2016 (5) TMI 1031 - AT - Income Tax

Levy of penalty u/s.221(1) - default of non-payment of self-assessment tax - Held that - Reading of Sec.221 of the Act shows that the Explanation wherein as may not shall which is subjective of the fact that imposition of penalty is neither automatic nor mandatory. The discretion is left with the A.O to decide whether to impose penalty or not, by considering the explanation of the assessee. This fact is evident from the provisions of section itself that mandatory opportunity of being heard has to be given to the assessee before imposition of penalty. Thereafter, the A.O considering the explanation of assessee have discretion to impose penalty. As seen from the discussion in earlier para, assessee explained the reasons. In our opinion, there exists good and sufficient reason not levy penalty. The AO was not going by any of the explanation given by the assessee with non-speaking order to impose penalty at 10% of self-assessment tax including interest. The Ld. CIT(A) enhanced it to 25% of that one. The action of both the Authorities is not appropriate. Since the assessee show cause for delay in payment of self-assessment tax, accordingly, we delete the penalty u/s.221(1) of the Act. - Decided in favour of assessee

Issues Involved:
1. Levy of penalty under Section 221(1) of the Income-tax Act.
2. Admission of additional ground by the assessee.
3. Validity of the notice issued for levying penalty.
4. Financial crisis as a reasonable cause for non-payment of tax.
5. Enhancement of penalty by the Commissioner of Income-tax (Appeals).

Detailed Analysis:

1. Levy of Penalty under Section 221(1) of the Income-tax Act:
The main issue raised by the assessee was the confirmation and enhancement of the penalty under Section 221(1) by the Commissioner of Income-tax (Appeals). The assessee argued that after the order under Section 143(1) dated 26.07.2012, there could not be any default of non-payment of self-assessment tax. The Tribunal noted that the assessee filed its return for the assessment year 2010-11 on 02.08.2011, declaring a total income of ?17,58,90,439/- and the tax payable was ?4,78,48,702/-. Despite the demand raised, the assessee failed to pay the tax, leading to the levy of a penalty of ?47,84,870/- by the Assessing Officer, which was later enhanced to ?1,19,62,175/- by the Commissioner of Income-tax (Appeals).

2. Admission of Additional Ground by the Assessee:
The assessee sought to admit an additional ground regarding the legality of the penalty levy, arguing that it was not raised earlier due to lack of proper professional advice. The Tribunal admitted the additional ground, relying on the Supreme Court's judgment in National Thermal Power Co. Ltd. v. CIT, which allows legal grounds to be raised at any stage of the appeal.

3. Validity of the Notice Issued for Levying Penalty:
The assessee contended that the notice dated 05.12.2012 mentioned the assessment year 2012-13 instead of 2010-11, and thus, there was no proper notice for the assessment year 2010-11. The Tribunal found that the notice dated 26.09.2012 clearly mentioned the assessment year as 2010-11 and was acknowledged by the assessee. The Tribunal concluded that the clerical error in the notice dated 05.12.2012 did not invalidate the proceedings.

4. Financial Crisis as a Reasonable Cause for Non-Payment of Tax:
The assessee argued that it faced a financial crisis and made tax payments in installments. The Tribunal examined the financial transactions and noted that the assessee was involved in business expansion, which required significant funds. The Tribunal considered the judgments in CIT v. Munni Lal & Company and CIT v. Chembara Peak Estates Ltd., which held that bona fide belief and lack of liquid funds could be reasonable causes for non-payment of tax.

5. Enhancement of Penalty by the Commissioner of Income-tax (Appeals):
The Tribunal observed that the Commissioner of Income-tax (Appeals) enhanced the penalty to 25% of the self-assessment tax payable. The Tribunal analyzed the provisions of Section 221(1) and concluded that the assessee's default was not willful or deliberate. The Tribunal emphasized that penalty should not be imposed unless the default was without good and sufficient reason. Considering the assessee's financial situation and business commitments, the Tribunal found that the penalty was not justified.

Conclusion:
The Tribunal concluded that the assessee had shown good and sufficient reasons for the delay in payment of self-assessment tax. The Tribunal held that the levy of penalty under Section 221(1) was not appropriate and deleted the penalty. The appeal of the assessee was allowed. The order was pronounced on 22nd April 2016 at Chennai.

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