2014 (11) TMI 6 - AT - Income Tax

Levy of penalty u/s 221 r.w. Section 140A(3) Held that - The assessee is liable to pay the admitted tax for AY 2012-13 as per the return filed by the assessee - The assessee failed to pay this amount even after giving notice to the assessee vide notice dated 01-11-2012 served upon the assessee on 02-11-2012 wherein the AO asked the assessee to pay the admitted tax with three days from the receipt of the notice - assessee is not able to point out any reasonable cause for not depositing the admitted tax with the Government - in the case of the assessee, the tax and interest is payable not in consonance with any order or assessment order or any other order under this Act by the Assessing officer - the amount of tax and interest is payable on the basis of the return filed by the assessee itself under the provisions of the Act which is payable by virtue of precedence of self assessment u/s. 140A(3) of the Act - The assessee having failed to pay the amount of tax on the basis of the return furnished by it for the relevant assessment year in accordance with the provisions of s. 140A(1) is deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid as per the statutory provision of s. 140A(3). The provision of s. 140A(3) further provides that in case the assessee is deemed to be in default, all the provisions of this Act shall apply to the case of the assessee. The provisions of s. 221 providing for penalty payable when tax is in default applies to both the situations, i.e., when assessee is in default in respect of the assessed tax or is deemed to be in default in making the payment of tax under self-assessment tax as per the return of income filed by the assessee - Self-assessment tax has to be calculated on the basis of the return filed by the assessee for the relevant assessment year and paid to the credit of the Government suo moto before furnishing the return of income and the return of income shall be accompanied by proof of payment of such tax and interest as per the statutory provisions of s. 140A(1) and there is no requirement of issue of notice of demand u/s. 156 by the Assessing officer for making such payment of tax and interest of the self-assessment tax before furnishing the return of income by the assessee - the penalty u/s. 221 was rightly levied on the assessee. Assessee argues that he cannot be considered as deemed to be in default and being so, the assessee cannot be fastened with the liability of penalty on the ground that there is provisions of sections 234A, 234B and 234C to take care of the loss to the Revenue - The argument of the assessee is devoid of merits as sec. 140A(3) is to be read with sec. 221 which empowers the AO to levy penalty when there is a failure on the part of the assessee to make the payment of self-assessment tax and interest as stipulated in section 140A(1) - The provision of section 221 is penal in nature - on the other hand provision of section 23A, 23B and 234C are compensatory in nature the order of the CIT(A) is upheld and the order of levy of penalty u/s. 221 r.w.s. 140A(3) is upheld Decided against assessee.

Summary

Issues Involved:
1. Levy of penalty under section 221 read with section 140A(3) of the Income Tax Act.
2. Interpretation of section 140A(3) post-amendment.
3. Applicability of sections 234A, 234B, and 234C in lieu of penalty under section 140A(3).
4. Requirement of demand notice under section 156.
5. Financial difficulties as a reasonable cause for non-payment of tax.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 221 read with Section 140A(3):
The assessee failed to pay advance tax of Rs. 92,01,650/- by the due date of 15-03-2012 and also did not pay self-assessment tax when filing the return. The Assessing Officer (AO) deemed the assessee in default under section 140A(3) and issued a notice under section 221(1) to show cause why a penalty should not be levied. Despite the assessee's representative attending the hearing and citing financial difficulties, no written submissions or evidence were provided. Consequently, the AO imposed a penalty of Rs. 18,40,330/- (20% of the unpaid tax). The CIT(A) confirmed this order, leading to the current appeal.

2. Interpretation of Section 140A(3) Post-Amendment:
The assessee argued that the amendment to section 140A(3) by the Direct Tax Laws (Amendment) Act, 1987, effective from 01-04-1989, removed the specific provision for penalty, implying that penal interest under sections 234A, 234B, and 234C should suffice. The amended section states that an assessee failing to pay tax or interest shall be deemed in default, and all provisions of the Act shall apply accordingly. The assessee contended that the amendment intended to withdraw the penalty provision, as indicated by the notes on clauses and Circular No. 549 dated 31/10/1989.

3. Applicability of Sections 234A, 234B, and 234C:
The assessee argued that the insertion of sections 234A, 234B, and 234C, which provide for penal interest, made the penalty under section 140A(3) redundant. They contended that imposing both penalty and interest would be confiscatory and arbitrary, violating Article 14 of the Constitution. The circular issued by the Central Board of Direct Taxes (CBDT) was cited, stating that the penalty for non-payment of self-assessment tax was omitted due to the mandatory interest provisions.

4. Requirement of Demand Notice under Section 156:
The assessee claimed that no demand notice under section 156 was served, which is necessary before treating an assessee as in default. Section 156 requires a notice of demand specifying the sum payable when any tax, interest, penalty, or fine is due. The assessee argued that the absence of such a notice invalidated the penalty.

5. Financial Difficulties as a Reasonable Cause:
The assessee cited financial difficulties, the death of the Managing Director, and the crisis in the microfinance industry as reasons for the delay in tax payment. They argued that these constituted "good and sufficient reasons" under the proviso to section 221(1), which should exempt them from penalty.

Judgment Analysis:
The Tribunal held that the assessee was indeed in default for not paying the self-assessment tax despite being given notice. The provisions of section 140A(3) and section 221 were deemed applicable, and the penalty was upheld. The Tribunal found no merit in the argument that the amendment to section 140A(3) removed the penalty provision, stating that sections 234A, 234B, and 234C were compensatory, while section 221 was penal. The requirement of a demand notice under section 156 was dismissed, as the tax was payable based on the assessee's own return, not an order by the AO. The financial difficulties cited were not considered sufficient to exempt the assessee from penalty, as no substantial evidence was provided.

Conclusion:
The appeal was dismissed, and the penalty under section 221 read with section 140A(3) was confirmed. The Tribunal emphasized the mandatory nature of the provisions and the lack of reasonable cause for non-payment of the self-assessment tax.