2013 (11) TMI 819 - HC - Income Tax

Assessee in default u/s 140A(3) Penalty for non payment of self assessment tax - Held that - Tribunal has returned a finding that though the stand of the assessee was lack of liquidity of funds, but in view of communication dated 22/25.03.1985 that the factory premises of the assessee situated at Najafgarh Road and Okhla Industrial Area were substantially destroyed by a mob, when such mob forced their entry into the factory premises and burnt and damaged the trucks parked inside and set on fire the furniture and factory - Assessee has been given very nominal payment of insurance claim and that such amount had to be immediately invested in the repairs and maintenance of the plants and buildings and purchase of shells besides the basic raw materials. Therefore the orders of penalty were quashed w.e.f. 01.11.1984 onward. It is also matter of common knowledge that the assassination of Mrs. Indira Gandhi on 31.10.1984 led to wide spread riots in National Capital Region of Delhi, wherein the property of a particular community was extensively damaged. Therefore, the order of deletion of penalties after 01.11.1984 onwards is fair and reasonable keeping in view the unfortunate circumstances Decided against the Revenue.

Summary

Issues:
1. Interpretation of Section 140A(3) of the Income Tax Act, 1961.
2. Validity of penalty cancellation based on lack of funds explanation.
3. Consideration of assessee's letter regarding property damages.
4. Impact of wider circumstances on penalty cancellation.

Analysis:
The case involved a reference under Section 256(1) of the Income Tax Act, 1961, arising from an order by the Income Tax Appellate Tribunal (the Tribunal) regarding the cancellation of penalties under Section 140A(3) for the assessment years 1982-83 and 1983-84. The assessee, a soft drinks dealer, failed to pay self-assessment tax, citing non-availability of funds. The penalty was imposed, but the Tribunal partially allowed the appeals and cancelled the penalties from 01.11.1984 onwards, leading to the reference question.

The Tribunal considered the explanation provided by the assessee regarding lack of liquidity of funds. Additionally, it noted the communication dated 22/25.03.1985, where the assessee reported substantial damages to their factory premises due to a mob attack. The Tribunal found that the insurance claim received by the assessee was nominal and had to be immediately invested in repairs, maintenance, and purchase of essential materials. Consequently, the penalties were quashed from 01.11.1984 onwards based on these findings.

Although the Tribunal introduced the assessee's letter regarding property damages for the first time during the appeal, it remained uncontested by the Revenue. Moreover, the Tribunal acknowledged the wider context of the assassination of Mrs. Indira Gandhi and subsequent riots in the National Capital Region, leading to extensive property damage for a particular community. Considering these unfortunate circumstances, the Tribunal deemed the penalty cancellation fair and reasonable post 01.11.1984.

In conclusion, the High Court affirmed the Tribunal's decision to consider the communication dated 22/25.03.1985 in deleting the penalties after 01.11.1984. The question of law was answered in favor of the assessee, highlighting the impact of exceptional circumstances on penalty imposition and cancellation.