2014 (8) TMI 483 - AT - Income Tax

Penalty u/s 140A(3) Tax liability not paid but admitted - tax was paid while filing revised return u/s 139(5) - Held that - When the return is filed u/s 139 of the Act and if any assessee fails to pay the whole or any part of such tax or interest or both, he/she shall be deemed to be in default in respect of the tax or interest or both remaining unpaid and will suffer penalty as per law - though the assessee has not paid admitted tax at the time of filing of the original return, but this return was duly revised within the prescribed period u/s 139(5) of the Act and at the time of filing the return u/s 139(5) of the Act the admitted tax was paid - The revised return also substitutes the original return, as the assessment was framed on the basis of the revised return - the assessee has filed the return u/s 139 of the Act and at the time of filing of the return, the admitted tax liability was also paid - section 140A(3) can only be invoked where the assessee has not paid admitted tax liability while filing the return under section 139 of the Act - Since the admitted tax liability has been paid at the time of filing the return u/s 139(5) of the Act, the provisions of sub-section (3) of section 140A of the Act cannot be invoked for imposing penalty u/s 140A of the Act for non-payment of tax or interest on the income declared in the return - the penalty u/s 140A(3) of the Act cannot be levied Decided against Revenue.

Summary

Issues Involved:
1. Cancellation of penalty under Section 140A(3) of the Income-tax Act, 1961.
2. Failure to pay advance tax and its implications under Section 140A(1).
3. Impact of filing a revised return on penalty provisions.
4. Applicability of penalty under Section 140A(3)/221 despite payment of tax before levy.
5. Comparison of facts with other cases relied upon by CIT(A).
6. Use of revised return as a device to circumvent penal provisions.
7. Validity of CIT(A)'s order and restoration of AO's order.

Detailed Analysis:

1. Cancellation of Penalty under Section 140A(3):
The primary issue revolves around whether the penalty imposed under Section 140A(3) was justified. The CIT(A) canceled the penalty of Rs. 1,24,35,720/- levied by the AO, stating that once a valid revised return is filed, it substitutes the original return. Since the assessee paid the admitted tax liability at the time of filing the revised return, there was no unpaid tax liability, and thus, no basis for penalty.

2. Failure to Pay Advance Tax:
The Revenue argued that the assessee failed to pay advance tax, thereby infringing Section 140A(1). However, the CIT(A) observed that the assessee paid the tax liability before filing the revised return. The Tribunal upheld this view, noting that the original return was revised within the prescribed period, and the admitted tax was paid at the time of filing the revised return.

3. Impact of Filing a Revised Return:
The Tribunal emphasized that a revised return filed under Section 139(5) substitutes the original return. Citing decisions from the Allahabad High Court and the Madras High Court, it was noted that a valid revised return effaces the original return. Therefore, the penalty provisions under Section 140A(3) could not be invoked as the revised return showed no unpaid tax liability.

4. Applicability of Penalty under Section 140A(3)/221:
The Revenue contended that the penalty should apply regardless of the subsequent payment of tax. However, the Tribunal found that since the tax was paid at the time of filing the revised return, the conditions for invoking Section 140A(3) were not met. The penalty provisions apply only when there is a failure to pay the admitted tax at the time of filing the return under Section 139.

5. Comparison with Other Cases:
The CIT(A) referred to other cases to support the decision. The Tribunal agreed with the CIT(A)'s reliance on these cases, noting that the facts were similar and the legal principles applicable were correctly interpreted.

6. Use of Revised Return to Circumvent Penal Provisions:
The Revenue argued that the revised return was used to circumvent penal provisions. However, the Tribunal upheld that the revised return, filed within the statutory period and accompanied by the payment of tax, is legitimate and substitutes the original return, nullifying the basis for penalty under Section 140A(3).

7. Validity of CIT(A)'s Order:
The Tribunal found no infirmity in the CIT(A)'s order. It confirmed that the penalty under Section 140A(3) was not applicable as the revised return substituted the original return, and the admitted tax was paid at the time of filing the revised return.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order that canceled the penalty under Section 140A(3). The judgment emphasized that once a valid revised return is filed and the admitted tax is paid, the original return is substituted, and the penalty provisions under Section 140A(3) do not apply.