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2011 (9) TMI 111 - AT - Income TaxQuashing / deleting the penalty u/s 221(1) holding that no proper opportunity has been given to the assessee before imposing the penalty. - The AO should wait for finalization of quantum appeal u/s 201(1) up to ITAT state and then impose penalty if any arises.- Demand notice u/s 156 for outstanding demand was not served on the assessee and, therefore, the assessee cannot be deemed to be an assessee in default. Regarding no proper opportunity of being heard given to Assessee. - held that - AO had issued notice on 30th Nov.09 asking the assessee to deposit the amount by 7/12/2009. The assessee sent reply dated 11/12/2009 explaining its financial difficulties. Therefore, we do not find any substance in the contention of the assessee that no proper opportunity of being heard was provided before imposition of penalty. Regarding notice u/s 156. - Held that - Assessee was deemed to be in default in respect of TDS u/s 200 & not in consequence of an order passed by AO for which demand notice u/s 156. decided against Assessee. Imposition of penalty by AO. - Held that - There is no provision of law to wait for finalization of the quantum appeal before levying penalty. decided against Assessee.
Issues Involved:
1. Quashing/deleting the penalty imposed under section 221(1) due to lack of proper opportunity given to the assessee. 2. Whether the assessing officer should wait for the finalization of the quantum appeal under section 201(1) up to ITAT stage before imposing the penalty. Detailed Analysis: 1. Quashing/Deleting the Penalty Imposed Under Section 221(1): Facts and Arguments: - The assessee was engaged in manufacturing and retail sale of kids' garments and was required to deduct tax at source under various sections of Chapter XVII-B of the Income Tax Act. - A survey operation revealed that the assessee deducted tax at source but did not deposit it within the stipulated time, citing financial crunch. - The assessing officer imposed a penalty of Rs. 5,17,712/- under section 221(1) for non-payment of the deducted tax. - The assessee contended that no proper show cause notice was served before the penalty order, and no demand notice under section 156 was issued. Findings: - The CIT (Appeals) quashed the penalty, noting that the penalty order was passed without giving proper opportunity of being heard. - The Tribunal noted that the assessing officer had issued a notice on 30th November 2009, and the assessee responded on 11th December 2009, indicating financial difficulties. - The Tribunal concluded that the assessee was given an opportunity of being heard, and the penalty was justified as the assessee failed to pay the deducted tax within the prescribed time. - The Tribunal rejected the argument that a demand notice under section 156 was required, stating that the liability to pay tax deducted at source arises by operation of law, not by an order passed under the Act. Conclusion: - The Tribunal set aside the order of the CIT (Appeals) and restored the penalty imposed by the assessing officer, holding that the penalty under section 221(1) was correctly levied. 2. Whether the Assessing Officer Should Wait for Finalization of Quantum Appeal Under Section 201(1) Up to ITAT Stage Before Imposing the Penalty: Facts and Arguments: - The CIT (Appeals) observed that the assessing officer should have waited for the finalization of the quantum appeal under section 201(1) up to the ITAT stage before imposing the penalty. - The Revenue contended that there is no provision in the IT Act, 1961, that requires waiting for the ITAT's decision before imposing a penalty under section 221(1). Findings: - The Tribunal noted that no appeal was filed against the order under section 201(1) before the ITAT. - It was held that the observation of the CIT (Appeals) was contrary to the provisions of section 221(2), which allows for the cancellation of the penalty if the tax amount is reduced as a result of any final order. Conclusion: - The Tribunal set aside the observation of the CIT (Appeals) and held that the assessing officer was not required to wait for the finalization of the quantum appeal under section 201(1) before imposing the penalty. Cross Objection by the Assessee: Grounds and Findings: - The assessee raised several grounds in the cross objection, including the lack of proper opportunity before imposing the penalty and the non-issuance of a demand notice under section 156. - The Tribunal dismissed these grounds, reiterating that the assessee was given an opportunity to be heard and that the liability to pay the deducted tax arises by operation of law, not by an order requiring a demand notice under section 156. Final Decision: - Both appeals filed by the Revenue were allowed. - The cross objection filed by the assessee was dismissed.
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