1997 (7) TMI 192 - AT - Income Tax

Summary

Issues Involved:
1. Delay in deduction and deposit of tax.
2. Levy of interest under Section 201(1A) of the Income-tax Act.
3. Levy of penalty under Section 221 of the Income-tax Act.
4. Existence of reasonable cause for delay in finalizing accounts and tax payment.

Issue-wise Detailed Analysis:

1. Delay in Deduction and Deposit of Tax:
The appellant faced scrutiny for delays in the deduction and deposit of taxes for various payments such as interest, salary, contract payments, royalty, and technical know-how fees. The audit report accompanying the tax return highlighted these delays, specifying the due dates, deduction dates, and actual deposit dates. The appellant's accounts were closed twice for the relevant assessment year, first on 30-06-1988 and then on 31-03-1989, leading to transitional complexities.

2. Levy of Interest under Section 201(1A):
The Assessing Officer levied interest amounting to Rs. 1,30,631 under Section 201(1A) due to the delayed tax payments. The appellant argued that the delay was not intentional and resulted from the delay in finalizing accounts due to the seizure of books by the Revenue. The CIT(Appeals) rejected this argument, maintaining that the default persisted on the date of the show-cause notice.

3. Levy of Penalty under Section 221:
The Assessing Officer also imposed a penalty of 10% of the tax amounting to Rs. 2,31,730 under Section 221, citing the appellant's failure to pay the tax without good and sufficient cause. The appellant contended that the penalty was unwarranted as the tax had been paid before the issuance of the show-cause notice and that the delay was due to unavoidable circumstances.

4. Existence of Reasonable Cause for Delay:
The appellant highlighted several points to establish a reasonable cause for the delay:
- The dual closing of accounts necessitated a longer period for tax payment.
- The seizure of books and records by the Revenue in July 1988 delayed the finalization of accounts.
- The seized materials were only made available for inspection in October/November 1989, further delaying the audit and tax payment.
- The appellant acted diligently by depositing tax as soon as the accounts were finalized.

Judgment Analysis:
The Tribunal noted that the CIT(Appeals) did not adequately consider the explanations and material facts presented by the appellant. It emphasized that mere delay does not automatically attract the provisions of Section 221, referencing the legal precedent set in CIT v. Chembara Peak Estates Ltd. [1990] 183 ITR 471 (Ker.). The Tribunal found that the delay was due to the seizure of books and the subsequent delay in finalizing accounts, which constituted a good and sufficient cause.

The Tribunal also acknowledged the appellant's bona fide efforts and diligence in depositing the tax as soon as the accounts were finalized. It concluded that there was no cause for the levy of penalty under Section 221, as the onus to prove the absence of good and sufficient cause was not discharged by the Revenue.

Conclusion:
The Tribunal allowed both appeals, canceling the penalty under Section 221 and quashing the interest levied under Section 201(1A) on the grounds that the delay was justified and the appellant acted diligently. The CIT(Appeals) failed to provide separate reasoning for upholding the interest levy, and the Tribunal found that the appellant's explanations were summarily rejected without proper consideration.