2018 (4) TMI 1271 - AT - Income Tax

Penalty u/s 221(1) - default in paying Self Assessment tax u/s 140A - sufficient and reasonable cause for non payment of tax - Held that - We find from the records placed before us that the assessee throughout the period commencing from 01.10.09 to 31.03.10 have negative flow of funds as is apparent from fund flow and cash flow statement as reproduced. AO has granted four installments to the assessee of ₹ 8,50,000/- each which were cleared by the assessee along with interest from its account with Standard Chartered Bank which was paid out of the overdraft facility availed from the bank. Looking to the facts and circumstances of the case in totality, we are of the considered view that the assessee was passing through severe financial hardships during the above period which is a sufficient and reasonable cause for non payment of tax. See ITO vs. Devsons (P) Ltd. (2007 (10) TMI 323 - ITAT DELHI-D ) wherein held that penalty imposed before expiry of period granted to the assessee to make the payment of tax was not valid and more so when assessee had shown financial difficulties and has made a reasonable offer for making the payment in installments. - Decided in favour of assessee

Summary

Issues:
- Objection against levy of penalty under section 221(1) of the Income Tax Act, 1961
- Leave to add, alter, amend or delete any of the grounds of appeal

Analysis:
1. Objection against levy of penalty under section 221(1) of the Income Tax Act, 1961:
- The appellant objected to the penalty of ?7,88,986 levied by the Assessing Officer for non-payment of self-assessment tax before filing the return of income for A.Y. 2009-10.
- The appellant argued that the financial crisis faced by the company due to recession was not considered by the authorities, and the penalty was imposed even though arrangements were made to pay the outstanding tax.
- The CIT(A) upheld the penalty, stating that the appellant failed to prove financial difficulties as a reasonable cause for non-payment of tax on time.
- The appellant presented evidence of negative fund flow and bank balance during the relevant period, showing severe financial hardships due to global recession in the gems and jewellery industry.
- Citing relevant case laws, the appellant contended that the penalty was unjustified, especially since the outstanding tax was paid in installments as agreed with the AO.
- After considering the evidence and arguments, the Tribunal found that the appellant had sufficient reason for the delayed payment of self-assessment tax and overturned the CIT(A)'s decision, directing the AO to delete the penalty.

2. Leave to add, alter, amend or delete any of the grounds of appeal:
- The appellant sought leave to modify the grounds of appeal, focusing primarily on challenging the penalty imposed under section 221(1) of the Income Tax Act, 1961.
- The Tribunal's decision on the main issue rendered this request for alteration unnecessary, as the penalty was ultimately deleted based on the appellant's financial difficulties and the timely payment of outstanding tax in installments.

This detailed analysis of the judgment highlights the core issue of the penalty levied under section 221(1) of the Income Tax Act, 1961, the arguments presented by both parties, the considerations of the CIT(A), and the final decision of the Tribunal based on the appellant's financial hardships and the supporting evidence provided.