Despite concealment, no s. 271(1)(c) penalty if s. 115JB book profits assessed

CIT vs. Nalwa Sons Investment Ltd (Supreme Court)

Explanation 4 to section 271(1)(c) of the Income-tax Act, 1961 provides for levy of penalty even in a situation which has the effect of reducing the loss declared in the return or converting that loss into income. The Apex Court in the ruling of Gold Coin Health Food (P.) Ltd. [2008] 304 ITR 308 (SC) had laid laid down the rationale that ‘the tax sought to be evaded’ will mean the tax chargeable not as if it was the total income.

For AY 2001-02, the assessee filed a ROI declaring loss of Rs.43.47 crores under the normal provisions of the Act and book profits of Rs.3.86 crores u/s 115JB. The AO assessed a loss at Rs.36.95 crores as per normal provisions and book profits at Rs.4.01 crores. As there was a reduction in the loss under the normal provisions owing to various additions and disallownaces, the AO levied penalty u/s 271(1)(c) in accordance with with Explanation 4 & Gold Coin 304 ITR 308 (SC). Before the High Court, the assessee argued that even if there was a concealment u/s 271(1)(c) with respect to the normal assessment, the same was not relevant because the assessee’s income was assessed u/s 115JB. The High Court accepted the plea and held that as the s. 115JB “book profits” were by a legal fiction deemed to be the “total income”, the furnishing of wrong particulars had no effect on “the amount of tax sought to be evaded” as defined in Explanation 4 to s. 271(1)(c). On appeal by the department to the Supreme Court held that Delay condoned. The special leave petition is dismissed.




The Delhi High Court had held that “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 in the instant case. On the contrary, it was the deemed income assessed under section 115JB which had become the basis of assessment, as it was higher of the two. Tax was, thus, paid on the income assessed under section 115JB. Hence, when the computation was made under section 115JB, the aforesaid concealment had no role to play and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all.

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