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2010 (1) TMI 667 - AT - Income TaxPenalty u/s 221(1) of the Act - Provisions of the Act entail a reasonable opportunity being given to the assessee before levying the penalty u/s 221(1) of the Act - The assessee had pleaded that 42 per cent of the demand was paid and regarding the balance, the hearing of the appeal had concluded and the Commissioner (Appeals) had asked for remand report - The assessee was confident that majority of demands would be reduced pursuant to appeal effect and reduction in taxes - In the circumstances, there was justification in the plea of the assessee for the stay of recovery of balance demand - find merit in the plea of the assessee that in all such cases where the assessee proves to the satisfaction of Assessing Officer that the default, if any, was for good and sufficient reason, no penalty is leviable under the section - The Jt. CIT, Kurukshetra had granted the instalments to the assessee to pay the demand on 16-3-2009 and 25-3-2009. The assessee thus could not be held to be in default on 16-3-2009 i.e., the date on which the instalments were granted by the Jt. CIT - Thereafter, the assessee had filed an application for further stay of the demand as it was under the bona fide belief that it is entitled to substantial relief before the CIT (Appeals) where the appeal of the assessee was being adjudicated Find no justification in the order of the Assessing Officer holding the assessee to be in default under section 221(1) of the Act vide order dated 18-3-2009 - The ground of appeal raised by the Revenue to the extent of application of Explanation to section 221(1) of the Act is misconceived - Decided in favour of assessee.
Issues:
- Appeal against the order of CIT(A) under section 221(1) of the IT Act for assessment year 2006-07. Detailed Analysis: 1. Issue of Penalty Imposition under Section 221(1) of the IT Act: - The Revenue appealed against the CIT(A)'s order regarding the imposition of penalty under section 221(1) of the IT Act. The main contention was whether the CIT(A) was justified in allowing the appeal of the assessee despite the provision in the Explanation to section 221 that an assessee remains liable for penalties even after paying taxes before penalty imposition. 2. Facts of the Case: - The case involved a cooperative society of farmers running a sugar mill under the State Federation of Cooperative Sugar Mill. The assessment for the year 2006-07 resulted in a demand of Rs. 1,60,84,670, with adjustments made against refunds due. The Assessing Officer issued a notice for the remaining demand, leading to penalty imposition under section 221(1) of the IT Act. 3. Arguments Before CIT(A): - The assessee argued before the CIT(A) that the penalty was imposed without proper notice and that the application for stay of demand was pending. The assessee also highlighted that the default was due to good reasons and that the penalty was unjustified. 4. Legal Provisions and Interpretation: - Section 221(1) of the IT Act allows for penalties for default in tax payment, with provisions for a reasonable hearing before penalty imposition. The second proviso states that if the defaulter proves good reasons for the default, no penalty should be levied. The Explanation clarifies that paying taxes before penalty imposition does not absolve the assessee of penalty liability. 5. Decision and Rationale: - The ITAT found that the Assessing Officer failed to provide a hearing before imposing the penalty, contrary to the legal requirement. The assessee's plea that the default was for good reasons and the pending appeal that could reduce the demand were considered valid. The ITAT upheld the CIT(A)'s decision to cancel the penalty, emphasizing that the penalty was not levied due to tax payment but due to sufficient reasons for non-levy. 6. Conclusion: - The Revenue's appeal was dismissed as the ITAT found no justification for the penalty imposition under section 221(1) of the IT Act. The decision was based on the failure to provide a hearing, the good reasons for the default, and the pending appeal that could impact the demand amount. The ITAT upheld the CIT(A)'s decision to cancel the penalty, emphasizing the valid reasons for non-levy.
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