Commissioner of Income Tax vs Citi Tiles Ltd.

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Akil Abdul Hamid Kureshi, J.—Revenue has filed these appeals raising identical questions concerning the same assessee for two separate assessment years. We had issued notice for final hearing for considering following substantial question of law:

"Whether, in fact, the Income Tax Appellate Tribunal was right in law in deleting penalty of Rs. 16,51,520/- imposed under Section 271(1)(c) of the Income-tax Act, 1961 on the ground that no such penalty is leviable where computation of income is made under Section 115JB of the Act, even though concealment of particulars of income is established?"

We have, accordingly, heard the learned counsel for the parties. Facts as emerging from Tax Appeal No. 140 of 2014 may be noticed. The respondent-assessee is a company engaged in the business of ceramic tiles. For the assessment year 2005-06, the assessee-company had filed return of income on October 29, 2005, declaring total income as ''Nil'', after claiming deduction under section 80IB of the Act and depreciations available. The company''s book profit under section 115JB of the Act was worked out at Rs. 3,78,87,230/-.

In the scrutiny assessment undertaken by the Assessing Officer of such return, he found that there was search carried out at the premises of the dealers of the company by the excise authorities. Statements of the representatives of the dealers were recorded. On the basis of revelations made by such dealers indicating clandestine removal of goods of the company without paying excise duty, the search was also carried out at the business premises of the company. Statements of the representatives of the company were also recorded. On the basis of such materials, the Assessing Officer came to the conclusion that during the period of assessment years 2003-04, 2004-05 and 2005-06 upto July 13, 2005 (i.e. the date of the search), the assessee had received a sum of Rs. 64,95,365/- in cash. For the assessment year under consideration, the Assessing Officer 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 under section 115JB of the Act. In his order of assessment dated December 27, 2007, he also ordered initiation of penalty proceedings.

By an order dated March 17, 2010, the Assessing Officer imposed penalty of Rs. 16,51,520/- on the assessee under section 271(1)(c) of the Act. The assessee carried such order of penalty in appeal. The Commissioner (Appeals) dismissed such appeal by his order dated June 18, 2010. He observed that unaccounted sales of Rs. 46,03,545/- was deducted by the Excise Department during the course of the search conducted at the business premises of the assessee. This was also admitted by the Director of the Company in the statement recorded during the search proceedings. The company filed its revised return only after the search. The Assessing Officer had, therefore, rightly come to the conclusion that the assessee had concealed income and furnished inaccurate particulars of the income.

The assessee carried the matter in further appeal to the Tribunal. The Tribunal by the impugned judgment dated October 04, 2013 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 under section 115JB of the Act, making following observations:

"9. We have heard the rival submission and perused the material on record. It is an undisputed facts that the Assessee was taxed under Section 115JB of the Act and not under the normal provisions of the Act as under the normal provisions of the Act, no tax was payable by the assessee. It is also a fact that even after the additions of Rs. 46 lacs made in the quantum proceedings, tax was still payable on the basis of book profits. We find that Hon. Delhi High Court in the case of CIT Vs. Nalva Sons Investment Ltd. (supra) has concluded that when computation of income was made under Section 115JB and concealment if any did not lead to tax evasion at all and therefore penalty under section 271(1)(c) could not be imposed. The head note is reproduced as under:-

"Penalty under section 271(1)(c)-Concealment-Assessment under section 115JB vis-�-vis loss under normal provisions-Assessee''s income computed as per the normal procedure was less than the income determined by legal fiction namely, book profit under section 115JB and thus income was assessed under section 115JB and not under the normal provisions-Though there was concealment, it had repercussion only when assessment was made under the normal procedure-Assessment as per the normal procedure was not acted upon-It is the deemed income under section 115JB which has become the basis of the assessment. Thus tax was paid on the income assessed under section 115JB-Therefore, the concealment did not lead to tax evasion at all penalty under section 271(1)(c) could not be imposed in respect of the false claim of depreciation."

Before us the Revenue could not bring any contrary decision in its support. In view of the aforesaid facts and relying on the aforesaid decision of Delhi High Court. We are of the view that no penalty leviable in the present case. Thus the penalty is deleted."

Before adverting to rival contentions we may also take note of certain other factual developments, which are relevant. Shri Hemani pointed out that the Assessing Officer having made additions for normal computation as well as for computing book profit for the purpose of section 115JB of the Act, the assessee had carried out such quantum additions in appeal before the Commissioner. The Commissioner in his order dated November 14, 2008 sustained the additions for normal computation. The additions for book profit for the purpose of section 115JB of the Act were deleted making the following observations:

"8. The next ground of appeal is directed against the A.O.''s action for adding the sum of Rs. 46,78,545/- in the book profit for working out the liability u/s. 115JB of the Act.

8.1. During the appellate proceedings, the Ld. A.R. of the appellant objected to the said adjustments and contended that the A.O. has no power to go beyond the adjustments which have been laid down in sec. 115JB of the Act while working all the liability for MAT. He also placed reliance in support of his contentions on the decision of Hon''ble Supreme Court in the case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi, .

