ARVIVA INDUSTRIES (INDIA) LTD, NAVI MUMBAI V. ASST CIT 9(1), MUMBAI

ITA 7418/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2756 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 25-02-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 14-12-2012
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRA
• Keywords: Deemed to accrue or arise in india
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH , MUMBAI BEFORE SRI MAHAVIR SINGH, J M AND SRI RAMIT KOCHAR , A M ITA NO . 7418 AND 7419/MUM/2012 (A.YS:2003 - 04 & 2004 - 05 ) M/S. ARVIVA INDUSTRIES (INDIA) LTD., T/15, MIDC TALOJA, NAVI MUMBAI MUMBAI 410 218 VS. TH E ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 9 (1), AAYAKAR BHAVAN, 2 ND FLOOR, MUMBAI 400 020 AAACA 5076 H APPELLANT .. RESPONDENT APPELLANT BY SHRI PRAKASH JOTWANI, AR RESPONDENT BY SHRI A. RAMACHANDRA, DR DATE OF HEARING 16 - 06 - 2016 DATE OF PRON OUNCEMENT 08 - 0 7 - 2016 O R D E R PER MAHAVIR SINGH , JM : THESE TWO APPEALS BY THE ASSESSEE ARE ARISING OUT OF THE DIFFERENT ORDERS OF CIT (A) - 19 , MUMBAI PASSED IN APPEAL NO S . CIT (A) - 19 /IT .T - 274 & 175/9(1)/2012 - 13 , BOTH OF EVEN DATE 08 - 10 - 2012 . IN BO TH THE CASES , ASSESSMENTS WERE FRAMED BY THE DC IT , CIRCLE - 8(1) , MUMBAI FOR THE ASSESSMENT YEAR S 2003 - 04 AND 2004 - 05 VIDE HIS ORDERS DATED 16 - 02 - 2006 AND 13 - 12 - 2006 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE (ACT). PENA LTIES UNDER DISPUTE WERE LEVIED BY THE ACIT, CIRCLE - 9(1) U/S 271(1) (C) OF THE ACT VIDE HIS ORDERS , BOTH DATED 24 - 03 - 2011. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE FACTS AND CIRCUMSTANCES ARE EXACTLY IDENTICAL IN BOTH THE YEARS IN REGARD TO LEVY OF PENALTY BY THE AO U/S 271 (1) (C) OF THE ACT. IDENTICAL GROUNDS ARE RAISED BY THE ASSESSEE AND IDENTICAL ORDERS ARE PASSED BY THE CIT (A) , HENCE, WE PASS THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . 2 . THE ONLY ISSUE IN THESE APPEALS OF A SSESSEE IS AS REGARDS TO THE ORDERS OF CI T (A) CONFIRMING LEVY OF PENALTIES U/S 271 (1) (C) OF THE ACT ON THE ISSUE S OF PROVISIONS FOR LEAVE ENCASHMENT AND PROVISIONS FOR GRATUITY ADDED BACK TO BOOK PROFIT U/S 115JB OF THE ACT. ITA NO. 7418 & 7419 /MUM/20 1 2 2 3 . BRIEFLY ST ATED, THE FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRAD ING IN TEXTILE SUITING AND SHIRTING FABRICS. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHILE OBSERVING FROM THE ACCOUNTS OF THE ASSESSEE, NOTICED THAT THE ASSESSEE MADE PROVISIONS OF RS.2,73,007/ - ON ACCOUNT OF LEAVE ENCASHMENT AND PROVISIONS FOR GRATUITY AMOUNTING TO RS.6,90,677/ - . ACCORDING TO THE AO, THESE PROVISIONS ARE NOT MADE ON THE BASIS OF ACTUARIAL PROVISIONS AS PER ACCOUNTING STANDARD - 9 (AS - 9). AC CORDING TO THE AO, THE METHOD ADOPTED BY THE ASSESSEE , FOR EXACT VALUATION OF LIABILIT IES, WAS NOT SCIENTIFIC ONE AND THE LIABILITY ON THESE TWO COUNTS CANNOT BE SAID TO HAVE ACCRUED DURING THE YEAR. ACCORDINGLY, AO HAS NOT TOUCHED THE NORMAL COMPUTATION O F BUSINESS PROFIT AND ACCEPTED THE SAME AS PER COMPUTATION OF INCOME FILED BY THE ASSESSEE FOR THE REASON THAT THE ASSESSEE ITSELF HAS ACCOUNTED FOR THESE TWO PROVISIONS IN THE COMPUTATION OF INCOME AND TAXES ARE PAID ON THE SAME. HOWEVER, THE ASSESSEE HAS NOT INCLUDED THESE TWO PROVISIONS WHILE COMPUTING BOOK PROFITS AND HENCE , THE AO ADDED THESE TWO PROVISIONS WHILE COMPUTING BOOK PROFITS AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT. THE AO INITIATED PENALTY PROCEEDINGS U/S 271 (1) (C) OF THE ACT IN RESPECT OF THE FOLLOWING ITEMS INCLUDING THESE TWO PROVISIONS: - I) AD - HOC