Pr. Commissioner Of Income Tax-2, Chandigarh v. M/S International Institute Of Neuro Sciences And Oncology Limited

Gurbax SinghIN THE HIGH COURT OF PUNJAB AND HARYANA AT 2017.08.19 11:46 CHANDIGARH ITA No. 102 of 2016 (O&M) Date of decision: 21.7.2017 Pr. Commissioner of Income Tax-2, Chandigarh ……Appellant Vs. M/s International Institute of Neuro Sciences and Oncology Limited …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE AMIT RAWAL Present: Ms. Urvashi Dhugga, Sr. Standing Counsel for the appellant- revenue. revenue. Mr. B.M.Monga, Advodcate with Mr. Rohit Kaura, Advocate for the respondent-assessee. for the respondent-assessee. Ajay Kumar Mittal,J. 1.This order shall dispose of ITA No.102 and 105 of 2016 as according to the learned counsel for the parties, both the appeals are against the common order dated 12.10.2015, Annexure A.4, passed by the Tribunal in cross appeals filed by the assessee and the revenue. The facts are being extracted from ITA No.102 of 2016. 2. ITA No.102 of 2016 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 12.10.2015, Annexure A.4, passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (in short, “the Tribunal”), in ITA No.1242/Chd/2012 for the assessment year 2005-06, claiming following substantial questions of law:- 1) Whether on the facts and in the circumstances of the case,the order of the Hon’ble ITAT is perverse in deleting thepenalty only by referring to the provisions of Section 115JB of the I.T. Act and by holding that as the assessee is beingassessed under section 115JB of the Act, penalty undersection 271(1)(c) of the Act cannot be levied whereas in theinstant case the income tax payable on total income ascomputed by the Assessing Officer under normal provisionsis more than the tax payable on book profit under section115JB of the Income Tax Act, 1961? 11) Whether on the facts and in the circumstances of the caseand in law, the learned ITAT was right in deleting the penaltylevied under section 271(1)(c) on addition of|<22,17,853/-on account of wrongly claimed expenses by the assessee andagainst the express mandate of the Act? In ITA No.105 of 2016, besides question No.(i) raised in ITANo.102 of 2016, the following additional questions of law have beenclaimed by the revenue:-| 1)Whether on the facts and in the circumstances of the|case, the Hon’ble ITAT is right in deleting the penaltylevied on account of addition ofe1,22,35,474/- madeby the Assessing Officer under section 40(a)(ia) for theassessment year 2005-06 whereas the assessee hasfailed to deposit the tax deducted prior to 28.2.2005 on|or before 31.3.2005 as per provisions effective forassessment year 2005-06 as amended by the Finance)Act 2008 effective trom April 2005? case, the Hon’ble ITAT is right in deleting the penaltylevied on account of addition ofe1,22,35,474/- madeby the Assessing Officer under section 40(a)(ia) for theassessment year 2005-06 whereas the assessee hasfailed to deposit the tax deducted prior to 28.2.2005 on|or before 31.3.2005 as per provisions effective forassessment year 2005-06 as amended by the Finance)Act 2008 effective trom April 2005? 11)Whether on the facts and in the circumstances of the|case, Hon’ble ITAT is right in deleting the penaltylevied on account of commission to doctors in view ofthe provisions of Section 69C of the Income Tax Act,196] 2case, Hon’ble ITAT is right in deleting the penaltylevied on account of commission to doctors in view ofthe provisions of Section 69C of the Income Tax Act,196] 2 4A few facts relevant for the decision of the controversyinvolved as narrated in ITA No.102 of 2016 may be noticed. Assessmentwas completed under section 143(3) of the Act on 24.12.2007 at an income ofd2,38,00,717/- by making various additions. Subsequently, theAssessing Officer levied the penalty under section 271(1)(c) of the Act of<70,00,000/- vide order dated 28.3.2011 on the following additions:- — 11)Whether on the facts and in the circumstances of the|case, Hon’ble ITAT is right in deleting the penaltylevied on account of commission to doctors in view ofthe provisions of Section 69C of the Income Tax Act,196] 2case, Hon’ble ITAT is right in deleting the penaltylevied on account of commission to doctors in view ofthe provisions of Section 69C of the Income Tax Act,196] 2 4A few facts relevant for the decision of the controversyinvolved as narrated in ITA No.102 of 2016 may be noticed. Assessmentwas completed under section 143(3) of the Act on 24.12.2007 at an income ofd2,38,00,717/- by making various additions. Subsequently, theAssessing Officer levied the penalty under section 271(1)(c) of the Act of<70,00,000/- vide order dated 28.3.2011 on the following additions:- — 1) Penalty levied on addition ofd1,22,35,474/- undersection 40(a)(ia) of the Act on account of late depositof TDS;section 40(a)(ia) of the Act on account of