2014 (2) TMI 1219 - AT - Income Tax

Penalty levied u/s 221(1) - Penalty payable when tax in default - Held that - On examination of the entire gamut of circumstances, the fact that the assessee cleared its tax, interest and balance interest dues, leaving not even a rupee outstanding in dues, much before the AO triggered the penal provisions only goes to prove the assessee s fair intention. The fact that the assessee not being a habitual defaulter with no adverse history tainted on him goes to prove that the default was committed by it without any mala fide intention and under extreme dire circumstances.In these circumstances, we cannot subscribe to the views of the revenue authorities and sustain an action which is strictly technical. We, therefore, set aside the impugned order of the CIT(A) and direct the AO to cancel the penalty levied u/s 221(1) of the Income Tax Act. - Decided in favour of assessee

Summary

Issues:
Levy and sustaining of penalty under section 221(1) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Levy and sustaining of penalty under section 221(1)
The appeal was filed against the order of CIT(A) regarding the levy of a penalty of Rs. 20,20,710 under section 221(1) of the Income Tax Act, 1961. The assessee, a company, failed to pay the total tax liability of Rs. 80,82,840 by the due date, but cleared it by December 31, 2009. The Assessing Officer (AO) imposed the penalty after the assessee did not comply with the show cause notice. The CIT(A) upheld the penalty, stating that if the intention of the appellant was clear, they could have arranged money earlier. The assessee argued that the funds were advanced to group associates, got attached by the Income Tax Department, and were used to clear statutory dues. The AR contended that the assessee's financial position was never bad, and the default was due to unforeseen circumstances. The DR supported the revenue authorities, alleging that the assessee intentionally avoided paying tax dues. The ITAT examined the circumstances, emphasizing that the assessee cleared the dues before the department intervened, showing a bona fide intention. The ITAT referred to legal provisions and concluded that the penalty should be cancelled, as the assessee demonstrated good and sufficient reasons for the default without any mala fide intent. The ITAT set aside the CIT(A) order and directed the AO to cancel the penalty, citing the importance of substantial justice over technical considerations.

In conclusion, the ITAT allowed the appeal filed by the assessee, canceling the penalty levied under section 221(1) of the Income Tax Act.