2015 (6) TMI 559 - AT - Income Tax

Penalty under section 221(1) read with section 140A(3) - default in payment of the tax demand - Held that - The common issue involved in the present appeals thus is squarely covered by the order of the Tribunal in other group companies involving materially the same facts (2014 (12) TMI 431 - ITAT HYDERABAD) and this position is not disputed even by the learned representatives of both the sides. We therefore respectfully follow the said order of the Tribunal wherein held perusal of the penalty order does not reveal the basis on which AO has quantified the penalty. However, considering the fact that assessee has discharged the tax liability along with interest, in our view, liberal approach needs to be taken. More so, when section 221(1) itself empowers AO to increase penalty in case of continuing default. Therefore, imposition of penalty at such a high figure at the first instance, in our view, is not justified. Considering the facts and circumstances of case, we are of the view that penalty @ 5% of the admitted tax liability would be reasonable and meet the ends of justice. Accordingly, we direct AO to confine the penalty u/s 221(1) of the Act to 5% of the admitted tax liability in each case - Decided partly in favour of assessee.

Issues Involved:
1. Imposition of penalty under section 221(1) read with section 140A(3) of the Income Tax Act, 1961.
2. Failure to pay advance tax or self-assessment tax by the assessee companies.
3. Validity of the reasons provided by the assessees for non-payment of taxes.
4. Determination of the quantum of penalty.

Issue-wise Detailed Analysis:

1. Imposition of Penalty Under Section 221(1) Read with Section 140A(3):
The appeals were filed against the orders imposing penalties under section 221(1) read with section 140A(3) of the Income Tax Act, 1961. The penalties were imposed due to the default in payment of tax by the assessees. The Tribunal noted that the default in payment of tax was without good and sufficient reasons, making these cases fit for the imposition of penalties.

2. Failure to Pay Advance Tax or Self-Assessment Tax:
The assessees, all companies belonging to a group established by Sri Ramalinga Raju, sold land and declared capital gains in their returns for A.Y. 2008-09. However, they did not pay any advance tax or self-assessment tax before filing their returns. Even after the issuance of intimations under section 143(1), no tax was paid against the demand raised. The A.O. issued notices requiring the assessees to show cause for the default, but the explanations provided were not satisfactory.

3. Validity of Reasons Provided by the Assessees for Non-Payment of Taxes:
The assessees argued that there was no willful intent to evade taxes and cited liquidity issues and attachment of properties as reasons for non-payment. However, the A.O. found these explanations unsatisfactory, noting that the assessees had liquidity and current assets to meet the tax dues but chose not to pay. The A.O. emphasized that the assessees had defaulted at every stage-advance tax, self-assessment tax, and regular tax-without good and sufficient reasons.

4. Determination of the Quantum of Penalty:
The penalties imposed by the A.O. were challenged, and the Ld. CIT(A) confirmed the penalties, rejecting the assessees' arguments. The Tribunal observed that the imposition of penalty under section 221(1) is not automatic or mandatory and that the A.O. has discretion in imposing the penalty. The Tribunal also noted that the quantum of penalty should be reasonable and meet the ends of justice. Referring to a similar case involving other group companies, the Tribunal sustained the penalties to the extent of 5% of the admitted tax liability, finding this to be a reasonable approach.

Conclusion:
The Tribunal, following its earlier order dated 10.12.2014, sustained the penalties under section 221(1) read with section 140A(3) to the extent of 5% of the admitted tax liability for all seven assessees. The appeals were thus partly allowed, and the penalties were reduced accordingly. The order was pronounced in the open court on 27.5.2015.

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