– CA Vidhan Surana & CA Sunil Maloo
An epiphany on Reopening u/s 148- If Assessee is taxed under ‘MAT’ to ‘MAT’ – No Escapement, No Reopening
The AO is empowered to assess or reassess the total income of the Assessee by reopening the Assessment, invoking the provisions of section 148 of the Act. The authors have visualized in-depth manifestation with respect to the jurisdiction of the AO in reopening the Assessments of the ‘Companies’ where even after the reopening the ultimate tax liability of that company remains the same as per the (1) return of income, (2) Assessment u/s 143(3) and (3) Assessment u/s 143(3) r.w.s. 147 of the Act. The detailed analysis reads as follows:-
Existence of conditions stipulated in section 147 is a sine qua non for initiation of reopening proceedings under section 148 of the income tax act. There has to be some sort of escapement of income in order to attract the provisions of section 147 and 148 of the income tax act.
Pertinent to note, when –
1) the Assessee is ultimately liable to pay taxes on book profit u/s 115JB of the Act as per return of income / assessment u/s 143(3) (as the case may be); and
2) simultaneously there is any kind of escapement noted by the AO with reference to normal taxable income, but still the Assessee has ultimate liability to taxes on book profits u/s 115JB as disclosed in return only,
Then there is no escapement of income at all with respect to the deemed total income as per the NON OBSTANTE provisions of section 115JB of the act. This act is being explained in detail herein under –
Following is the summary of the total income of the Assessee ABC Ltd, as per the return filed, as per assessment made under section 143(3) and as per assessment made under section 143(3) r.w.s. 147 of the act:-
|Particulars||As per the return filed (`)||As per assessment made under section 143(3) (`)||As per assessment made under section 143(3) r.w.s. 147 (`)||Remarks|
|Taxable income as per the provisions of the act||10,00,000||20,00,000||30,00,000||Only addition made to normal taxable income as per provisions of IT Act|
|Book profit as per the provisions of 115JB||2,00,00,000||2,00,00,000||2,00,00,000||Book profits remained constant in Return, assessment u/s 143(3) as well as in Re-assessment u/s 143(3) r.w.s. 147 of the Act.|
|Final Total income after considering the provisions of section 115JB||2,00,00,000||2,00,00,000||2,00,00,000||‘No change’ whatsoever in Total Income of the Assessee|
On perusal of the above summary, one will appreciate that the deemed total income (on which the Assessee has the ultimate liability to pay taxes) for the year, is the income as determined under the provisions of 115JB of the act.
The relevant provisions of the income tax act, in support of the above facts as well as above contention are being reproduced hereunder in their chronological order:-
[Special provision for payment of tax by certain companies.
115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, , is less than [eighteen and one-half per cent] of its book profit, [such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of [eighteen and one-half per cent]].
Analysis and applicability of a provision to the facts of the case are summarized as under:-
|Particulars||As per the return filed||As per assessment made under section 143(3)||As per assessment made under section 143(3) r.w.s. 147||Remarks|
|Tax payable as per the provisions of the Act @ 30%||3,00,000||6,00,000||9,00,000||Taxes Payable for the AY under consideration is same as per Return, as per assessment u/s 143(3) as well as in Re-assessment u/s 143(3) r.w.s. 147 of the Act.|
|18.50 % Book profit as per the provisions of 115JB||37,00,000||37,00,000||37,00,000|
|Whichever is higher||37,00,000||37,00,000||37,00,000|
|Deemed Total Income as per 115JB||2,00,00,000||2,00,00,000||2,00,00,000||No escapement of Income at all|
On perusal of the unambiguous language of provisions of section 115JB it is very clear that there cannot be two ‘incomes’ for the very same assessment year. Either it can be “total income as computed under this Act” or “the book profit” for the relevant assessment year, based on the higher tax payable in comparison to both, also the same shall be deemed as the “total income” of the Assessee. Therefore, the escapement of income needs to be considered on the basis of such “total income” of the Assessee.
Accordingly it is evident that even after making the assessment under section 143(3) r.w.s. 147 of the Act the total income of the Assessee remains at the same level as it was assessed as under the original assessment under section 143(3) of the act or as disclosed in the return filed. This undisputed fact proves and establishes that there was no escapement of income at all what so ever in nature.
[Income escaping assessment.
