the precedent set in CIT vs. Nalwa Sons Investments Ltd. (2010).

3. Penalty under Section 271(1)(c) (of Income Tax Act, 1961) cannot be imposed when income is assessed under Section 115JB (of Income Tax Act, 1961) and there's no addition to book profits.

**Issue**: 

Can penalties be imposed under Section 271(1)(c) (of Income Tax Act, 1961) when additions are made under normal provisions, but the taxable income is ultimately assessed under Section 115JB (of Income Tax Act, 1961) with no additions to book profits?

**Facts**:

1. For assessment year 2003-04:

  - Assessee returned a loss of 10.74 crores under normal provisions and book profit of 47.62 crores under Section 115JB (of Income Tax Act, 1961). 

  - After appeals, normal taxable income was assessed at a loss of 15.87 lakhs, while book profits were assessed at 46.56 crores under Section 115JB (of Income Tax Act, 1961). 

2. For assessment year 2004-05:

  - Assessee returned a loss of 26.45 crores under normal provisions and book profit of 62.81 crores under Section 115JB (of Income Tax Act, 1961).

  - Assessing Officer computed normal income at 48.56 crores, but income was assessed under Section 115JB (of Income Tax Act, 1961) at 62.81 crores as it was higher. 

**Arguments**:

The Revenue department argued that penalties should be imposed for concealment under normal tax provisions, even though the final assessment was made under Section 115JB (of Income Tax Act, 1961).

**Key Legal Precedents**:

1. CIT vs. Nalwa Sons Investments Ltd. (2010) 327 ITR 543 (Delhi): This case established that when income is assessed under Section 115JB (of Income Tax Act, 1961), concealment under normal provisions becomes irrelevant for penalty purposes. 

2. Gold Coin (2008) 304 ITR 308: This Supreme Court case, while not directly applicable, held that penalties could be imposed even when losses are shown in the tax return if concealed income reduces the total income. 

**Judgement**:

The court dismissed the appeals, following the precedent set in the Nalwa Sons Investments Ltd. case. It held that when computation is made under Section 115JB (of Income Tax Act, 1961), concealment under normal procedures has no role to play and doesn't lead to tax evasion. Therefore, penalties under Section 271(1)(c) (of Income Tax Act, 1961) cannot be imposed in such cases. 

**FAQs**:

1. Q: What is Section 115JB (of Income Tax Act, 1961)?

  A: Section 115JB (of Income Tax Act, 1961) deals with Minimum Alternate Tax (MAT), which is applicable to companies when their tax liability under normal provisions is less than a certain percentage of their book profits.

2. Q: Why was the concealment under normal provisions considered irrelevant?

  A: Because the final assessment was made under Section 115JB (of Income Tax Act, 1961), which is based on book profits, not on the income computed under normal provisions.

3. Q: Does this judgment mean concealment under normal provisions will never be penalized?

  A: No, it only applies when the final assessment is made under Section 115JB (of Income Tax Act, 1961) and there are no additions to book profits.

4. Q: What's the significance of this judgment for companies?

  A: It provides clarity that penalties for concealment under normal provisions may not apply if their income is ultimately assessed under MAT provisions.

5. Q: Can the tax department still impose penalties in MAT cases?

  A: Yes, but only if there's concealment or inaccuracy in the book profits reported under Section 115JB (of Income Tax Act, 1961).

1. These two appeals by the Revenue in the case of Central Warehousing Corporation, the respondent-assessee, relate to assessment years 2003-04 and 2004-05. By the common impugned order dated 15.11.2010, Income Tax Appellate Tribunal („Tribunal‟, for short) has deleted the penalty under Section 271(1)(c) (of Income Tax Act, 1961) („Act‟, for short) after applying and following the decision of this Court in CIT Vs. Nalwa Sons Investments Ltd. (2010) 327 ITR 543 (Delhi).

2. The issue raised is whether the decision in Nalwa Sons Investments Ltd. (supra) is applicable to the facts of the present case. The facts for the two assessment years may be noted.

