2015 (10) TMI 381 - AT - Income Tax

Levy of penalty under section 221(1) - Assessee did not pay self-assessment tax but filed return of income on due date - CIT(A) deleted part penalty - Held that - There is no dispute with reference to the fact that assessee s company was stopped by Pollution Control Board and assessee had to construct a new plant at Nandigama. Further, in spite of financial crunch assessee has declared large amount of profits and the taxes due were also admitted. Due to severe cash crunch, assessee could not discharge tax liability immediately. However, the same was discharged as stated by the assessee before the Ld. CIT(A). Penalty under section 221(1) is not automatic and mandatory. The proviso to section 221(1) states that where assessee proves to the satisfaction of the A.O. default for good and sufficient reasons, no penalty shall be levied under this section. In fact, this aspect was examined by the Ld. CIT(A) and came to the conclusion that there are good and sufficient reasons for the assessee not to discharge the self-assessment tax at the particular point of time due to financial crunch. However, he restricted the penalty to 10% instead of deleting the whole of the amount. The assessee had made out a good case in its support and the facts do indicate that there are good and sufficient reasons for assessee s delay in payment of taxes. Relying on the various case law which are extracted by the Ld. CIT(A) in para-7 of the order, it can be concluded that penalty under section 221(1) is not a mode of recovery of taxes and this punitive action can be taken in case of willful default. Assessee is not a willful defaulter and it has sufficient reasons to not to discharge the tax liability at the time of filing return, but within period of 7 months discharged entire admitted tax. In fact the cheques issued in the month of March, 2011 were encashed by the A.O. in the months of March and June,2011. In these circumstances, we are of the opinion that assessee cannot be considered as willful defaulter. Since it has bonafide reasons, we are of the opinion that penalty under section 221(1) is not attracted on the facts of the case. Therefore, we delete the penalty partly confirmed by the Ld. CIT(A). - Decided in favour of assessee.

Summary

Issues involved: Appeal against levy of penalty under section 221(1) of the I.T. Act, 1961.

Detailed Analysis:

1. Background and Facts:
The case involved cross-appeals against the order of the CIT(A) regarding the penalty under section 221(1) of the Income Tax Act. The assessee company had not paid self-assessment tax due to financial difficulties arising from the closure of its factory by the Pollution Control Board and the subsequent construction of a new plant. The Assessing Officer (A.O.) issued a notice and levied a penalty of 25% of the tax payable.

2. Assessee's Contention:
The assessee contended that the non-payment of self-assessment tax was due to circumstances beyond its control, such as the factory closure and financial stress caused by expansion and interest burdens. The company had also been declared sick under the Sick Industrial Companies Act. The assessee argued that it had valid reasons for the delay in tax payment and eventually paid the taxes in full within seven months.

3. CIT(A)'s Decision:
The CIT(A) partially accepted the assessee's contention and reduced the penalty to 10% of the total taxes due. The CIT(A) emphasized that the imposition of penalty under section 221(1) is discretionary and should consider the circumstances of the assessee. The CIT(A) acknowledged the financial crisis faced by the company and reduced the penalty amount accordingly.

4. Appellate Tribunal's Decision:
The Appellate Tribunal, after considering the submissions and the CIT(A)'s order, found that the assessee had valid reasons for the delay in tax payment and was not a willful defaulter. The Tribunal noted that the assessee had paid the taxes in full within a reasonable time frame and had genuine reasons for the delay. Therefore, the Tribunal decided to delete the penalty partly confirmed by the CIT(A) and allowed the assessee's appeal while dismissing the Revenue's appeal.

5. Conclusion:
The Tribunal's decision highlighted the importance of considering the circumstances of the assessee in cases of delayed tax payments. It emphasized that penalty under section 221(1) is not automatic and should be imposed judiciously, taking into account the reasons for the delay. The Tribunal's decision provided relief to the assessee based on the genuine financial difficulties faced by the company, ultimately leading to the dismissal of the Revenue's appeal and the allowance of the assessee's appeal.

This detailed analysis showcases the progression of the case, the arguments presented, and the ultimate decision by the Appellate Tribunal regarding the penalty under section 221(1) of the Income Tax Act.