My company was finally assessed on book profit under section 115JB. Can the officer still levy concealment penalty on a disallowance he made in the normal computation?
No. The Delhi High Court held that where the assessment is finally made on book profit under section 115JB because that figure is higher, a disallowance in the normal computation produces no additional tax and so there is no amount of tax sought to be evaded within Explanation 4 to section 271(1)(c). The Court accepted that the assessee had made a false claim of depreciation on machinery it could not show it had used, and it disagreed with the reasons the Commissioner (Appeals) and the Tribunal had given. It still upheld the deletion of penalty, because the concealment had no role to play once tax was charged on book profit.
Decided by the High Court (High Court of Delhi at New Delhi - Hon'ble Mr Justice A.K. Sikri and Hon'ble Ms Justice Reva Khetrapal; judgment by A.K. Sikri, J) on 2010-08-26, reported as ITA No. 1420/2009 (Delhi High Court). It bears on section 271(1)(c), section 115JB, section 80HHC of the Income Tax Act 1961, in Penalty and Assessment & Scrutiny matters.
This is the authority for the proposition that concealment penalty follows the base on which tax is actually charged. It is the answer to a penalty order that adds up disallowances in the normal computation while the assessee has paid tax under the minimum alternate tax provisions, and it is worth noting that the Court reached that result even though it found the depreciation claim false - which makes it a holding on the quantification machinery rather than a finding of innocence. It also shows how Gold Coin Health Care is confined: that decision establishes that penalty can be levied where the return shows a loss, but it does not touch the case where the normal computation is not acted upon at all. Because the tax finally paid is unaffected, the Explanation 4 measure is nil and there is nothing to multiply.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 2001-02 the assessee filed a return declaring a loss of Rs 43.47 crore and then a revised return showing income of Rs 3,86,82,128 under section 115JB. The assessment under section 143(3) determined a loss of Rs 36,95,21,018 under the normal provisions and book profit of Rs 4,01,63,180 under section 115JB, and recorded that the assessee was assessed at the book profit figure, being the higher of the two. Three additions were made: depreciation of Rs 32,51,906 disallowed because the plant and machinery was brought on the books on 31 March 2001 and the assessee, though specifically asked, produced no evidence that it had been put to use; Rs 3,030 for provident fund paid beyond the due date; and a deduction under section 80HHC refused because losses on manufactured and traded exports had not been set against the incentives. Penalty of Rs 90,97,415 was levied under section 271(1)(c). The Commissioner (Appeals) cancelled it, following his own order for 1999-2000, and the Tribunal affirmed. The Revenue appealed under section 260A.
The appeal was dismissed and the Tribunal's order sustained, but on different grounds. On the provident fund item of Rs 3,030 the Court declined to interfere given the trifling amount. On section 80HHC it upheld the deletion because the question whether the deduction was allowable where the export result was negative was debatable at the time, other High Courts having taken a different view from the Bombay High Court in IPCA Laboratories, and penalty cannot be levied where two opinions prevailed. On depreciation the Court agreed with the Revenue that the Commissioner (Appeals) and the Tribunal had missed the real point: the assessee had claimed depreciation on machinery entered in the books on the last day of the year, had asserted user, and had produced no evidence of user when asked, so the claim as projected turned out to be false and the appellate authorities had scuttled the issue. Penalty was nevertheless cancelled on that item too, because the assessment was made under section 115JB and not under the normal provisions, so the concealment had no effect on the tax payable.
Penalty under section 271(1)(c)(iii) is quantified as a multiple of the amount of tax sought to be evaded, and Explanation 4 defines that expression as, in the ordinary case, the difference between the tax on the total income assessed and the tax that would have been chargeable had that total income been reduced by the concealed amount. Under the scheme of the Act the total income is first computed under the normal provisions and the tax on it compared with the prescribed percentage of book profit under section 115JB; the higher figure is taken and tax is charged on it. Here the normal computation produced a loss of about Rs 36.95 crore and the book profit was Rs 4,01,63,180, so the assessment order recorded the assessee as assessed under section 115JB, being the higher of the two. Gold Coin Health Care, on which the Revenue relied, decides that penalty can be levied even where the return shows a loss and the addition merely reduces that loss, because the tax sought to be evaded is then the tax on the concealed income as if it were the total income; it does not address a case where the normal computation is displaced altogether. Applying the Explanation 4 measure to the facts, the disallowances affected only a computation that was not acted upon. Tax was paid on the deemed income, in the computation of which the concealment played no part, so no tax was sought to be evaded.
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.
