2015 (6) TMI 51 - AT - Income Tax

Penalty under section 140(3) read with section 221(1) of the Income Tax Act , 1961 - Available funds utilised for expansion purposes - Notice served on an employee who not forwarded the same to the management - Held that - The CIT(Appeals) condoned the delay in filing the said appeal as the impugned penalty order was not served upon the assessee. The revenue is aggrieved by the said condonation order passed by the CIT(Appeals) . We find no merit in the pleas raised by the ld. DR for the revenue in this regard in view of the observations of CIT(Appeals) in para 4 of the appellate order.Upholding the same, we dismiss the ground No.2 raised by the revenue. Further the issue arising before us is in relation to levy of penalty under section 140A(3) of the Act with section 221(1) of the Act for non-deposit of the taxes before filing the return of income. The Courts have time and again laid down the proposition that liberal interpretation should be given to the provisions of section 140A(3) with section 221(1) of the Act. The list of cases have been referred by the CIT(Appeals) .There is no dispute regarding the said issue. However, the perusal of the financial statements of the assessee company for the financial year 2007-08 and 2008-09 reflect the availability of the funds with the assessee which in- turn have been utilized for expansion purposes. The assessee had also borrowed funds from the banks as is apparent from the perusal of the balance sheet for the two financial years. However, in the totality of the facts and circumstances of the case, we find the assessee to have not discharged its onus vis- -vis payment of taxes due. We are of the view that the ends of justice would be met by restricting the levy of penalty under section 140A(3) read with section 221(1) of the Act to Rs .10 lacs for each of the year i.e. assessment year 2008-09 and 2009-10. Thus, applying the liberal interpretation, we restrict the levy of penalty in the case to Rs .10 lacs each for the financial year 2007-08 and 2008-09.- Decided partly in favour of revenue.

Summary

Issues involved:
1. Condonation of delay in filing appeal.
2. Deletion of penalty under section 140A(3) read with section 221(1) of the Income Tax Act, 1961.

Condonation of Delay in Filing Appeal:
The appeals filed by the revenue against the Commissioner of Income-tax (Appeals) were heard together. The issue raised was regarding the delay in filing the appeals by the assessee. The delay was attributed to the penalty order not being served on the assessee and the service of notice on employees being deemed invalid. The CIT(Appeals) condoned the delay, which the revenue contested. However, the Tribunal upheld the CIT(Appeals)'s decision, dismissing the revenue's plea based on the observations made in the appellate order.

Deletion of Penalty under Section 140A(3) with Section 221(1) of the Act:
The penalty was levied on the assessee for non-payment of income tax/interest, despite the return of income being filed. The CIT(Appeals) deleted the penalty after considering the financial situation of the assessee, who was in an expansion phase and facing a financial crunch. The CIT(Appeals) referred to various court judgments and the Finance Minister's statements to justify the deletion of the penalty. The revenue appealed against this decision, arguing that the penalty was justified for non-payment of taxes and interest. The Tribunal examined the financial statements of the assessee and found that funds were available for expansion. Despite this, the Tribunal decided to restrict the penalty to Rs. 10 lakhs for each assessment year, considering the circumstances. The Tribunal partially allowed the revenue's appeals, directing the Assessing Officer to limit the penalty to Rs. 10 lakhs for each year.

In conclusion, the Tribunal partially allowed the revenue's appeals, restricting the penalty under section 140A(3) read with section 221(1) of the Act to Rs. 10 lakhs for each assessment year, based on a liberal interpretation and the financial circumstances of the assessee.