late depositof TDS; 11) Penalty levied on addition ofd11,13,777/- on accountof payment made through credit cards;of payment made through credit cards; 111)Penalty levied on disallowance ofd5,10,625/- (wrongclaim of depreciation ofY4,08,250/- on plant and.machinery and computer plus wrong claim of)corresponding interest of<1,02,375/- on loan); |claim of depreciation ofY4,08,250/- on plant and.machinery and computer plus wrong claim of)corresponding interest of<1,02,375/- on loan); | Iv)Penalty levied on disallowance ofd5,90,349/- (wrongclaim depreciation ofY3,62,500/- on plant andmachinery and office equipment and wrong claim of)corresponding interest of<1,87,849/- on loan); |claim depreciation ofY3,62,500/- on plant andmachinery and office equipment and wrong claim of)corresponding interest of<1,87,849/- on loan); | VvPenalty levied on disallowance ofd43,102/- (wrongclaim of depreciation on furniture and wrong claim ofcorresponding interest on loan);claim of depreciation on furniture and wrong claim ofcorresponding interest on loan); V1)Penalty levied on addition ofd62,862/- under section40A(3) of the Act;40A(3) of the Act; Vil)Penalty on addition ofe1,87,976/- on account of|employe’s contribution to provident fund/other fundsunder section 2(24)(x) read wth Section 36(1)(va) ofthe Act;employe’s contribution to provident fund/other fundsunder section 2(24)(x) read wth Section 36(1)(va) ofthe Act; V1l1)Penalty on addition ofd21,75,771/- on account ofcommission paid to the doctors.commission paid to the doctors. Against the order passed by the Assessing Officer, the assessee preferredappeal before the Commissioner of Income Tax (appeals) |CIT(A)]. Videorder dated 17.10.2012, Annexure A.3, the CIT(A) partly allowed theappeal by deleting the penalty levied in respect of additions at No. (1), (v1),(vil) and (viii) and confirming in respect of additions No.(i1), (111), Gv) and (v). Not satistied with the order, both the revenue and the assessee filedappeals before the Tribunal. The Tribunal vide consolidated order dated12.10.2015 allowed the appeal filed by the assessee and dismissed the onefiled by the revenue holding that the income was assessed under section115JB of the Act and hence the penalty under Section 271(1)(c) of the Actcould not be levied. Reliance was placed on the judgment of this court in CIT-I, Ludhiana vs. M/s Vardhman Acrylics Limited, ChandigarhRoad, Ludhianain ITA No.346 of 2013 decided on 4.8.2014 wherein it.was held that the assessment having been made under the provisions ofMAT under Section 115JB of the Act, penalty under Section 271(1)(c) ofthe Act could not be levied on addition and disallowance made in regularincome. Hence the instant appeals by the revenue. 4We have heard learned counsel for the parties. 5.The primary issue that arises for consideration in theseappeals is whether an assessee is’ liable for penalty under Section271(1)(c) of the Act in respect of individual disallowances especiallywhen it is being taxed under Section 115JB of the Act. CIT-I, Ludhiana vs. M/s Vardhman Acrylics Limited, ChandigarhRoad, Ludhianain ITA No.346 of 2013 decided on 4.8.2014 wherein it.was held that the assessment having been made under the provisions ofMAT under Section 115JB of the Act, penalty under Section 271(1)(c) ofthe Act could not be levied on addition and disallowance made in regularincome. Hence the instant appeals by the revenue. 4We have heard learned counsel for the parties. 5.The primary issue that arises for consideration in theseappeals is whether an assessee is’ liable for penalty under Section271(1)(c) of the Act in respect of individual disallowances especiallywhen it is being taxed under Section 115JB of the Act. 6.|The matter is no longer res-integra. The question regardinglevy of penalty under Section 271(1)(c) of the Act where tax was paid on >the basis of book profits determined under Section 115JB of the Act wasdecided by this Court inM/s Vardhman Acrylics Limited’scase (supra)|holding that no penalty under Section 271(1)(c) of the Act was leviable onany amount of expenses claimed by the assessee. The relevantobservations read thus:-| “5. The issue relating to levy of penalty under Section 271(1)(c) of the Act where tax was paid on the basis of book profits determined under Section 115JB of the Act was considered by the Delhi High Court in CIT vs. Nalwa Sons Investments Limited, (2010) 327 ITR 543. It was held that where the book profits were determined under section 115JB of the Act any amount of expenses claimed would not render the assessee liable to penalty under section 271(1) (c) of the Act on account of false claim of expenses. The relevant observations of the Delhi High Court read thus:- “The question, however, in the present case, would be, as to whether furnishing of such wrong particulars had any effect on 