MISCELLANEOUS EXP. RS. 60,000/ - II) ADDITION U/S 35D RS.73,57,252/ - III) PROVISION FOR LEAVE ENCASHMENT RS. 2,73,003/ - IV) PROVISION FOR GRATUITY RS. 6,53,688/ - 4 . L EARNED COUNSEL FOR THE ASSESSEE BEFORE US EXPLAINED THAT THE CIT (A) HAS DELETED THE LEVY OF PENALTY IN RESPECT TO OTHER ADDITIONS AND ONLY CONFIRM ED THE PENALTY IN RESPECT TO THESE TWO ITEMS I.E. PROVISION FOR LEAVE ENCASHMENT AND PROVISIONS FOR GRATUI TY ADDED BY THE AO WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THE AO LEVIED PENALTY FOR THE SIMPLE REASON THAT THE ASSESSEE HAS NOT ADDED BACK THE PROVISIONS TO THE BOOK PROFIT DESPITE THE FACT THAT THESE LIABILITIES HAVE NOT ACCRUED OR ASCERTAINED DURING THE YEAR. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A), WHO ALSO CONFIRMED THE LEVY OF PENALTY BY RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. NALWA SONS INVESTMENT LTD. [(2012) 21 TAXMANN.COM 184 (SC)]. AGGRIEVED AGAINST THE ORDER OF THE CIT (A) , CONFIRMING THE LEVY OF PENALTY, THE ASSESSEE CAME IN SECOND APPEAL BEFORE THE TRIBUNAL. 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND NOT THE DEPARTMENT AS HELD BY CIT(A). LD. COUNSEL TAKEN US THROUGH JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF NALWA SONS INVESTMENT LTD.(SUPRA) , ITA NO. 7418 & 7419 /MUM/20 1 2 3 WHEREIN THE HONBLE COURT HAS DEALT WITH THE ISSUE OF LE VYING OF PENALTY U/S. 271(1)( C) OF THE ACT, WHEN THE INCOME WAS ASSESSED U/S. 115 JB OF THE ACT. THE RELEVANT PARA 25 OF THE JUDGMENT READS 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 SETTINGS OFF THE CONCEALED INCOME AGAINST ANY LOSS INCURRED BY THE ASSESSEE UNDER OTH ER 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 I F 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 REPERCU SSIONS 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 AS SESSMENT 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. TH EREFORE, THE CONCEALMENT DID NOT LEAD TO TAX EVASION AT ALL. 6 . WE FIND THAT T HE CBDT HAS ISSUED CIRCULAR NO. 25/2015 DATED 31 - 12 - 2015 EXPLAINING THAT THE PURSUANT TO THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF NALWA SONS INVESTMENT LTD ( SUPRA) AND THE SUBSTITUTION OF EXPLANATION 4 OF SECTION 271 OF THE ACT WITH PROSPECTIVE EFFECT, IT IS NOW SETTLED POSITION THAT PRIOR TO 1 - 4 - 2016, WHERE THE INCOME - TAX PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT IS LESS THAN THE TAX PAYABLE ON THE BOOK PROFIT UNDER MAT PROVISIONS OF THE ACT, THEN PENALTY U/S. 271(1) ( C) OF THE ACT IS NOT ATTRACTED WITH REFERENCE TO ADDITIONS/DISALLOWANCES MADE UNDER THE NORMAL PROVISIONS OF THE ACT. THE CBDT HAS CLARIFIED THAT IN CASES PRIOR TO 1 - 4 - 2016, IF ANY ADJUSTMENT IS MADE IN THE INCOME COMPUTED FOR THE PURPOSE OF MAT, THEN THE LEVY OF PENALTY U/S. 271(1) ( C) OF THE ACT, WILL DEPEND ON THE NATURE OF ADJUSTMENT. THE CBDT HAS ALSO DIRECTED THE REVENUE AUTHORITIES THAT NO APPEAL MA Y HENCEFORTH BE FILED ON THIS GROUND AND APPEALS ALREADY FILED, IF ANY, ON THIS ISSUE BEFORE VARIOUS COURTS/TRIBUNALS MAY BE WITHDRAWN OR NOT PRESSED UPON. WE HAVE GONE THROUGH THE CBDT CIRCULAR AND THE SAME READS AS UNDER: - 'CIRCULAR NO. 25/2015 F.NO.279 /MISC./140/2015/ITJ GOVERNMENT OF INDIA MINISTRY OF FINANCE CENTRAL BOARD OF DIRECT TAXES NEW DELHI, 31ST DECEMBER, 2015 SUBJECT: PENALTY U/S 271(1)(C) WHEREIN ADDITIONS/DISALLOWANCES MADE UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT , 1961 BUT TAX LEVIED UNDER MAT PROVISIONS U/S 115JB/115JC, FOR CASES PRIOR TO A.Y. 2016 - 17 - REG. - SECTION 115JB OF THE ACT IS A SPECIAL PROVISION FOR LEVY OF MINIMUM