2016 (5) TMI 1169 - AT - Income Tax

Penalty levied u/s 221(1) - delay in payment of self assessment tax u/s 140A - Held that - From the analysis of provisions of section 140A(1), we find that the section requires that assessee is liable to pay taxes on the total income on the basis of any return u/s 139 after reducing the advance taxes and tax deducted at source, if any and such return shall be accompanied with the proof of payment of such taxes and interest. Sub-section 3 of section 140A requires that if an assessee fails to pay whole or any part of any such tax or interest the assessee shall be deemed to be an assessee in default and therefore, the provisions of Act shall apply accordingly. It is apparent from the above that section 140 (A)(1) of the Act applies in respect of return required to be furnished u/s 139 of the Act. The return in this case was required to be furnished u/s 139 of the Act by 31st January, 2011. The entire tax was paid by 1.12.2010 which is much prior to the due date of filing of return which happened to be 31/01/2011 and if the entire tax has been paid before the filing of due date of return there can not be said to be default u/s 140A(1) of the Act. The only default committed by assessee is that it had filed its return of income on 30.09.2010 and by the date of filing of return the taxes were not paid but the fact remains the due date of filing of return was extended to 31st January, 2011 and, therefore, technically the assessee was entitled to pay taxes before the due date of filing of return which happened to be 31st January, 2011. The entire taxes has been paid by 1st December, 2010 and therefore, the breach is merely a technical breach and for which no penalty should have been levied. Moreover, the assessee has paid interest as applicable under the provisions of Act. Therefore, keeping in view the entire facts and circumstances and specifically the fact that assessee belonged to disturbed area of Jammu Kashmir, the penalty in this case was not impossible - Decided in favour of assessee.

Issues Involved:
1. Sustaining penalty under Section 221(1) of the Income Tax Act.
2. Jurisdiction and legality of penalty for delay in payment of self-assessment tax.
3. Reasonable cause for delay in deposit of self-assessment tax.
4. Admission of additional evidence by the appellant.
5. Reduction of penalty by the Commissioner of Income Tax (Appeals) (CIT(A)).
6. Determination of whether the appellant was a willful defaulter.

Issue-wise Detailed Analysis:

1. Sustaining Penalty under Section 221(1) of the Income Tax Act:
The CIT(A) sustained a penalty of ?23,46,619/- under Section 221(1) of the Act. The appellant argued that the penalty was levied without jurisdiction and not in accordance with the law. The appellant had deposited the entire self-assessment tax along with interest within two months from filing the return, which was before the due date under Section 139(1) of the Act.

2. Jurisdiction and Legality of Penalty for Delay in Payment of Self-Assessment Tax:
The appellant contended that the penalty for the delay in payment of self-assessment tax was without jurisdiction. The CIT(A) noted that the appellant had sufficient funds available but chose to use them for other business priorities. However, the CIT(A) reduced the penalty to 25% of the amount available as liquidity, acknowledging that the appellant had paid the tax with interest before the order was passed.

3. Reasonable Cause for Delay in Deposit of Self-Assessment Tax:
The appellant argued that there was a reasonable cause for the delay in depositing the self-assessment tax due to a liquidity crunch. The CIT(A) observed that the appellant had a cash balance of ?93.86 lakhs, which could have been used to meet the tax liabilities. However, the CIT(A) found it harsh to expect the entire amount to be used for tax payment and reduced the penalty accordingly.

4. Admission of Additional Evidence by the Appellant:
The appellant submitted additional evidence to explain the cash balance and its utilization. The CIT(A) did not admit this additional evidence under Rule 46A, as there was no reasonable cause for not providing it during the penalty proceedings.

5. Reduction of Penalty by the Commissioner of Income Tax (Appeals):
The CIT(A) reduced the penalty from ?1,50,55,000/- to ?23,46,619/-, considering the appellant's liquidity situation and the fact that the tax was paid with interest before the order was passed. The CIT(A) held that the maximum penalty should not be levied in the first instance unless warranted by the situation.

6. Determination of Whether the Appellant was a Willful Defaulter:
The Revenue argued that the appellant was a willful defaulter for not depositing advance tax and self-assessment tax. The appellant contended that it had a history of regular tax payments and faced financial difficulties during the relevant period. The Tribunal noted that the due date for filing the return was extended to 31st January 2011, and the appellant had paid the entire tax by 1st December 2010. The Tribunal concluded that the breach was merely technical, and no penalty should have been levied.

Conclusion:
The Tribunal allowed the appellant's appeal partly, setting aside the penalty, and dismissed the Revenue's appeal. The Tribunal emphasized that the appellant's breach was technical and not willful, and the penalty was not warranted under the circumstances. The order was pronounced on 13th April 2016.

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