2015 (6) TMI 455 - AT - Income Tax

Penalty levied under section 221(1) - CIT(A) reduced the penalty to 5% of the self assessment tax - Held that - In the instant case, the only reason furnished by the assessee for non-payment of tax was that it was not having liquid funds and all its funds were locked in shares and securities. However, the Ld CIT(A) has expressed the view in paragraph 4.10 of his order that the financial position of the assessee is sound, since it had made huge investment in shares and also by way of providing loans. In any case, the assessee did not furnish any document either before us or before the tax authorities to support of its stand that it was not having liquid funds. Hence, we are of the view that the assessee has failed to furnish any good and sufficient reason for non-payment of self assessment tax. As the assessee has paid the self assessment tax before March, 2011, i.e., within five months from the date of filing of return of income. Under these set of facts, the penalty @ 5% of self assessment tax confirmed by the Ld CIT(A) also appears to be on the higher side. Hence, in order to put this matter to rest, we are of the view that the penalty to be levied u/s 221(1) of the Act should be restricted to 2.5% of the self assessment tax. - Decided partly in favour of assessee.

Summary

Issues:
Challenge to penalty under section 221(1) of the Income Tax Act for non-payment of self-assessment tax before filing the return of income.

Analysis:
The appellant, engaged in trading, investment, and financing, challenged the penalty under section 221(1) imposed by the Assessing Officer (AO) for not paying self-assessment tax before filing the return of income. The AO considered the appellant as "assessee in default" and levied a penalty of 10% of the tax due. The CIT(A) reduced the penalty to 5%, leading to the current appeal.

The appellant explained the delay in tax payment was due to investments in shares and securities, facing liquidity issues, and being unable to sell pledged shares due to market conditions. Despite earning profits, the appellant reinvested in shares, leading to a cash crunch. The CIT(A) found the financial position sound, with substantial investments and loans, and deemed the delay unjustified.

The appellant cited case laws supporting their position, emphasizing timely tax payment post-receipt of AO's notice. The appellant argued for complete penalty deletion, referencing a coordinate bench's decision and the Bombay High Court's affirmation in a similar case.

The Tribunal noted the appellant's tax payment within five months of filing the return but found the financial position contradictory to the claimed liquidity issue. While acknowledging the coordinate bench's ruling, the Tribunal deemed it contrary to statutory provisions. Consequently, the Tribunal reduced the penalty to 2.5% of the self-assessment tax, considering the circumstances.

In conclusion, the Tribunal partially allowed the appeal, reducing the penalty under section 221(1) to 2.5% of the self-assessment tax, emphasizing the importance of timely tax compliance and financial transparency.