AL TERNATE TAX ON COMPANIES, INSERTED BY FINANCE ACT 2000 WITH EFFECT FROM 1 - 4 - 2001. ITA NO. 7418 & 7419 /MUM/20 1 2 4 2. UNDER CLAUSE (III) OF SUB - SECTION (1) OF SECTION 271 OF THE ACT, PENALTY FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME IS DETERMINED BASED ON THE 'AMOUNT OF TAX SOUGHT TO BE EVADED' WHICH HAS BEEN DEFINED INTER - ALIA, AS THE DIFFERENCE BETWEEN THE TAX DUE ON THE INCOME ASSESSED AND THE TAX WHI CH WOULD HAVE BEEN CHARGEABLE HAD SUCH TOTAL INCOME BEEN REDUCED BY THE AMOUNT OF CONCEALED INCOME OR INCOME IN RESPECT OF WHICH INACCURATE PARTICULARS HAD BEEN FILED. 3. IN THIS CONTEXT, HON'BLE DELHI HIGH COURT IN ITS JUDGMENT DATED 26.8.2010 IN ITA NO. 1420 OF 2009 IN THE CASE OF NALWA SONS INVESTMENT LTD. (AVAILABLE IN NJRS AS 2010 - LL - 0826 - 2), HELD THAT WHEN THE TAX PAYABLE ON INCOME COMPUTED UNDER NORMAL PROCEDURE IS LESS THAN THE TAX PAYABLE UNDER THE DEEMING PROVISIONS OF SECTION 115JB OF THE ACT, THEN PENALTY UNDER SECTION 271(1)(C) OF THE ACT COULD NOT BE IMPOSED WITH REFERENCE TO ADDITIONS /DISALLOWANCES MADE UNDER NORMAL PROVISIONS. THE JUDGME NT HAS ATTAINED FINALITY. 4. SUBSEQUENTLY, THE PROVISIONS OF EXPLANATION 4 TO SUB - SECTION (1) OF SECTION 271 OF THE ACT HAVE BEEN SUBSTITUTED BY FINAN CE ACT , 2015, WHICH PROVIDE FOR THE METHOD OF CALCULATING THE AMOUNT OF TAX SOUGHT TO BE EVADED FOR SITUATIONS EVEN WHERE THE INCOME DETERMINED UNDER THE GENERAL PROVISIONS IS LESS THAN THE INCOME DECLARED FOR THE PURPOSE OF MAT U/S 115JB OF THE ACT. THE SUBSTITUTED EXPLANATION 4 IS APPLICABLE PROSPECTIVELY W.E.F. 01.04.2016. 5. ACCORDINGLY, IN VIEW OF THE DELHI HIGH COURT JUDGMENT AND SUBSTITUTION OF EXPLANATION 4 OF SECTION 271 OF THE ACT WITH PROSP ECTIVE EFFECT, IT IS NOW A SETTLED POSITION THAT PRIOR TO 1/4/2016, WHERE THE INCOME TAX PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT IS LESS THAN THE TAX PAYABLE ON THE BOOK PROFITS U/S 115JB OF THE ACT, THEN PENALTY UNDE R 271(1)(C) OF THE ACT, IS NOT ATTRACTED WITH REFERENCE TO ADDITIONS /DISALLOWANCES MADE UNDER NORMAL PROVISIONS. IT IS FURTHER CLARIFIED THAT IN CASES PRIOR TO 1.4.2016, IF ANY ADJUSTMENT IS MADE IN THE INCOME COMPUTED FOR THE PURPOSE OF MAT, THEN THE LEV Y OF PENALTY U/S 271(1)(C) OF THE ACT, WILL DEPEND ON THE NATURE OF ADJUSTMENT. 6. THE ABOVE SETTLED POSITION IS TO BE FOLLOWED IN RESPECT OF SECTION 115JC OF THE ACT ALSO. 7. ACCORDINGLY, THE BOARD HE REBY DIRECTS THAT NO APPEALS MAY HENCEFORTH BE FILED ON THIS GROUND AND APPEALS ALREADY FILED, IF ANY, ON THIS ISSUE BEFORE VARIOUS COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. THIS MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. 7 . IN TERM OF THE ABOVE, WE DELETE THE IMPUGNED PENALT IES LEVIED BY THE AO AND CONFIRMED BY THE CIT(A) . ACCORDINGLY, WE ALLOW THE SE APPEAL S OF THE ASSESSEE. 8 . I N THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON 08 /0 7 / 201 6 . SD/ - SD/ - ( RAMIT KOCHAR ) ( MAHAVIR SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI , DATED 08 / 7 / 201 6 LAKSHMIKANTA DEKA/SR.PS ITA NO. 7418 & 7419 /MUM/20 1 2 5 COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTA NT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT ( A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// ITA NO. 7418 & 7419 /MUM/20 1 2 6 DATE INITIAL DICTATION PAD ATTACHED WITH THE DRAFT ORDER YES 1. DRAFT DICTATED ON 17 - 06 - 16 LKD SR.PS 2. DRAFT PLACED BEFORE AUTHOR 2 0 - 06 - 16 / 7 - 7/16 LKD PP SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON 08/07/16 SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.