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Handle my notice → Ask a CA on WhatsAppNo. The Delhi High Court held that where the assessment is finally made on book profit under section 115JB because that figure is higher, a disallowance in the normal computation produces no additional tax and so there is no amount of tax sought to be evaded within Explanation 4 to section 271(1)(c). The Court accepted that the assessee had made a false claim of depreciation on machinery it could not show it had used, and it disagreed with the reasons the Commissioner (Appeals) and the Tribunal had given. It still upheld the deletion of penalty, because the concealment had no role to play once tax was charged on book profit. This was decided by the High Court (High Court of Delhi at New Delhi - Hon'ble Mr Justice A.K. Sikri and Hon'ble Ms Justice Reva Khetrapal; judgment by A.K. Sikri, J) and bears on section 271(1)(c), section 115JB, section 80HHC of the Income Tax Act 1961. It is reported as ITA No. 1420/2009 (Delhi High Court). This is the authority for the proposition that concealment penalty follows the base on which tax is actually charged. It is the answer to a penalty order that adds up disallowances in the normal computation while the assessee has paid tax under the minimum alternate tax provisions, and it is worth noting that the Court reached that result even though it found the depreciation claim false - which makes it a holding on the quantification machinery rather than a finding of innocence. It also shows how Gold Coin Health Care is confined: that decision establishes that penalty can be levied where the return shows a loss, but it does not touch the case where the normal computation is not acted upon at all. Because the tax finally paid is unaffected, the Explanation 4 measure is nil and there is nothing to multiply. If it applies to you, the first step is this: Check the last line of the assessment order first: if it says assessed under section 115JB as the higher of the two, take the point that additions in the normal computation cannot support penalty.
For assessment year 2001-02 the assessee filed a return declaring a loss of Rs 43.47 crore and then a revised return showing income of Rs 3,86,82,128 under section 115JB. The assessment under section 143(3) determined a loss of Rs 36,95,21,018 under the normal provisions and book profit of Rs 4,01,63,180 under section 115JB, and recorded that the assessee was assessed at the book profit figure, being the higher of the two. Three additions were made: depreciation of Rs 32,51,906 disallowed because the plant and machinery was brought on the books on 31 March 2001 and the assessee, though specifically asked, produced no evidence that it had been put to use; Rs 3,030 for provident fund paid beyond the due date; and a deduction under section 80HHC refused because losses on manufactured and traded exports had not been set against the incentives. Penalty of Rs 90,97,415 was levied under section 271(1)(c). The Commissioner (Appeals) cancelled it, following his own order for 1999-2000, and the Tribunal affirmed. The Revenue appealed under section 260A. The matter was decided on 2010-08-26 by the High Court (High Court of Delhi at New Delhi - Hon'ble Mr Justice A.K. Sikri and Hon'ble Ms Justice Reva Khetrapal; judgment by A.K. Sikri, J). On those facts the High Court held as follows. The appeal was dismissed and the Tribunal's order sustained, but on different grounds. On the provident fund item of Rs 3,030 the Court declined to interfere given the trifling amount. On section 80HHC it upheld the deletion because the question whether the deduction was allowable where the export result was negative was debatable at the time, other High Courts having taken a different view from the Bombay High Court in IPCA Laboratories, and penalty cannot be levied where two opinions prevailed. On depreciation the Court agreed with the Revenue that the Commissioner (Appeals) and the Tribunal had missed the real point: the assessee had claimed depreciation on machinery entered in the books on the last day of the year, had asserted user, and had produced no evidence of user when asked, so the claim as projected turned out to be false and the appellate authorities had scuttled the issue. Penalty was nevertheless cancelled on that item too, because the assessment was made under section 115JB and not under the normal provisions, so the concealment had no effect on the tax payable.
Penalty under section 271(1)(c)(iii) is quantified as a multiple of the amount of tax sought to be evaded, and Explanation 4 defines that expression as, in the ordinary case, the difference between the tax on the total income assessed and the tax that would have been chargeable had that total income been reduced by the concealed amount. Under the scheme of the Act the total income is first computed under the normal provisions and the tax on it compared with the prescribed percentage of book profit under section 115JB; the higher figure is taken and tax is charged on it. Here the normal computation produced a loss of about Rs 36.95 crore and the book profit was Rs 4,01,63,180, so the assessment order recorded the assessee as assessed under section 115JB, being the higher of the two. Gold Coin Health Care, on which the Revenue relied, decides that penalty can be levied even where the return shows a loss and the addition merely reduces that loss, because the tax sought to be evaded is then the tax on the concealed income as if it were the total income; it does not address a case where the normal computation is displaced altogether. Applying the Explanation 4 measure to the facts, the disallowances affected only a computation that was not acted upon. Tax was paid on the deemed income, in the computation of which the concealment played no part, so no tax was sought to be evaded. In the words reproduced by the source cited on this page: "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."
