2014 (4) TMI 340 - AT - Income Tax

Deletion of penalty u/s 221(1) of the Act Return filed without paying the tax liability - Held that - The fact is evident from the provisions of section 221(1) of the Act, wherein, not only the opportunity of being heard has been provided to the assessee but also the AO has been vested with power to not impose penalty if assessee proves to the satisfaction of the AO that the default was for good and sufficient cause - the assessee has explained the cause for not paying the admitted tax at the time of filing of return. -The cause shown by the assessee cannot be brushed aside - the assessee has paid a total amount towards admitted tax liability and interest u/s 234B & 234C of the Act thus, there is no prejudice to the department since the assessee has not only discharged the tax liability but has also paid the interest - the action of the CIT(A) in deleting the penalty upon considering the explanation of the assessee cannot be faulted with, as there was a reasonable cause for not paying the admitted tax liability at the time of filing of return of income thus, there is no reason to interfere with the order of the CIT(A) Decided against Revenue.

Summary

Issues:
Deletion of penalty imposed u/s 221(1) of the IT Act.

Analysis:
The appeal was filed by the Revenue against the order of the CIT(A)-IV, Hyderabad concerning the assessment year 2010-11. The sole issue in this case pertained to the deletion of the penalty imposed under section 221(1) of the IT Act. The assessee, engaged in construction business, filed its return without paying the admitted tax liability, leading to the imposition of a penalty. The Assessing Officer imposed a penalty of Rs. 26,07,117/- under section 221(1) of the IT Act due to the failure to pay the tax liability. The assessee contended that financial hardships, including a decline in sales and profits due to market conditions, prevented timely payment of taxes, arguing against the imposition of the penalty. The CIT(A) deleted the penalty after considering the financial difficulties faced by the assessee and the genuine reasons provided for the delay in tax payment.

During the appeal hearing, the assessee argued that due to eligibility for deduction u/s 80IB(1), it was not liable to tax under normal provisions but under section 115JB of the IT Act. The assessee highlighted the adverse impact of market conditions on its business, leading to a significant drop in sales and profits. The assessee faced cash flow issues, making it challenging to meet tax obligations, especially with funds tied up in business investments. Despite attempts to sell land assets, market conditions hindered the process. The assessee contended that the failure to pay taxes was due to genuine financial constraints, not willful non-compliance. The CIT(A) considered these arguments and judicial precedents, ultimately ruling in favor of the assessee by deleting the penalty.

The ITAT Hyderabad, after reviewing all submissions and records, upheld the CIT(A)'s decision to delete the penalty. The ITAT emphasized that under section 221(1) of the Act, the imposition of the penalty is discretionary, not automatic or mandatory. The assessee's explanation for the delayed tax payment was deemed reasonable, especially since the tax liability and interest were eventually paid. The ITAT concluded that there was a valid cause for the delay in tax payment, supporting the CIT(A)'s decision to delete the penalty. Consequently, the appeal by the Department was dismissed, affirming the order of the CIT(A) to delete the penalty.