3. The assessment year 2003-04: -

(a) The assessee had returned loss of 10.74 crores under the normal tax provisions. The assessee had disclosed book profit of 47.62 crores under Section 115JB (of Income Tax Act, 1961).

(b) The Assessing Officer computed the income under the normal provisions at a positive figure of 149.90 crores after additions. The book profits under Section 115JB (of Income Tax Act, 1961) were also enhanced to 97.29 crores.

(c) The assessee preferred appeals and after giving appeal effect, the normal taxable income as per the Act, was finally assessed at a loss of 15.87 lakhs. The book profits under Section 115JB (of Income Tax Act, 1961) were assessed at 46.56 crores. The book profits were more and therefore, the income of the assessee was assessed under Section 115JB (of Income Tax Act, 1961) at 46.56 crores. This figure is slightly less than the figure of book profits mentioned in the return income of 47.62 crores.

4. The assessment year 2004-05: -

(a) The returned income under the normal tax provisions was loss of `26.45 crores. The book profits under Section 115JB (of Income Tax Act, 1961) were declared at a positive figure of 62.81 crores.

(b) The Assessing Officer made various additions to the normal income and computed the same at a positive figure of 48.56 crores. However, the said figure was less than the book profit of 62.81 crores as declared and accordingly, the taxable income was computed under Section 115JB (of Income Tax Act, 1961) at a figure of 62.81 crores. Book profits were not enhanced.

5. The question raised in the present appeals is whether penalty can be imposed on the assessee, where additions are made under the normal provisions of the Act but actually the taxable income of the assessee is assessed not under the normal provisions but under Section 115JB (of Income Tax Act, 1961) and there is no addition as far as book profits is concerned.

6. The said aspect was examined by this Court in Nalwa Sons Investments Ltd. (supra). In the said case, after referring to Explanation 4(a) to section 271(1)(c) (of Income Tax Act, 1961), it has been held as under: -

“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 section 115JB (of Income Tax Act, 1961). On the basis of normal provision, the income was assessed in the negative i.e. at a loss of Rs. 36,95,21,018. On the other hand, assessment under s. 115JB of the Act resulted in calculation of profits at Rs. 4,01,63,180.

In view thereof, in conclusion, the assessment order records as follows:

"Assessed at Rs. 4,01,63,180 under section 115JB (of Income Tax Act, 1961), being higher of two. Interest under section 234B (of Income Tax Act, 1961) and 234C (of Income Tax Act, 1961) has been charged as per the provisions of IT Act, 1961. Penalty proceedings under section 271(1)(c) (of Income Tax Act, 1961) have been initiated. Issue necessary forms."

The income of the assessee was thus assessed under section 115JB (of Income Tax Act, 1961) and not under the normal provisions. It is in this context that we have to see and examine the application of Explanation 4.

Judgment in the case of Gold Coin (2008) 304 ITR 308, obviously, does not deal with such a situation. What is held by the Supreme Court in that case is that even if in the income-tax return filed by the assessee losses are shown, penalty can still be imposed in a case where on setting off the concealed income against any loss incurred by the assessee under 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 a minus figure. The court was of the opinion that ‘the tax sought to be evaded’ will mean the tax chargeable not as if it were the total income. Once, we apply this rationale to Explanation 4 given by the Supreme Court, in the present case, it will be difficult to sustain the penalty proceedings. Reason is simple. No doubt, there was concealment but that had its repercussions only when the assessment was done under the normal procedure. The assessment as per the normal procedure was, however, not acted upon. On the contrary, it is the deemed income assessed under section 115JB (of Income Tax Act, 1961) which has become the basis of assessment as it was higher of the two. Tax is thus paid on the income assessed under section 115JB (of Income Tax Act, 1961). Hence, when the computation was made under section 115JB (of Income Tax Act, 1961), the aforesaid concealment had no role to play and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all.”

7. The issue being clearly covered by the said decision, we do not think any substantial question of law arises for our consideration. The appeal is dismissed. No costs.

SANJIV KHANNA, J.

R.V.EASWAR, J.

APRIL 18, 2012