1997 (5) TMI 70 - AT - Income Tax

Assessing Officer, Assessment Order, Assessment Year, Bona Fide, Penalty Notice, Settlement Commission, Supreme Court

Issues Involved:
1. Levy of penalties under section 221 aggregating to Rs. 10,96,063 for assessment years 1970-71 to 1982-83 and 1987-88.
2. Levy of penalties aggregating Rs. 1,03,300 under section 221 for assessment years 1970-71 to 1982-83.
3. Levy of penalties under section 221 aggregating to Rs. 1,20,240 for assessment years 1964-65 to 1970-71.

Detailed Analysis:

1. Levy of Penalties under Section 221 Aggregating to Rs. 10,96,063:

The appeals were filed by an individual challenging the levy of penalties under section 221 for various assessment years. The assessee argued that the Assessing Officer did not provide adequate time to respond to the notices, and the demand notices were not adjusted for pre-paid taxes. The Assessing Officer issued demand notices on 10-8-1989 and subsequent notices under section 221 on 21-6-1990, giving only three days for response. The assessee repeatedly requested adjustments for pre-paid taxes, which were ignored by the Assessing Officer. The CIT(Appeals) confirmed the penalties, stating that the assessee persistently defaulted in tax payments.

The Tribunal observed that the Assessing Officer failed to provide a reasonable opportunity to the assessee before levying penalties, as only three days were given for response. The Tribunal held that the period of three days was inadequate and thus, the penalties could not be sustained on this ground alone. Additionally, the Tribunal noted that the assessee had approached the Assessing Officer for adjustments and rectifications, which were not considered before levying the penalties. The Tribunal cited several cases to support the view that penalties should not be levied when the demand is not correctly determined or when the assessee's explanation is bona fide.

2. Levy of Penalties Aggregating Rs. 1,03,300 under Section 221:

These appeals were filed by the same individual as the executor of the estate of the late H.H. Vikramsinhji of Gondal. The issues and arguments were similar to the first set of appeals. The Tribunal reiterated that the Assessing Officer did not provide a reasonable opportunity to the assessee and failed to consider the requests for adjustments and rectifications. The Tribunal emphasized that penalties under section 221 should only be levied when the default is wilful and not merely accidental. The Tribunal found that the assessee had cooperated with the department and had made efforts to resolve the tax demands, including offering gold bonds for sale to cover the outstanding amounts. The Tribunal concluded that the penalties were unjustified and should be cancelled.

3. Levy of Penalties under Section 221 Aggregating to Rs. 1,20,240:

These appeals were filed by the same individual as the legal representative of the late Shri Vikramsinhji of Gondal. The issues and arguments were consistent with the previous appeals. The Tribunal held that the Assessing Officer did not provide a reasonable opportunity for the assessee to respond and failed to make necessary adjustments and rectifications before levying penalties. The Tribunal emphasized that penalties should not be levied when the demand is incorrect or when the assessee's explanation is bona fide. The Tribunal cancelled the penalties, citing the same reasons as in the previous appeals.

Separate Judgment for ITA No. 1973/Ahd/1992:

In this appeal, the facts differed as the assessment order for the year 1987-88 was passed on 30-3-1990, and the assessee moved for a stay of demand, which was refused. The assessee then applied to the CIT for a stay, but the Assessing Officer issued a notice under section 221 and levied penalties while the stay petition was pending. The CIT(Appeals) confirmed the penalties, stating that the stay petition did not justify withholding tax payments.

The Tribunal held that levying penalties while the stay petition was pending before the CIT was not justified, citing the Punjab & Haryana High Court case of Leader Valves (P.) Ltd. The Tribunal deleted the penalty for this assessment year.

Conclusion:

The Tribunal allowed all the appeals, cancelling the penalties levied under section 221. The Tribunal emphasized the importance of providing a reasonable opportunity to the assessee, making necessary adjustments and rectifications, and considering the bona fide nature of the assessee's explanations before levying penalties.

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