2015 (10) TMI 1411 - AT - Income Tax

Penalty under section 221(1) - delay in making payment of self-assessment tax - Commissioner of Income-tax (Appeals) observed that the assessee was having meagre cash and current balances and the assessee was in financial constraints during the year under consideration thus cancelled penalty - Held that - Though several grounds were raised before us the learned Departmental representative was unable to point out as to whether the assessee had sufficient cash/ bank balance so as to meet the tax demand. The learned Departmental representative also could not point out as to whether any funds were diverted for non-business purposes at the relevant point of time so as to say that an artificial financial scarcity was created by the assessee. In the absence of any relevant material on record we are unable to find any infirmity in the order passed by the learned Commissioner of Income-tax (Appeals). We therefore uphold the orders passed by the learned Commissioner of Income-tax (Appeals) and dismiss the appeals filed by the Revenue. - Decided in favour of assessee.

Summary

Issues:
- Appeal against penalty under section 221(1) of the Income-tax Act, 1961 for non-payment of self-assessment tax due to financial constraints.

Analysis:
The judgment involves two appeals filed by the Revenue against orders passed by the Commissioner of Income-tax (Appeals)-21, Mumbai. The assessee failed to pay the self-assessment tax within the stipulated period, citing financial crunch as the reason. The Assessing Officer, noting the diversion of substantial funds to related concerns, levied a penalty under section 221(1) of the Act. The assessee contended that the borrowed funds were crucial for business operations, and paying taxes from those funds would severely impact the business. The Commissioner of Income-tax (Appeals) considered the financial constraints faced by the assessee, emphasizing the meager cash and current balances. Relying on case law, the Commissioner concluded that financial hardship could be a sufficient cause for non-payment of tax, thereby canceling the penalty.

The Revenue, dissatisfied with the decision, appealed to the Appellate Tribunal. However, during the appeal proceedings, the Departmental representative failed to establish the availability of sufficient cash or bank balance to meet the tax demand. Moreover, there was no evidence presented to show any diversion of funds for non-business purposes, creating an artificial financial scarcity. Due to the lack of relevant material, the Tribunal upheld the Commissioner's order, dismissing the Revenue's appeals. The judgment highlights the importance of considering financial constraints as a valid reason for non-payment of taxes and the necessity of providing concrete evidence to support penalty imposition in such cases.