It was decided by the High Court on 2010-08-26 and is reported as ITA No. 1420/2009 (Delhi High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 271(1)(c), section 115JB, section 80HHC, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed and the Tribunal's order sustained, but on different grounds. On the provident fund item of Rs 3,030 the Court declined to interfere given the trifling amount. On section 80HHC it upheld the deletion because the question whether the deduction was allowable where the export result was negative was debatable at the time, other High Courts having taken a different view from the Bombay High Court in IPCA Laboratories, and penalty cannot be levied where two opinions prevailed. On depreciation the Court agreed with the Revenue that the Commissioner (Appeals) and the Tribunal had missed the real point: the assessee had claimed depreciation on machinery entered in the books on the last day of the year, had asserted user, and had produced no evidence of user when asked, so the claim as projected turned out to be false and the appellate authorities had scuttled the issue. Penalty was nevertheless cancelled on that item too, because the assessment was made under section 115JB and not under the normal provisions, so the concealment had no effect on the tax payable. It arises in Penalty and Assessment & Scrutiny matters, on section 271(1)(c), section 115JB, section 80HHC of the Income Tax Act 1961, and was decided by High Court of Delhi at New Delhi - Hon'ble Mr Justice A.K. Sikri and Hon'ble Ms Justice Reva Khetrapal; judgment by A.K. Sikri, J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Take the point even where the disallowance itself is indefensible - this Court found the depreciation claim false and still cancelled the penalty. Meet Gold Coin Health Care head on by pointing out it deals with a return showing a loss where the normal computation is acted upon, not with an assessment made on book profit. Check whether the same item was also adjusted in computing book profit; if it was, the argument does not run, and note that later amendments to the penalty provisions may have changed the position for recent years.
Superseded by amendment. The reasoning is sound but the provision it construes has been changed, and the change is the first thing to check before citing it. Explanation 4 to s.271(1)(c) was substituted by the Finance Act 2015 with effect from 1 April 2016; as the Mumbai Tribunal put it in Flemmingo Travel Retail Ltd v DCIT (7 August 2020) at para 11, under the substituted Explanation and its formula '(A - B) + (C - D)', 'w.e.f Asst. Year 2016-17, even in a case where there are certain additions/disallowances under the normal provisions of the Act, penalty u/s 271(1)(c) can be imposed', the explanatory notes saying penalty can follow 'even if the tax liability of the assessee for the year has been determined under provisions of section 115JB'. So the holding - that where the assessment is finally made on book profit the disallowance in the normal computation yields no tax sought to be evaded - governs assessment years up to 2015-16 and not after. For those earlier years it holds well: the Bombay High Court in Pr.CIT-1 v Killick Nixon Ltd (12 March 2019) upheld the deletion of penalty where the Tribunal had relied on it together with CBDT Circular of 31 December 2015, finding 'no question of law arisen'; the Delhi High Court applied the same reasoning in Unison Hotels Ltd v DCIT (10 October 2013) and the Gujarat High Court in CIT-I v Cadila Pharmaceuticals (5 May 2014). Note also that the Revenue's SLP was dismissed on 4 May 2012 (SLP (Civil) No. 18564/2011) - a dismissal, which under Kunhayammed adds nothing to the judgment's authority. A citedby search returns 116 later decisions. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line carried no reporter citations, so the case number from the judgment's own first page is used. The judgment records the argument at paragraph 19 that under Apollo Tyres the Assessing Officer could not have disturbed the depreciation figure in the book profit computation, but the Court does not decide anything on that point and it is not relied on here. The provident fund disallowance is described in the assessment as being under section 2(24)(x) but the point was not adjudicated because of the small amount, and counsel for the Revenue asserted the amount was never paid at all, a dispute the Court expressly left open. The order of the Commissioner (Appeals) for 1999-2000, extracted in the judgment, was not read separately. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed and the Tribunal's order sustained, but on different grounds. On the provident fund item of Rs 3,030 the Court declined to interfere given the trifling amount. On section 80HHC it upheld the deletion because the question whether the deduction was allowable where the export result was negative was debatable at the time, other High Courts having taken a different view from the Bombay High Court in IPCA Laboratories, and penalty cannot be levied where two opinions prevailed. On depreciation the Court agreed with the Revenue that the Commissioner (Appeals) and the Tribunal had missed the real point: the assessee had claimed depreciation on machinery entered in the books on the last day of the year, had asserted user, and had produced no evidence of user when asked, so the claim as projected turned out to be false and the appellate authorities had scuttled the issue. Penalty was nevertheless cancelled on that item too, because the assessment was made under section 115JB and not under the normal provisions, so the concealment had no effect on the tax payable.
TaxSphere, “CIT v Nalwa Sons Investments Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-nalwa-sons-investments-ltd/ (validity last checked 2026-08-29)
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