Braithwaite & Co. Ltd. Vs DCIT (ITAT Kolkata)
Inadvertent Tax-Provision Omission, Corrected in Processing, Leads to Deletion of Section 270A Penalty
Facts of the case
The assessee challenged a penalty under section 270A arising from the omission to add back a provision for income tax while computing taxable income and book profit.
For AY 2021-22, the company declared income of ₹11,70,29,456 under the normal provisions and book profit of ₹24,49,10,113 under section 115JB. Its return was subsequently selected for scrutiny, and the assessee complied with the notices and questionnaire.
The Assessing Officer completed the assessment on 3 December 2022, determining normal income at ₹18,05,43,456 and book profit at ₹30,84,24,113.
According to the assessment narrative, the assessee had omitted to add back a tax provision of ₹6,35,14,000. The Assessing Officer regarded this omission as under-reporting consequent to misreporting and initiated penalty proceedings under section 270A read with section 270A(9)(a).
Penalty imposed and relief before CIT(A)
After considering the assessee’s response, the Assessing Officer imposed a penalty of ₹4,43,88,664, applying the 200% rate for misreporting, by an order dated 30 January 2023.
The CIT(A) granted partial relief by directing that the penalty be restricted to the 50% rate applicable to under-reporting. The amount consequently sustained was ₹1,10,97,166.
The assessee appealed to the Tribunal seeking deletion of the remaining penalty. Thus, the dispute before the Bench concerned whether any penalty should survive, rather than merely whether the enhanced misreporting rate was justified.
Tribunal’s findings on the omission
The Tribunal characterised the failure to add back the provision as an inadvertent mistake in computation.
It recorded that a tax provision of ₹6,12,00,000 had already been added while processing the return under section 143(1), resulting in book profit of ₹30,61,10,113. The subsequent scrutiny assessment determined income under both the normal provisions and section 115JB.
The Bench emphasised that tax had been computed and paid under MAT, and recorded its conclusion that the Revenue had suffered no loss. On that factual understanding, it held that the penalty could not be sustained.
The order also expressed the view that penalty was not leviable where the adjustments concerned book profit and the income was assessed under section 115JB. That observation formed part of its reasoning alongside the finding of an inadvertent omission and the earlier processing adjustment.
Reliance on Nalwa Sons and CBDT Circular
The Tribunal relied on CBDT Circular No. 25/2015 dated 31 December 2015, discussing the position concerning penalty under section 271(1)(c) where additions were made under the normal provisions but tax was levied under MAT.
It extensively reproduced CIT v. Nalwa Sons Investments Ltd., (2010) 327 ITR 543 (Delhi). In that case, the additions under the normal computation did not affect the book profit on which tax was ultimately payable. The reasoning therefore turned on whether the alleged concealment had resulted in tax evasion when MAT remained the operative basis of taxation.
The present order also referred to the Supreme Court proceedings reported at 2012 (5) TMI 150, describing the Delhi High Court decision as approved.
Further authorities cited included Unison Hotels Ltd. v. DCIT, Aromatrix Flora (P.) Ltd. v. ACIT, DCIT v. Eastern India Powertech Ltd., and the Bangalore Tribunal decision in DCIT v. Tecnotree Convergence Limited, ITA No. 1145/Bang/2017.
Decision
The Tribunal set aside the CIT(A)’s order and directed deletion of the entire penalty. The assessee’s appeal was allowed.
Accordingly, the ₹1,10,97,166 penalty remaining after the CIT(A)’s reduction was eliminated. The Tribunal’s order concerned penalty; it did not delete the underlying assessment adjustments.
Author’s comments
The favourable outcome rests on the Tribunal’s findings of an inadvertent computational omission, correction during processing and absence of Revenue loss. These factual findings deserve prominence when relying on the decision.
However, the reasoning requires careful application. The penalty before the Tribunal arose under section 270A, whereas the CBDT circular and the principal precedent discussed concerned section 271(1)(c). Further, Nalwa Sons involved additions under the normal provisions that did not affect the MAT computation; the present case itself involved an adjustment to book profit. The order does not separately explain these distinctions in detail.
It would therefore be too broad to describe the ruling as granting blanket immunity from penalty whenever MAT is payable. Its usefulness lies in the particular computation history and findings recorded by the Bench.
Cases Discussed
- CIT v. Nalwa Sons Investments Ltd., (2010) 327 ITR 543 (Delhi High Court) — Relied upon. Penalty under Section 271(1)(c) was held unsustainable where additions under the normal provisions did not affect tax payable under MAT.
- Unison Hotels Ltd. v. DCIT, 40 taxmann.com 237 (Delhi High Court) — Cited in support of the MAT penalty principle.
- Aromatrix Flora (P.) Ltd. v. ACIT, ITA No. 2100/DEL/2024 (ITAT Delhi) — Cited.
