2015 (1) TMI 14 - HC - Income Tax

Deletion of penalty u/s 140A(3) r.w. Section 221 failure to pay advance tax - Whether the Tribunal was justified in analyzing the accounts of the assessee as on 31st December 2006 and coming to the conclusion that the assessee had incurred huge losses despite the fact that as per provisions of I.T Act, the assessee was liable to pay advance tax or otherwise by 31st March 2006 Held that - The Tribunal found that the facts on record indicated that although the assessee had earned profit in the FY 2005-06, by the time he was required to file the return of income, he had suffered heavy losses to the tune of ₹ 1,36,46,928/- in share trading and the entire profit had been washed away. Consequently, the assessee had only ₹ 47,873/- by way of cash on hand and the balance in the bank account was only to the tune of ₹ 8,848/- and that the assessee did not have any liquid funds to make payment of the selfassessment tax - the revenue itself had granted installments to the assessee, who had subsequently paid up the amount - when there was a good and sufficient reason for the default, no penalty ought to have been levied, more particularly, when the assessee had later on deposited the entire amount. The assessee on account of having incurred heavy losses in share trading was not in a position to make payment of self-assessment tax at the relevant time and the revenue itself had granted installments to the assessee - considering the difficulties faced by the assessee, the revenue itself had thought it fit to grant installments to the assessee, and the fact that pursuant thereto the assessee had deposited the entire amount of self-assessment tax, the Tribunal was right in holding that there was good and sufficient reason for default on the part of the assessee and invoking the second provision of subsection (1) of section 221 of the Act and holding that no penalty ought to have been levied under the section thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Appeal under section 260A of the Income Tax Act, 1961 regarding penalty deletion under section 140A (3) and section 221.
2. Justification of analyzing accounts of the assessee and concluding on losses incurred.
3. Analysis of good and sufficient reasons for not paying taxes.
4. Deletion of penalty under section 140A (3) without considering provisions for payment of due taxes.

Analysis:
1. The appellant-revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the deletion of penalty under section 140A (3) and section 221 of the Income Tax Act, 1961. The substantial questions of law proposed included the justification for confirming the order of CIT (A) deleting the penalty and the analysis of the assessee's accounts to determine losses incurred despite tax liabilities.

2. The respondent assessee had not paid self-assessment tax resulting in a demand of &8377;43,99,051/-, which was treated as a default attracting penalty under section 140A (3). The assessee explained the default by citing huge losses and lack of funds. The Commissioner (Appeals) deleted the penalty citing sufficient reasons for the default. The Tribunal upheld this decision after considering the financial position of the assessee and the subsequent payment of the due amount.

3. The Tribunal found that the assessee faced heavy losses in share trading, making it impossible to pay the self-assessment tax on time. The revenue department granted installments to the assessee, who later paid the entire amount. The Tribunal invoked the provision under section 221(1) of the Act, stating that no penalty should be levied if the default was for good and sufficient reasons. The Tribunal concluded that the assessee's financial difficulties justified the default and subsequent payment.

4. The High Court upheld the Tribunal's decision, emphasizing that the assessee's inability to pay the tax due to significant losses and the revenue department's installment plan justified the deletion of the penalty. The Court found no legal infirmity in the Tribunal's order and dismissed the appeal, stating that no substantial question of law warranted interference.

In conclusion, the judgment analyzed the issues of penalty deletion under the Income Tax Act comprehensively, considering the financial circumstances of the assessee and the provisions of the Act regarding penalties for defaults in tax payments. The decision highlighted the importance of assessing the reasons behind defaults and the subsequent actions taken by the assessee and the revenue department in determining the applicability of penalties.