The Simple Mysteries of Section 115JA, JB and Penalties Under Section 271 (1) (C)

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Chandigarh, India -- (SBWIRE) -- 02/16/2014 -- A company is expected to pay tax on the income computed according to the provisions of the income tax Act, but the profit and loss account of the company is prepared in accordance with provisions contained in the Companies Act. As a result a large number of companies that book profits as per their profit and loss account but do not pay any tax because income computed as per provisions of the income tax act has been shown as either nil, negative or insignificant. Such companies are showing book profits and declaring dividends to the shareholders but they were not paying any income tax. These companies are termed as Zero Tax companies.

Section 115JA was introduced with effect from assessment year 1997-98 to make them pay tax as would be applicable. According to this section, if the taxable income of a company computed under this Act, in respect of previous year 1996-97 and onwards is less than 30 % of its book profits, the total income of such company is chargeable to tax for the relevant previous year shall be deemed to an amount equal to 30 % of such book profits.

The Finance Act, 2000 has inserted section 115JB of the Income-tax Act, 1961, with effect from assessment year 2001-02 that provides for the for levy of Minimum Alternate Tax (MAT) on companies. Section 115JB conceptually differs from erstwhile section 115JA, which provided for MAT on companies, so far as it does not deem any part or the whole of book profit as total income. However, the new provision of section 115JB provides that if tax payable on total income is less than 7.5% of book profit, the tax payable under this provision shall be 7.5% of book profit.

Under Sec 115JB(4), every company to which this section applies is expected to furnish a report in Form 29B, as prescribed under rule 40B, from an accountant, certifying that the Book Profits has been computed in accordance with the provisions of Sec 115JB. This report has to be accompanied with the return of income filed under Sec 139(1) or 142(1)(i).

Penalty proceedings under 271(1)(c) can be initiated on two accounts:
- Concealment of particulars of income, and
- Providing/furnishing of inaccurate particulars of income. If proceedings are initiated on charge of concealment then penalty cannot be levied on account of furnishing inaccurate particulars of income and vice versa.

Therefore, a clear finding on the charge of penalty must be available. It is incumbent for the AO to state explicitly as to whether penalty is being levied for concealment of income or for furnishing of inaccurate particulars of income. If the AO is not able to do this then there will be an absence in finding and further orders would be taken as bad in law.

It is also necessary to understand the distinctions that exist between concealment of particulars of income and furnishing of inaccurate particulars of income. To conceal would mean to hide and furnish inaccurate particulars would imply providing wrong or incorrect information of particulars that have been provided. Accordingly, it is understood that mere rejection of a claim will not amount to furnishing of inaccurate particulars of income.

Where charge against assessee is concealment of particulars of income, the AO is required to establish that the assessee has not disclosed the particulars of income under the main provisions or in other words the burden is on the AO to establish the existence of the charge on the basis of material on record.

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