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2021 (12) TMI 974 - AT - Income TaxLevy of penalty u/s. 221 - AO passed, orders u/s 201(1) and 201(1A) treating the appellant as assessee in default - appellant's main arguments before the AO were that it was facing severe financial hardship and that the same constitutes a 'good and sufficient reason' for not levying the penalty - As contented AO levied exorbitant penalty for non-remitting of TDS within the stipulated time which requires to be deleted - HELD THAT - The only reason now shown is financial difficulties which under these circumstances does not appeal to be sufficient. It is no doubt that a mere default is not sufficient for levy of penalty but as the lower authorities pointed out that the assessee has been using the deducted TDS amount for meeting various business commitments and assessee continuously default the payment of TDS to the government account which is very serious in nature. Being so, the assessee cannot escape its consequences, it had kept back the tax deducted at sources with it. One can understand the financial difficulties of assessee is facing, if it was in defaulter for a short period. But in the present case, conduct of the assessee is that it continuously defaulting the payment of TDS amount to the government account by one was other reasons without remitting the same to the government account and these action of defaulter cannot be condoned by deleting the penalty. Accordingly, levy of penalty is confirmed. However, the Assessing Officer levied penalty at very exorbitant rate that 5% pm for which there is no legal sanction when the department itself has paid interest at 6% pa to the assessee on the refund due to the assessee. Being so, in our opinion, it is reasonable and fair to levy penalty at 1% pm i.e. 12% pa instead of 5% pm levied by AO. Accordingly, we direct the AO to recompute the penalty for both Assessment Years at 1% pm or 12% pa. Accordingly, the appeal of the assessee is partly allowed.
Issues Involved:
1. Levy of penalty under Section 221 of the Income Tax Act. 2. Financial hardship as a 'good and sufficient reason' for non-remittance of TDS. 3. Discretion of the Assessing Officer in imposing penalties. 4. Justification of financial difficulty claims by the assessee. Issue-Wise Detailed Analysis: 1. Levy of Penalty under Section 221 of the Income Tax Act: The case involves the assessee, engaged in chartered flying of small aircrafts, who failed to remit TDS to the Government Account for FY 2012-13 and FY 2013-14. The Assessing Officer (AO) initiated penalty proceedings under Section 221 of the Act after detecting this default during a survey. The AO imposed penalties of ?1,08,38,662/- for FY 2013-14 and ?29,06,500/- for FY 2014-15, which were confirmed by the CIT(A). The Tribunal upheld the penalty but reduced the rate from 5% per month to 1% per month, highlighting the lack of legal sanction for the higher rate. 2. Financial Hardship as a 'Good and Sufficient Reason' for Non-Remittance of TDS: The assessee argued that severe financial constraints constituted a 'good and sufficient reason' for the delay in remitting TDS. The Tribunal noted that while financial difficulties might be relevant, they were not sufficient in this case. The assessee had deducted TDS but used it for business purposes instead of remitting it to the government, which is a serious default. The Tribunal emphasized that the financial hardship should be demonstrated with facts and figures, which the assessee failed to do. 3. Discretion of the Assessing Officer in Imposing Penalties: The Tribunal examined the discretionary power of the AO under Section 221 of the Act, noting that the word "MAY" indicates discretion rather than an automatic imposition of penalty. The Tribunal referenced the Hon'ble Karnataka High Court's decision in CIT Vs. Manjunatha Cotton & Ginning Factory, which supports the view that penalty proceedings are not automatic. However, the Tribunal found that the AO and CIT(A) did not exercise this discretion appropriately, treating the penalty as automatic. 4. Justification of Financial Difficulty Claims by the Assessee: The Tribunal scrutinized the assessee's claim of financial difficulty, noting discrepancies in the financial statements. The CIT(A) had observed that there was significant cash availability and payments made to related parties, contradicting the claim of financial hardship. The Tribunal found that the assessee did not provide sufficient evidence to substantiate its financial difficulties, and the use of TDS funds for business purposes could not be justified. Conclusion: The Tribunal confirmed the levy of penalty under Section 221 but reduced the rate to 1% per month, considering the lack of legal sanction for the higher rate imposed by the AO. The financial hardship claimed by the assessee was not accepted as a 'good and sufficient reason' due to insufficient evidence and the misuse of TDS funds. The discretion of the AO in imposing penalties was acknowledged but found to be improperly exercised in this case. The appeals were partly allowed, with the penalty rate adjusted.
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