Whether when once income is assessed u/s 115JB, no penalty is imposable even if concealed income is unearthed by Revenue - YES: HC

THE issue before the Bench is - Whether when once the income of the assessee is assessed u/s 115JB, no penalty is imposable even if concealed income is unearthed by the Revenue. And the answer favours the assessee.

Facts of the case

The assessee is engaged in the business of ceramic tiles. The assessee declared total income as ‘Nil’, after claiming deduction u/s 80IB and depreciations. The company’s book profit u/s 115JB was worked out at Rs.3,78,87,230/. In the scrutiny assessment the AO found that there was a search carried out at the premises of the dealers of the company by the excise authorities. On the basis of revelations made by such dealers indicating clandestine removal of goods of the company without paying excise duty. For the A.Y under consideration, the AO out of the said cash receipts apportioned a sum of Rs.46,78,545/. He, accordingly, added such amount to the income of the assessee, both for normal computation as well as for computing book profit u/s 115JB.

The CIT(A) sustained the additions for normal computation. The additions for book profit for the purpose of section 115JB were deleted .The AO also ordered initiation of penalty proceedings. The AO imposed penalty of Rs 16,51,520/- on the assessee u/s 271(1)(c). The CIT (A) dismissed Assessee's appeal. The Tribunal allowed the assessee’s appeal. The Tribunal accepted contention of the assessee that even after the additions made during the course of assessment proceedings, the income of the assessee remained ‘Nil’ and the assessee was liable to pay tax on the book profit u/s 115JB.

On appeal before the HC the Revenue's Counsel submitted that the Tribunal committed error in deleting the penalty only on the ground that even after the addition of concealed income, the assessee still had to pay tax u/s 115JB. The Assessee Counsel opposed the appeals contending that the Tribunal committed no error.

Having heard the parties, the HC held that,

++ even after the concealment is unearthed or the assessee’s act of supplying inaccurate particulars comes to light, the tax liability before or after such concealment or providing of inaccurate particulars remains the same; by virtue of clause (c) of Explanation 4 to section 271(1), there would be no penalty imposable. This is so because the penalty is to be computed in terms of the amount of tax sought to be avoided, such expression ‘amount of tax sought to be avoided' is explained in Explanation 4. If this is so, the penalty u/s 271(1)(c) would not be possible to be imposed;

++ since the Commissioner did not permit any increase in the assessee's book profit computation u/s 115JB, even after unearthing the concealed income, the assessee ended up paying the same amount of MAT u/s 115JB even after the concealments were unearthed and accepted by the assessee. The implication of Explanation 4 to section 271(1) must be seen. When in facts of the case, the assessee's tax liability did not change despite unearthing of concealed income, no penalty could have been levied. If the effect of the addition of the concealed income results into higher MAT by increasing the book profit also, penalty could as well be imposed.