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.” It was also recorded:- “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.” We are fully in agreement with the view expressed in the aforesaid pronouncement.” It was also recorded:- “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.” We are fully in agreement with the view expressed in the aforesaid pronouncement.” poAdverting to the facts of the present case, a perusal of theorder passed by the Tribunal shows that it was pleaded before the Tribunalon behalf of the assessee that tax had been assessed under section 115JBof the Act since there were unabsorbed losses and depreciation related toearlier years. The tax was levied under the provisions of MAT undersection 115JB of the Act. Reliance was placed on the judgment of thisCourt 1nM/s Vardhman Acrylics Limited’scase (Supra) wherein it was|held that the assessment having been made under the provisions of MATunder Section 115JB of the Act, penalty under Section 271(1)(c) of theAct could not be levied on additions and disallowances made in regularincome. After examining the findings recorded by the CIT(A) and thematerial available on record, the Tribunal came to the conclusion that theratio of the judgment inM/s Vardhman Acrylics Limited’scase (supra)was applicable to the case of the assessee. Thus, the total penalty leviedby the Assessing Officer under section 271(1)(c) of the Act was deleted.The relevant findings recorded by the Tribunal read thus:-| “8. We have heard the learned representatives of both theparties, perused the findings of the authorities below andconsidered the material available on record. From thedocuments filed by the learned counsel for the assessee wesee that the assessee had gone in appeal till the stage of ITATagainst the quantum order of the relevant assessment year,which was decided by the Chandigarh Bench of the ITAT on24.7.2014 in ITA No.409 of 2010. Even the appeal effectorder placed on record giving effect to the order of the ITATshows that the regular income has been computed as nil.Since there were brought forward losses and depreciation, thereturn was filed declaring the income under the MAT and even after appeal effect, the income assessed under section115JB of the Act, the ratio laid down by the Hon’bleJurisdictional High Court of Punajb and Haryana High Courtin the case oT!M/s Vardhman Acrylics Limited(supra) is”squarely applicable to the case of the assessee. The Hon’blePunjab and Haryana High Court has relied upon the decisionof the Delhi High Court in the case of Nalwa SonsInvestments Limited (supra) whereby it has been held asunder: even after appeal effect, the income assessed under section115JB of the Act, the ratio laid down by the Hon’bleJurisdictional High Court of Punajb and Haryana High Courtin the case oT!M/s Vardhman Acrylics Limited(supra) is”squarely applicable to the case of the assessee. The Hon’blePunjab and Haryana High Court has relied upon the decisionof the Delhi High Court in the case of Nalwa SonsInvestments Limited (supra) whereby it has been held asunder: “Under the scheme of the Income Tax Act, 1961, the|total income of the assessee is first computed under thenormal provisions of the Act and tax payable on such totalincome is computed with the prescribed percentage of thebook profits computed under Section 115JB of the Act. Thehigher of the two amounts is regarded as total income and taxis payable with reference to such total income. If the taxpayable under the normal provisions is higher, such amountis the total income of the assessee, otherwise the book profitsare deemed as the total income of the assessee in terms ofSection 115JB of the Act. Where the income computed inaccordance with the normal procedure is less than the incomedetermined by legal fiction namely the book profits undersection 115JB of the Act and the income of the assessee isassessed under section 115JB and not under the normalprovision, the tax is paid on the income assessed undersection 115JB of the Act, concealment of income would haveno role to play and would not lead to tax evasion. Therefore,penalty cannot be imposed on the basis of disallowance oradditions made under the regular provisions.’ 5. In view of the above, we find that the assessee beingassessed under section 115 JB of the Act, the penalty undersection 271(1)(c) of the Act cannot be levied. In view of this,the total penalty levied by the Assessing Officer undersection 271(1)(c) of the Act is hereby deleted.”| 8.Learned counsel for the revenue has not been able to showany illegality or perversity in the findings recorded by the CIT(A) as wellas the Tribunal warranting interference by this Court. Thus, no substantialquestion of law arises. Consequently, both the appeals stand dismissed. July 21, 2017)Whether speaking/reasonedWhether reportable (Ajay Kumar Mittal)Judge (Amit Rawal)JudgeYes.Yes