- DCIT v. Eastern India Powertech Ltd. (Formerly DLF Power Ltd.), ITA No. 200/DEL/2011 (ITAT Delhi) — Cited.
- DCIT v. Tecnotree Convergence Limited, ITA No. 1145/Bang/2017 (ITAT Bangalore) — Cited.
- CIT v. Gold Coin Health Food (P.) Ltd., (2008) 304 ITR 308 (Supreme Court) — Discussed within the reproduced Nalwa Sons judgment regarding penalty where concealed income reduces a returned loss.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 04.02.2026 for the AY 2021-22.
2. The only issue in various grounds of appeal is against the order of ld. CIT (A) partly sustaining the penalty amounting to ₹1,10,97,166/- being 50% of the under reported income as against the penalty imposed by the ld. AO of ₹4,43,88,664/- u/s 270A of the Income-tax Act, 1961 (the Act) at the rate of 200% of mis-reported income.
3. The facts in brief are that the case of the assessee was selected for scrutiny and accordingly, notices u/s 143(2) and 142(1) of the Act along with questionnaire were duly issued and served upon the assessee. The assessee complied with the same. The assessment order was framed u/s 143(3) read with section 144B of the Act dated 03.12.2022, assessing the total income at ₹18,05,43,456/- under the normal provisions and ₹30,84,24,113/- as book profit u/s 115JB of the Act as against the declared income of ₹11,70,29,456/- under the normal provisions and ₹24,49,10,113/- u/s 115JB of the Act. The ld. AO noted that the assessee has not added the provisions created in the financial statement in respect of tax payable amounting to ₹6,35,14,000/- to the profit after tax which resulted into reducing the book profit and thereby under assessing tax on the same. Accordingly a penalty was initiated u/s 270A read with section 270A(9)(a) of the Act for under reporting income in consequent to mis-representing of income by issuing show cause notice and finally, after taking into account the reply of the assessee, a penalty of ₹4,43,88,664/- equal to 200% of the tax sought to be evaded was imposed in the penalty order passed u/s 270A of the Act dated 30.01.2023.
4. In the appellate proceedings, the ld. CIT (A) partly allowed the appeal of the assessee by directing the ld. AO to restrict the penalty to 50% of the tax sought to be evaded. The aggrieved assessee is in appeal before us.
5. After hearing the rival contentions and perusing the materials available on record, we find that while filing the return of income there was an inadvertent mistake on the part of the assessee in the computation of book profit, wherein provisions for tax amounting to ₹6,12,00,000/- were not added which has resulted in lower book profit being returned by the assessee. While processing the return of income u/s 143(1) of the Act, the said provisions were duly added and the book profit was assessed at ₹30,61,10,113/-. Thereafter, the case of the assessee was selected for scrutiny and the income was assessed under the regular provisions as well as under the book profit. We note that in this case, the mistake has happened on the part of the assessee to add back the provisions created for tax payable in the computation of book profit u/s 115JB of the Act and while computing the income under the normal provision. Therefore, the penalty imposed by the ld. AO u/s 270A(a) of the Act in respect of addition made due to deeming fiction of MAT, where the book profit is higher than the normal profits and tax already computed and paid under MAT provisions. Therefore, the revenue has not suffered any loss. In our opinion where the adjustments are done to the book profit and income has been assessed u/s 115JB of the Act, then no penalty can be levied. The case of the assessee is also squarely covered by the circular no. 25/2015 dated 31.12.2015 being notification no. F. No. 279/Misc/140/2015/ITJ issued by Central Board of Direct Taxes in which it has been clarified that no penalty should be levied u/s 271(1)(c) of the Act, wherein the addition/disallowances made under the normal provision of the Income Tax Act, 1961, but tax levied under MAT provision u/s 115JB & 115JC of the Act. The case of the assessee is also squarely covered by the decision of Hon’ble Apex court in the case of CIT vs. M/s. Nalwa Sons Investment Ltd. 2010 (8) TMI 40 (HC), 327 ITR P-543, wherein the similar issue has been decided in favour of the assessee. The operative part of the said decision is as under:-
“20. We have considered the rival submissions. Judgment of the Supreme Court in Gold Coin’s (supra) clarifies that even if there are losses in a particular year, penalty can be imposed as even in that situation there can be a tax evasion. As per Section 271 (1) (c), the penalty can be imposed when any person has concealed the particulars of his income or furnished incorrect particulars of the income. Once this condition is satisfied, quantum of penalty is to be levied as per clause (3) of Section 271 (1) ( c) which stipulates that the penalty shall not exceed three times “ the amount of tax sought to be evaded”. The expression “the amount of tax sought to be evaded” is clarified and explained in Explanation 4 thereto, as per which it has to have the effect of reducing the loss declared in the return or convertingthatlossintoincome. ItisinthiscontextthatinGoldCoins (supra) the Supreme Court explained the legal position as under:-
“Reference to the Department Circular No. 204 dated 24.7.1976 reported in 1977 (110) ITR 21 (St.) has also substantial relevance. Same reads as follows:-
New Explanation 4 defined „the amount of tax sought to be evaded‟. According to the definition, this expression will ordinarily mean the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed. In a case, however, 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 to a minus figure, „the tax sought to be evaded‟ will mean the tax chargeable on the concealed income as if it were the total income. Another exception to the general definition of the expression „tax sought to be evaded‟ given earlier is a case to which Explanation 3 applies. Here, the tax sought to be evaded will be the tax chargeable on the entire total income assessed.
