Thursday, 8 May 2014

Whether when computation of book profits is done u/s 115JB, no penalty is warranted even if assessee made false claim of depreciation - YES: HC

THE issues before the Bench are - Whether if the computation of book profits has been done u/s 115JB, the concealment of income has no role to play and it is totally irrelevant and Whether in such a case penalty for concealment cannot be levied even in respect of the false claim of depreciation made by the assessee. And the answers favour the assessee.
Facts of the case
The assessee is a company. It is involved in the manufacture of steel pipes, Synthetic Filament Yarn and Polyster Clips, etc. It had filed its return for the AY 1998-1999, which was for 23 months disclosing the total loss at Rs. 1,75,91,003/ and had worked out its taxable liaability u/s 115J of Rs.37,42640/. During assessment, AO had computed books profit for the purpose of levying tax u/s 115 J at Rs 5,58,33,750/. The allegation of the Assessing Authority was that the Assessee had claimed extra depreciation under the Profit and Loss Account. On appeal, Tribunal had accepted the book profit disclosed by the Assessee for the purpose of levy of tax u/s 115J . AO however on the basis of the assessment order levied penalty u/s 271(1)(c) at Rs. one crore which had been reduced to Rs.74,17,870/ by CIT(A) in the appeal against which the Assessee filed appeal before the Tribunal which has been allowed by Tribunal.
Before HC, the assessee's counsel had submitted that the Assessee had wrongly claimed excessive depreciation by adopting the provisions under the Income Tax Act. It was however admitted that the book profit disclosed by the assessee had been accepted by the Tribunal for the purposes of levy of tax under Section 115J . It was further submitted that whether the depreciation was to be calculated in accordance with the Companies Act or under Income Tax Act for the purposes of computation of book profit was subject matter of consideration by the larger Bench of the SC in the case of Dynamic Orthpedics P. Limited Vs CIT 2010-TIOL-12-SC-IT. On the other hand, the Revenue's counsel had submitted that book profit disclosed by assessee for the purpose of levy of tax u/s 115J had been accepted by the Tribunal and against the order of Tribunal the Income Tax Appeal No.182 of 2000 filed by the CIT(A) had been dismissed by HC, thus the order of the Tribunal had become final. It was further submitted that for the purposes of levy of penalty the book profit for the purpose of determination of liability u/s 115J was relevant and not the Income as per the Income Tax Act and since the book profit disclosed by the assessee for the purpose of levy of tax u/s 115J had been accepted the Tribunal had rightly deleted the penalty as there was no concealment.
Held that,
++ it is not in dispute that the Tribunal has accepted the book profit disclosed by the assessee in the assessment appeal which has been affirmed by this Court in the Appeal by its order dated 28.8.2012 in Appeal No.182 of 2000. This Court while dealing with the penalty under Section 271(1)(c) Commissioner of Income Tax Vs Aleo Manali Hydro Power (P) Limited has held that the Delhi High Court held that in respect of company in question on the basis of normal provision income was assessed at negative i.e. on loss of Rs.36,95,21,018/-. The company was MAT company and that the assessment under Section 115-JB resulted in calculation of profit at Rs.4,01,63,180/-. The income of the assessee was thus assessed under Section 115-JB and not under normal provision. It was held; "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 u/s 115JB which has become the basis of assessment as it was higher of the two. Tax is thus paid on the income assessed u/s 115JB. Hence, when the computation was made u/s 115JB, the concealment had no role to play and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all. The upshot of the aforesaid discussion would be to sustain the order of the Tribunal, though on different grounds. Therefore, while the reasoning and approach of the Tribunal is not tenable, for the reasons disclosed above, penalty could not have been imposed even in respect of the false claim of depreciation made by the assessee. CIT Vs. Gold Coin Health Food (P) Ltd. 2008-TIOL-152-SC-IT (Supreme Court distinguished);

++ on the facts and circumstances we are of the view that the issue involved is squarely covered by Division Bench Decision of this Court in the case of Commissioner of Income Tax, Noida Vs Aleo Manali Hydro Power P LTd. The book profit disclosed by the assessee for the purpose of the liability of tax under Section 115 J is relevant and not the Income determined under the provisions of Income Tax Act. The Tribunal on the facts and circumstances of the case has further recorded the finding that on the facts and circumstances of the case and on the bonafide of the explanation given by the assessee and the disclosure made in the accounts accompanying the return, no penalty is leviable. The finding of the Tribunal in this regard is finding of fact. In view of the aforesaid discussion both the question No.1 and 2 are answered in favour of assessee in affirmative. The Appeal is accordingly dismissed.

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