2011 (3) TMI 859 - AT - Income Tax

Penalty u/s 221(1) - Assessee in default - Survey - There is no dispute about the fact that the assessee has not paid any advance tax nor had filed the return for the A.Y. 2007-08 till the date of survey though the same was due on 30.11.2007 - Though the assessee was showing good sales there was a serious crunch in the liquidity as the payments were not coming - assessee has paid tax to the extent of income declared in revised return - It is argued that sufficient safeguards are provided in the Act to compensate the revenue by way of the payment of the interest in case the assessee fails to make the payment on the due dates - Held that A.O. is directed the re-compute the penalty payable u/s.221(1) as self assessment tax under sec. 140A is to be worked out on the income declared in the revised returns if said returns have been acted upon by the A.O - Decided in the favour of assessee by way of remand

Summary

Issues:
Challenging penalty under section 221(1) of the Income-tax Act for non-payment of due tax.

Analysis:
The appeals were filed challenging the penalty levied by the Assessing Officer under section 221(1) of the Income-tax Act for non-payment of due tax. The assessee, engaged in realty and civil construction business, did not pay advance tax for the relevant assessment years. Despite substantial sales, the assessee failed to pay self-assessment tax, leading to penalties. The assessee cited financial crunch due to a crisis in the real estate market and a provisional attachment order as reasons for non-payment. However, the Assessing Officer rejected these arguments. The assessee's reliance on a Supreme Court decision for waiver of interest was also dismissed by the authorities. The case was appealed before the tribunal.

The tribunal considered the facts, including the survey action, revised returns filed by the assessee, and the financial situation of the company. The tribunal noted that the assessee had sufficient liquidity based on the balance sheets for the relevant financial years. The tribunal rejected the contention that financial crunch was a valid reason for non-payment of taxes. However, regarding the revised returns, the tribunal directed the Assessing Officer to recompute the penalty based on the revised income declared, if the revised returns were considered valid. If not, the penalty should not exceed 5% of the tax due but not paid under section 140A. The tribunal allowed the appeals for statistical purposes.

The tribunal emphasized the discretionary power of the Assessing Officer to levy penalties under section 221(1) when an assessee defaults in tax payment. It highlighted the importance of providing a reasonable opportunity for the assessee to be heard before levying any penalty. The tribunal's decision focused on the specific circumstances of the case, including the financial position of the assessee and the validity of the revised returns.