No penalty can be imposed u/s 271(1)(c) wherein though the addition has been made but the tax effect did not change with the amount of addition
Held: This was an appeal filed by the department against the penalty deleted by the Ld. CIT(A). The assessee is a software company claiming deduction u/s 10B of the Act. During the quantum proceedings, the then assessing officer disallowed the deduction claimed u/s 10B of the Act of Rs. 31,52,432/- on the ground that the approval granted to the assessee, which made entitled the assessee for deduction u/s 10B, had expired on 31/03/2005 i.e. the deduction u/s 10B of the Act was not available to assessee in the relevant year under consideration. The assessee had brought forward business losses of Rs. 41,63,125/- and after setting off these losses with the disallowance made, the net total income of the assessee come out to NIL.
The Assessing officer in penalty proceeding imposed the concealment penalty on disallowance made u/s 10B of the Act. The Ld. CIT(A) deleted the penalty on the ground that the deduction was claimed by the assessee on the basis of certificate issued by the Chartered accountant in Form 56G; the approval of 100% EOU expired after 31.03.2005 and assessee could not get extension of approval though it was undisputed fact that the assessee had made exports, received foreign exchange and claimed deduction u/s 10B; in the assessment order income assessed for the year under the normal provision of the act is Rs. 31,52,432/-, which is set off by the business loss of Rs. 41,63,125/- and after setting off of taxable income under normal provision became NIL; tax paid by the assessee u/s 115JB amounting to Rs. 2,62,702/- is exactly the same which is payable after the assessment u/s 143(3) of the Act. Therefore, it was a bonafide mistake on the part of the assessee.
The Hon’ble ITAT of Mumbai Bench passed the order confirming the order of Ld. CIT(A) and decided that the tax has been charged by the revenue on the basis of computation made u/s 115JB of the Act which is same as submitted by the assessee and no addition has been made by the then Assessing officer u/s 115JB of the Act. Thus, the Hon’ble Bench relying upon the judgment of Hon’ble Delhi high Court in the case of CIT Vs. Nalwa Sons Investments and dismissed the appeal filed by the Revenue.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
Software Element India P. Ltd,
Department Of Income Tax
Date of Pronouncement – 24 January, 2013
ITA NO. 551/MUM/2012 (A.Y. 2006-07)
This is an appeal filed by the revenue. It is directed against the order passed by Ld. CIT(A)-6 Mumbai dated 04/11/2011 for assessment year 2006-07. The grounds of appeal raised by the revenue read as under:
“On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:
1. on the facts and circumstances of the case and in law the Ld. CIT(A) erred in allowing assessee’s appeal in spite of the fact that there was a deliberate act of evasion on the part of the assessee in spite of completion of tenure for claiming exemption u/s1OB not only for the current year but in subsequent year also, which could have been unnoticed had there been no scrutiny assessment during the current year.
2. On the facts and circumstances of the case and in law, the Ld. C1T(A) erred in allowing assessee’s appeal on the basis that obtaining approval from concerned authority is a technical issue but on the contrary it is an essential criteria for claiming exemption u/s10B.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing assessee’s appeal when the assessee itself is not arguing the genuinity of AO’s claim by withdrawing appeal in respect of the assessment order passed by him.”
2. Assessment in the present case has been framed vide order dated 31/10/2010 passed under section 143(3) of the Income Tax Act, 1961(the Act).
3. The tax liability of the assessee has been computed under section 115JB of the Act as the income under section 115JB was more than the income assessable under the normal provisions of the Act. Both computations done by the AO in the assessment order are as under:
“Income As per return NIL
Add: on a/c. of disallowance u/s.10B 31,52,432 Revised Total Income 31,52,432 The assessee has business loss as follows:
AY 2002-03 Rs. 30,09,780/-
AY 2004-05 Rs. 8,66,300/-
AY 2005-06 Rs. 2,87,045/-
Hence, after set off pf the above losses, the total taxable income is NIL Assessee company is allowed to carry forward only balance loss after Adjustment of above. Computation of Income as per provisions of Sec.115JB of the Act. Net profit as per P&L A/c. 35,02,702/- Tax @ 7.5% 2,62,702/- Taxable u/s. 115JB is more than the normal provisions of the Act, Tax is charged as per Section 115JB of the Act.”
4. Under normal provision, deduction under section 10B was disallowed on the ground that the approval granted to the assessee, which made entitled the assessee for deduction under section 10B had expired on 31/3/2005. Concealment penalty has been initiated by the department on the disallowance made under section 10B of 3 ITA NO. 551/MUM/2012(A.Y. 2006-07)) the Act. Ld. CIT(A) has deleted such concealment penalty on the ground that deduction was claimed by the assessee on the basis of certificate issued by Chartered Accountant in Form 56G; the approval of 100% EOU expired after 31/3/2005 and assessee could not get extension of approval; the assessee made exports, received foreign exchange and claimed deduction under section 10B; in the assessment order income assessed for the year under the normal provision of the Act is Rs.31,52,432/-, which is set off by the business loss of Rs.41,63,125/- and after set off of taxable income under the normal provisions become nil; tax paid by the assessee under section 115JB amounting to Rs.2,62,702/- is exactly the same which is payable after assessment under section 143(3) of the Act. Therefore, it was a case of bona fide mistake of the assessee and in this manner Ld. CIT(A) has cancelled the concealment penalty of Rs.11,00,136/-. The department is aggrieved, hence, in appeal.
5. After narrating the facts and relying upon the penalty order, it was pleaded by Ld. DR that assessee had filed inaccurate particulars of its income as there was no basis existed with the assessee to claim deduction under section 10B of the Act. The approval had expired. Therefore, the assessee has furnished inaccurate particulars of its income. Ld. CIT(A) was wrong in canceling the penalty. His order should be set aside and that of AO be restored.
6. On the other hand, it was pleaded by Ld. AR that there is no concealment on the part of the assessee. The assessment has been framed under section 115JB of the Act which is exactly as per the computation of income submitted by the assessee with reference to section 115JB of the Act. He submitted that addition, if any, made with respect to normal computation cannot be made as a ground for levy of concealment penalty as tax has been charged by the revenue on the basis of computation done under section 115JB of the Act. He in this regard relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs. Nalwa Sons Investment Ltd. 327 ITR 543 (Del), wherein it has been held that when computation of income was made under section 115JB, and there was loss under the normal provision, concealment, if any, did not lead to tax evasion at all and, therefore, penalty under section 271(1)(c) of the Act could not be imposed. He submitted that department had preferred a SLP against the said order of the Hon’ble Delhi High Court and it has been dismissed by Hon’ble Supreme Court vide order dated 4/5/2012. He submitted before us a copy of the dismisal of SLP and a copy was also given to Ld. DR.
7. We have heard both parties and their contentions have carefully been considered. We have gone through assessment order and it is seen that tax has been charged by the revenue on the basis of computation made under section 115JB of the Act which is exactly same as submitted by the assessee. There was no addition whatsoever with reference to assessment under section 115JB of the Act. The normal assessment is nil subject to carry forward of certain losses which have not been fully set off. Both the computations have been reproduced in the above part of this order. Therefore, the ratio laid down in the aforesaid decision of Hon’ble Delhi High Court in the case of CIT vs. Nalwa Sons Investment (supra) will be squarely applicable. SLP filed against the said decision has also been dismissed. In this view of the situation we see no infirmity in cancellation of the penalty though for the reasons different from reasons given by Ld. CIT(A). Therefore, appeal is dismissed.
8. In the result, the appeal filed by the revenue is dismissed.
Submitted by – CA Nitin Bhalla, Ludhiana