2017 (5) TMI 1155 - AT - Income Tax

Imposition of penalty under Section 140A(3) - applicability of provision of section 221 - sufficient reason for non-payment of admitted tax - Held that - Before levy of the penalty, the assessee has been communicated exact nature of contravention, for which the assessee was liable, for penalty under section 221. We find that the Assessing Officer has mentioned all the allegations and charges against the assessee in clear terms in the show cause notice and the assessee has also duly responded to those charges. The assessee in its submission also referred to the relevant section for levy of penalty as 140A(3) of the Act. In the circumstances, respectfully following the judgment in the case of Sh. PK Palanisamy (2009 (7) TMI 1311 - SUPREME COURT), we find that the proceeding of the Assessing Officer in the impugned order, in substance and effect in conformity with provisions of section 221 of the Act and thus, proceedings in question of the Assessing Officer cannot be held as invalid. - Decided against assessee Limitation for levy of penalty falling under the chapter XXI penalties imposable under the Income Tax Act has been specified in section 275 of the Act. As far as penalty under section 221 of the Act is concerned, the limitation has not been provided, however it should be levied within a reasonable period of time. We find that the penalty has been levied even before the completion of the assessment and thus in our opinion it has been levied well within a reasonable period. Whether the assessee was not having any liquidity problem for making payment of tax under section 140A - Held that - From the order of the lower authorities, we find that the assessee did not file the documentary evidence in support of contention of liquidity crunch, however, before us, the assessee has sought one more opportunity for discharging its onus of showing good and sufficient cause for not making the payment of admitted tax liability. We are of the opinion that in the interest of natural justice, the assessee should be allowed one more opportunity to discharge his onus in terms of second proviso to section 221 of the Act. Accordingly, we restore the issue of levy of penalty for nonpayment of admitted taxability to the file of the Assessing Officer for deciding afresh after allowing a reasonable opportunity of hearing to the assessee. - Appeal partly in favour of assessee for statistical purpose.

Summary

Issues Involved:

1. Imposition of penalty under Section 140A(3) of the Income Tax Act, 1961.
2. Incorrect citation of the penalty provision.
3. Timing of penalty imposition in relation to assessment completion.
4. Existence of liquidity problems preventing tax payment.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 140A(3) of the Income Tax Act, 1961:

The assessee was penalized for non-payment of self-assessment tax amounting to ?1,09,71,691/- as stipulated under Section 140A(3) of the Income Tax Act, 1961. The Assessing Officer (AO) issued multiple notices under Section 142(1) to the assessee, who failed to comply. The return of income was eventually filed electronically on 30/09/2011, declaring a total income of ?2,39,16,490/-. The AO completed the assessment ex parte under Section 144, determining a total income of ?3,49,17,860/-. During the assessment, the AO noted the unpaid tax liability and issued a show cause notice under Section 140A(3) for the non-payment of the admitted tax. The assessee cited liquidity crunch as the reason for non-payment but failed to provide supporting documentary evidence. Consequently, the AO levied a penalty equal to the unpaid tax liability.

2. Incorrect Citation of the Penalty Provision:

The assessee argued that the penalty should have been levied under Section 221 of the Act instead of Section 140A(3). The CIT(A) upheld the penalty, invoking Section 292B of the Act, which allows for the correction of inadvertent mistakes in quoting the wrong section if the proceedings are in substance and effect in conformity with the Act. The Tribunal examined whether the facts of the case justified the application of Section 292B. It was found that the AO had communicated the exact nature of the contravention and provided the assessee an opportunity to defend, thereby meeting the requirements of Section 221. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's judgment in P.K. Palanisamy v. N Arumugham, which states that mentioning a wrong provision does not invalidate an order if the authority had the requisite jurisdiction.

3. Timing of Penalty Imposition in Relation to Assessment Completion:

The assessee contended that the penalty was levied after the completion of the assessment under Sections 143(1)/143(3), making it invalid. However, the Tribunal found that the penalty was imposed on 31/05/2012, well before the assessment was completed on 11/03/2013. The Tribunal noted that penalties under Chapter XXI of the Income Tax Act must be levied within a reasonable period, and in this case, the penalty was imposed within a reasonable timeframe. Therefore, the ground was dismissed.

4. Existence of Liquidity Problems Preventing Tax Payment:

The assessee claimed liquidity problems prevented the payment of the admitted tax liability, citing reasons such as the closure of cash generation sources and the seizure of bank accounts by the Income Tax Department. The CIT(A) dismissed these claims due to the lack of documentary evidence. The Tribunal, however, acknowledged the assessee's willingness to provide evidence and justified the "good and sufficient cause" for the delay in payment. The Tribunal restored the issue to the AO for a fresh decision, allowing the assessee to submit all relevant documentary evidence by 31/08/2017.

Conclusion:

The appeal was partly allowed for statistical purposes, with the Tribunal upholding the penalty under Section 221 of the Act while granting the assessee an opportunity to prove the liquidity crunch before the AO. The decision was pronounced on 19th May 2017.