A combined reading of the Committee’s recommendations and the Circular makes the positionclearthatExplanation4(a)toSection271loss returned, after assessment becomes positive income but also in a case where addition of concealed income reduces the returned loss and finally the assessed income is also a loss or a minus figure. Therefore, even during the period between 1.4.1976 to 1.4.2003 the position was that the penalty was leviable even in a case where addition of concealed income reduces the returned loss.
When the word “income” is read to include losses as held in Harprasad‟s case (supra) it becomes crystal clear that even in a case where on account of addition of concealed income the returned loss stands reduced and even if the final assessed income is a loss, still penalty was leviable thereon even during the period 1.4.1976 to 1.4.2003. Even in the Circular dated 24.7.1976, referred to above, the position was clarified by Central Bureau of Direct Taxes (in short „CBDT‟). It is stated that in a case where on setting off the concealed income against any loss incurred by the assessee under any 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 to a minus figure the penalty would be imposable because in such a case “the tax sought to be evaded‟ will be tax chargeable on concealed income as if it is “total income”.
The amount of tax sought to be evaded. Under the scheme of the Act, the total income of the assessee is first computed under the normal provisions of the Act and tax payable on such total income is compared with the prescribed percentage of the „book profits‟ computed under section 115JB of the Act. The higher of the two amounts is regarded as total income and tax is payable with reference to such total income. If the tax payable under the normal provisions is higher, such amount is the total income of the assessee, otherwise, „book profits‟ are deemed as the total income of the appellant in terms of Section 115JB of the Act.
22. 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 115 JB of the Act. On the basis of normal provision, the income was assessed in the negative i.e. at a loss of Rs. 369521018. On the other hand, assessment under Section 115 JB of the Act resulted in calculation of profits at Rs. 40163180.
23. In view thereof, in conclusion, the assessment order records as follows:-
“Assessed at Rs. 40163180 u/s 115 JB, being higher of two. Interest u/s 234B and 234C has been charged as per the provisions of Income Tax Act, 1961. Penalty proceedings u/s 271 (1) © of the Income Tax Act, 1961 have been initiated. Issue necessary forms.”
24. The income of the assessee was thus assessed under Section 115 JB and not under the normal provisions. It is in this context that we have to see and examine the application of Explanation 4. 25. Judgment in the case of Gold Coins (supra), 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 115 JB 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 115 JB of the Act. Hence, when the computation was made under Section 115 JB of the Act the aforesaid concealment had no role to play and was totallyirrelevant. Therefore, the concealment did not lead to tax evasion at all.
26. The upshot of the aforesaid discussion would be to sustain the order of the Tribunal, though on different grounds. Therefore, while we do not agree with the reasoning and approach of the Tribunal, for our reasons disclosed above, we are of the opinion that penalty could not have been imposed even in respect of claim of depreciation made by the assessee. This appeal is accordingly dismissed.”
6. The said decision of Hon’ble Delhi High Court is approved by the Hon’ble Supreme Court as reported in 2012(5) TMI 150 (SC). The Hon’ble Court observed that no doubt there was concealment of income but that has repercussion only when the assessment was made under normal provision. However, the court held that the assessment as per the normal provision was not acted upon and in the contrary, it is deemed income assessed u/s 115JB of the Act which has became the basis of assessment as it was higher of the two. Similarly, the case of the assessee is covered by the following decisions, wherein the assessee held that where the income was computed on the basis of book profit u/s 115JB of the Act, no penalty can be levied.
i. Unison Hotels Ltd. Vs. DCIT 40 taxmann.com P-237 (Delhi High Court)
ii. Aromatrix Flora (P) Ltd. Vs. ACIT (Delhi ITAT) ITA No. 2100/DEL/2024
iii. DCIT Vs. Eastern India Powertech Ltd. (Formerly DLF Power Ltd.) (Delhi ITAT) ITA No. 200/DEL/2011
iv. DCIT Vs. Tecnotree Convergence Limited (Bangalore ITAT) 1145/Bang/2017
7. Considering the facts of the case in the light of aforesaid decisions, we are inclined to set aside the order of ld. CIT (A) and direct the ld. AO to delete the entire penalty.
8. In the result, the appeal of the assessee is allowed.
Order pronounced on 07.10.2026.