147. If the[Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Analysis and applicability / non-applicability of a provision to the facts of the case are summarized as under:-
On perusal of the provision of section 147, it can be appreciated that in order to trigger this provision there has to be a reason to believe with respect to some sort of any income chargeable to tax which has escaped the assessment. ‘Escapement of income’ is the precondition that has to be fulfilled before initiating the proceedings under section 148 of the act.
It is tried hereby to prove and establish that in the above facts, there can be no escapement of income within the meaning of explanation 2 to section 147 of the act:-
As per explanation 2 to section 147 where the assessment has been completed under section 143(3) of the act, in following circumstances the income shall deemed to be escaped the assessment:-
|Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—(c) where an assessment has been made, but—|
|Conditions as per the explanation 2||Remarks of the appellant|
|(i) income chargeable to tax has been underassessed ; or||As explained herein above, the total income remains the same as per the original assessment order u/s 143(3) and assessment order u/s 143(3) r.w.s. 147 of the Act. – Hence this condition not fulfilled.|
|(ii) such income has been assessed at too low a rate ; or||
It is apparent that the total income has been assessed the at the very same rate as specified in section 115JB in the original assessment order u/s 143(3) and also in assessment order u/s 143(3) r.w.s. 147 of the Act. – Hence this condition not fulfilled.
|(iii) such income has been made the subject of excessive relief under this Act ; or||
No specific relief has been given to the Assessee in the original assessment order u/s 143(3) which has been withdrawn in assessment order u/s 143(3) r.w.s. 147 of the Act. – Hence this condition not fulfilled.
|(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;]||
No excessive loss or depreciation allowance or any other allowance has been computed in the original assessment order u/s 143(3) which has been withdrawn in assessment order u/s 143(3) r.w.s. 147 of the Act. – Hence this condition not fulfilled.
Accordingly, on perusal of the above analytical table one will appreciate that in the facts of the above case there cannot be any escapement of income whatsoever in nature hence the entire exercise of reopening the assessment under section 148 of the act, under similar circumstances is contrary to the provisions of the income tax act and bad in law.
[Failure to furnish returns, comply with notices, concealment of income, etc.
Explanation 4.—For the purposes of clause (iii) of this sub-section, the expression “the amount of tax sought to be evaded”,—
(c) in any other case, means 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 or inaccurate particulars have been furnished.]
Analysis and applicability of a provision to the facts of the case are summarized as under:-
Provisions of the Explanation 4 of section 271 are referred and reproduced herein above only for the purpose of importing the ratio of said explanation to the reopening proceedings under section 148 of the Act.
As per words of the above reproduced explanation, no penalty under section 271(1)(c) is leviable in respect of any addition made to the income computed as per the provisions of the Act, when the Assessee has to pay tax on the deemed the total income i.e. book profits u/s 115JB of the act. When the Assessee total income remains at the same level of the book profit u/s 115JB as disclosed in the return of income, then any addition made by the assessing officer to the income calculated as per the provisions of the Act shall not be subject to the penal provisions u/s 271(1)(c) of the Act.
Above contention is duly supported by the binding judicial pronouncement of the Hon’ble Apex Court of India in the case of CIT vs. M/S NALWA SONS INVESTMENT LTD in Special Leave Petition to Appeal (Civil) No(s).18564/2011 dated 04/05/2012. Relevant extract of the said judgment is reproduced herein below:
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 totally irrelevant. Therefore, the concealment did not lead to tax evasion at all.
This fact in itself, indicates that even after making the assessment under section 147 technically there was no escapement of income at all therefore the entire exercise of reopening the assessment under section 148 and consequently making the assessment u/s 143(3) r.w.s. 147 of the act would be bad in law and deserves to be quashed.
However, the reopening u/s 147 would be valid under following two situations:-
a). When any escapement is with reference to any ‘Book Profit’ within the meaning of section 115JB; or
b) When any escapement with reference to normal taxable income is of such extent which results into higher tax then the taxes paid by the Assessee on ‘Book Profit’ u/s 115JB
Same logic would be applicable in the cases of Limited Liability Partnership Firms which are taxed under AMT to AMT (Alternate Minimum Tax).
To sum up, it is stated that the ratio as laid down by the Hon’ble Apex court under the background of penalty u/s 271(1)(c) would squarely applicable to the reopening proceedings u/s 148 as well and accordingly when there is no variation in the deemed total income u/s 115JB then the same should not be subject to the reopening of assessment u/s 148 of the act.
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The authors do not accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.