8.2. I have considered the facts of the case and submissions of the Ld. A.R. carefully. There is no dispute about the fact that the statement of the Managing Director of the appellant and various other persons were recorded by the Central Excise Authorities 31.3.2005 and the books of account of the appellant company were already closed for the purposes of Companies Act. Therefore, the surrender/disclosure made in the statement can not have any effect on the book profit of the appellant for the purposes of Companies Act. Further, the Hon''ble Supreme Court in the case of Malayala Manorama Co. Ltd. Vs. Commissioner of Income Tax, Trivandrum, has held ".... It is, therefore, not open to the Assessing Officer to rescrutinize the accounts and satisfy that these accounts have been maintained in accordance with the provisions of the Companies Act. While computing the income of a company under section 115J, the Assessing Officer has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to that section. The Assessing Officer does not have jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J.

In view of the above, the addition made by the A.O. is, therefore, hereby deleted."

It is stated that such decision of the Commissioner was not challenged by the Revenue and has, thus, become final.

On the basis of such facts, the learned Senior Counsel Shri Manish Bhatt for the Department contended 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 under section 115JB of the Act. He submitted that the decision of Delhi High Court in the case of Commissioner of Income Tax Vs. Nalwa Sons Investments Ltd., , would not apply. In any case, he also made an attempt to persuade us to take a view different from that taken in Delhi High Court case.

On the other hand, learned counsel Shri Himani opposed the appeals contending that the Tribunal committed no error. The situation is covered by the decision of the Delhi High Court in the case of Nalwa Sons Investments Ltd. (supra). In the present case, the Commissioner in his order dated November 14, 2008 deleted the additions for computation of book profit.

Having thus heard the learned counsel for the parties, we notice that under section 271 of the Act, if the Income-tax Authority prescribed therein is satisfied that if any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay penalty, which shall not be less than but shall not exceed three times of the amount of tax sought to be avoided by the reasons of the concealment of the particulars of his income or furnishing of inaccurate particulars of such income. Clause (c) of Explanation 4 to section 271(1) of the Act provides that for the purpose of clause 3 of the said sub-section, the expression ''amount of tax sought to be avoided'' means the difference between 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. It is in context of such penalty provisions we have to examine the view of the Tribunal bearing in mind the facts of the case. If, therefore, 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) of the Act, 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. We have noticed that clause (c) thereof when applied to such a case, the amount of tax sought to be avoided would be ''Nil''. If this is so, the penalty under section 271(1)(c) of the Act would not be possible to be imposed. This is precisely what the Delhi High Court also held in the case of Nalwa & Sons Investments Ltd. (supra). It was observed as under:

"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 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 and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all.

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."

In the present case, we have noticed that the Commissioner in his order dated November 14, 2008, partially allowed the assessee''s appeal in terms of quantum addition and in terms held that no addition for the purpose of computation of book profit under section 115JB of the Act could have been made. The Commissioner in order to come to such conclusion relied on the decision of the Supreme Court in the case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi, and Malayala Manorama Co. Ltd. Vs. Commissioner of Income Tax, Trivandrum, , in which it is held that it is not open for the Assessing Officer to rescrutinize the accounts and satisfy that the accounts have been maintained under the provisions of the Companies Act. While computing the income of a company under the provision for minimum alternative tax, the Assessing Officer has only the power of examining whether the books of account are certified by the authorities under the Companies Acts as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided in the Explanation to such provision.

To this proposition of the Commissioner, we have serious doubt. In a case like this, when the assessee concealed certain income not only for the purpose of avoiding excise duty, but also income-tax, we wonder whether the provisions of section 115JB of the Act would prevent the Revenue Authorities from making suitable additions not only in the normal computation, but also for computing book profit for minimum alternative tax. We also wonder whether the decisions of the Supreme Court in the case Apollo Tyres Ltd. (supra) and Malayala Manorama Co. Ltd. (supra) lay down such a proposition. When the assessee holds back certain facts even from the statutory auditors, we wonder whether their certification that the accounts have been maintained as required under the Companies Act would be final and it would be impermissible for the Assessing Officer to go behind that. Such issue, however, we would answer in an appropriate case as and when such facts are presented before us. In the present case, we shall have to proceed on the basis that the order of Commissioner has become final. It is, thus, binding both on the Revenue as well as the assessee. Such order in effect was that addition for normal computation sustained, for the purpose of computation of book profit deleted. The result of this decision of the Commissioner would be that the tax that the assessee would pay before and after additions would remain exactly the same. In other words, since the Commissioner did not permit any increase in the assessee''s book profit computation under section 115JB of the Act, even after unearthing the concealed income, the assessee ended up paying the same amount of minimum alternative tax under section 115JB of the Act even after the concealments were unearthed and accepted by the assessee. It is in this background, our discussion on the implication of Explanation 4 to section 271(1) of the Act 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. We may clarify that our conclusions should not be seen as laying down, that simply because before and after the additions the assessee remained a MAT company and paid tax under section 115JB of the Act or such similar provision, that by itself would mean that no penalty could be imposed. If the effect of the addition of the concealed income results into higher minimum alternative tax by increasing the book profit also, penalty could as well be imposed. With this clarification, we answer the question against the Revenue.

Resultantly, the Tax Appeals are dismissed. Notice is discharged. There shall be, however, no order as to costs.