IN THE HIGH COURT OF DELHI AT NEW DELHI

Transcription

1 IN THE HIGH COURT OF DELHI AT NEW DELHI ITA 1749/ Appellant Mr.Sanjeev Counsel. Sabharwal, Sr. Standing MAGIC INTERNATIONAL P LTD... Respondent Through: Dr.Rakesh Gupta with Ms.Rani Kiyala, Advocates. follows:- CORAM: HON'BLE MR. JUSTICE S. RA VINDRA BHAT HON'BLE MR. JUSTICE R. V.EASW AR ORDER The question of law framed by this Court by order dated IS as "Whether learned ITAT erred in deleting the penalty of ' 16,49,627/- imposed by the Assessing Officer under Section 271 (1)(c) of the Income tax Act?" 2. The assessment proceedings in this case were completed on The brief facts are that the assessee had fi led return declaring "book profit" under Section 115 JB of the Income Tax Act, 1961 ('Act', for short) in add ition to the taxable income as per the normal provisions of the Act. The return of income tax declared a loss of ' 77,82,374/- under the normal provisions of the Act. The assessee paid tax on the "book profits" assessed which were higher than the amount of loss of '21,70,207/- assessed

2 under the normal provisions. The Assessing Officer originally disallowed the claim for depreciation to the extent of '57,49,416/-, later realizing this mistake he restricted this amount to '45,08, 106/-. The assessment however, was completed under Section 115JB since the returned income under those provisions was higher than the assessed income under the normal provisions of the Act. Consequently the AO initiated the penalty proceedings and subsequently after hearing the assessee, passed an adverse order, imposing penalty of' 16,59,627/- for concealment of income. The assessee's appeal to the Commissioner was rejected; the latter upheld the penalty for concealment under Section 271 (l)(c). The Tribunal accepted the latter, and based its reasoning while allowing the appeal on the following discussion:- "5.1 We have perused the charts of depreciation under Companies Act as well as under the Income Tax Act. The contention of assessee that by mistake a depreciation as per Companies Act was claimed appears to be correct as there is difference in the figures in the depreciation debited under Companies Act and now claimed in the. return of income. It is equally true that even Assessing Officer made mistake while disallowing the claim of depreciation. Initially the disallowance was '57,49,416/- later on realising the mistake apparent on record, the Assessing Officer restricted the disallowance of '45,08,106/-. Just as the Assessing Officer may be mistake, the assessee herein also committed mistake inadvertently and without any intention of the same as is evident from the fact that the income declared u/s 115 JB. being book profit is correctly declared. Therefore, there is no addition/ disallowance as envisaged in Explanation 1 to section 271 (l)(c) of the Act. Hon 'ble Punjab and Hmyana High Court in the case of CIT vs. Sidhartha Entelprises in ITA No. 908 of2008 dated 14 th July, 2009 held as under: - "We are unable to accept the submission. The judgment of the Hon'ble Supreme Court in Dharmendra Textile (supra) cannot be read as laying down that in every case, where particulars of income are inaccurate penalty must follow. What has been laid down in that qualitative difference between criminal liability u/s 276 C and penalty u/s 271 (l )(C) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is 'imposed only when there is some element of deliberate default and not mere mistake. This being the position, the finding having been recorded on facts that the furnishing of

3 inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax, the view taken by the Tribunal cannot be held to be perverse." (emphasis supplied) 6. In view of the above discussion and since we have held that there was a bonafide mistake on part of assessee, we cancel the penalty levied u/s 271(1)(c) of the Act. The fact also remains that there is no addition of disallowance in the ultimately assessed income u/s 115 JB of the Act. Therefore, penalty is directed to be cancelled." 3. Learned counsel for the appellant urged that the Revenue has to succeed since the assessee has del iberately claimed excess depreciation knowing fully well that it was inadmissible and despite the income being finally assessed under Section 115JB, the fact remains that consciously a claim that was inadmissible had been made. This clearly amounted to a concealment under Section 27I(1)(c); counsel also emphasized that the authorities are directed under Section 271 to essentially look at the returns and then determine in accordance with Explanation 4 as to whether the revenue loss would have accrued or not. The argument of the Revenue is that the actual tax effect or the final order should not be seen but rather the attempt of the assessee in concealing income which is otherwise assessable. 4. This Court is of the opinion that the Revenue cannot succeed for the reason that this very question was decided in CIT vs. Nalwa Sons Investments Ltd., (2010) 327 ITR 543. The said judgment was carried in appeal by Special Leave Petition being SLP No.18564/2011 to the Supreme Court. The Special Leave Petition was dismissed on The matter was again revisited by this Court in CIT vs. Central Warehousing Corporation, (2012) 81 CCH 55 (ITA No.999/2011, decided on ). In the latter decision, the Court held as follows:- "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 and there is no addition asfar 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 (l)(c), it has been held as under: -

4 "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 the Act. 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, being higher of two. Interest under section 234B and 234C has been charged as per the provisions of IT Act, Penalty proceedings under section 271 (l) (c) of the Income-tax Act, 1961 have been initiated. Issue necessary forms. " The income of the assessee was thus assessed under section 115JB 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 the Act 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 the Act. Hence, when the computation was made under section 115JB of the Act, the aforesaid concealment had no role to play

5 and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all. " 5. We see no reason to take a different view and make a departure from the judgment by the two Division Benches. Consequently the decision in Nalwa Sons (supra) and Central Warehousing Corporation (supra), the Revenue's appeal has failed. The question of law is answered against the appellant. The appeal is therefore, dismissed. OCTOBER 12, 2012 gm