2015 (11) TMI 738 - AT - Income Tax

Penalty under section 221(1)- Held that - Liability of the assessee has increased and that credit rating of the assessee has reduced but there was a profit in the assessment year under appeal as well as in subsequent assessment year 2011-12. May be the profit has reduced but it is not a case that the assessee has not earned any profit. Therefore, considering the material on record, we do not find it to be a case of good and sufficient reasons for not paying the taxes as per law. Therefore, penalty shall have to be levied in the facts and circumstances. However, considering the financial position of the assessee has worsened and that the credit rating of the assessee has also reduced and ultimately when self- assessment tax was to be paid in subsequent assessment year 2011-12, there was a fall in the profit. Therefore, considering the explanation given by the assessee, we are of the view that the Assessing Officer was not justified in levying the penalty of 20 per cent. of the arrears of tax. Considering the totality of the facts and circumstances as noted above, we hold that 20 per cent. of the penalty of outstanding demand was excessive, unreasonable and therefore, we modify the orders of the authorities below and direct the Assessing Officer to restrict the penalty under section 221(1) of the Act by restricting the penalty at 7.5 per cent. of the outstanding self-assessment tax of ₹ 8.14 crores and the Assessing Officer shall rework the penalty amount accordingly. The orders of the authorities below levying the penalty at 20 per cent. is thus, set aside and modified to the extent of 7.5 per cent. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under section 221(1) of the Income-tax Act, 1961.
2. Adjustment of refund for the assessment year 2007-08 against the demand for the assessment year 2010-11.
3. Financial constraints as a reason for non-payment of self-assessment tax.
4. Condonation of delay in filing cross-objection by the Revenue-Department.

Detailed Analysis:

1. Levy of Penalty under Section 221(1):
The assessee's appeal and the Revenue's cross-objection were directed against the order of the Commissioner of Income-tax (Appeals) dated January 24, 2013. The Assessing Officer (AO) found that the assessee failed to pay assessment tax amounting to Rs. 8.14 crores for the assessment year 2010-11 and levied a penalty of Rs. 1.62 crores (20% of the unpaid tax) under section 221(1) of the Income-tax Act, 1961. The assessee argued that the AO did not accept the request for adjustment of a refund for the assessment year 2007-08 against the demand for the assessment year under appeal. The Commissioner of Income-tax (Appeals) upheld the penalty, noting that the self-assessment tax was payable as per the determined total income and the assessee was in default for failing to pay it. The Tribunal found that while the assessee was in default, the penalty of 20% was excessive and reduced it to 7.5% of the outstanding tax.

2. Adjustment of Refund for Assessment Year 2007-08:
The assessee contended that the AO did not adjust the refund of Rs. 6.99 crores for the assessment year 2007-08 against the demand for the assessment year 2010-11. The AO explained that the refund was adjusted against the demand for the assessment year 2006-07 due to an addition made for that year. The Tribunal noted that the AO had duly considered the assessee's request and explained the reasons for the adjustment. The Tribunal found no merit in the assessee's argument that the refund should have been adjusted against the demand for the assessment year under appeal.

3. Financial Constraints as a Reason for Non-Payment:
The assessee argued that financial constraints prevented timely payment of self-assessment tax, citing factors such as debts, dip in sales, overdrawn bank accounts, and a downward rating by CRISIL. The Tribunal acknowledged the assessee's financial difficulties but noted that the assessee still earned a profit in the assessment year under appeal. The Tribunal concluded that while financial constraints were a factor, they did not constitute good and sufficient reasons for non-payment of taxes as per law. However, the Tribunal found the penalty of 20% excessive and reduced it to 7.5%.

4. Condonation of Delay in Filing Cross-Objection:
The Revenue-Department filed a cross-objection challenging the admission of the assessee's appeal, arguing that the appeal should not have been entertained without payment of self-assessment tax. The cross-objection was filed with a delay of 426 days, and the Revenue sought condonation of the delay. The Tribunal noted that the Revenue failed to provide a sufficient cause for the delay and dismissed the cross-objection as time-barred. The Tribunal cited the Supreme Court's decision in the case of Office of the Chief Post Master General v. Living Media India Ltd., emphasizing that the law of limitation binds everyone, including the Government, and condonation of delay should not be granted without a reasonable and acceptable explanation.

Conclusion:
The Tribunal partly allowed the assessee's appeal by reducing the penalty under section 221(1) from 20% to 7.5% of the outstanding self-assessment tax. The Tribunal dismissed the Revenue's cross-objection as time-barred due to the lack of a sufficient cause for the delay in filing. The order was pronounced on June 30, 2015.