2014 (1) TMI 1357 - AT - Income Tax

Penalty u/s 221 - Held that - The assessee has not sufficient funds on the date of return of income - the Assessee is not a habitual defaulter and that the assessee had made the payment of taxes due under section 140A immediately after three months without any notice from the department, it can be held that there was a reasonable and sufficient reason in view of the second proviso to section 221 - The levy of penalty under section 221 is discretionary in view of the second proviso to section 221 - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining of penalty under Section 221 of the Income Tax Act, 1961.
2. Inclusion of interest chargeable under Sections 234B and 234C while imposing the penalty.

Detailed Analysis:

1. Sustaining of Penalty Under Section 221:
The primary issue in the appeal was whether the Commissioner (Appeals) erred in partially sustaining the penalty of Rs. 3,28,407 against the original penalty of Rs. 16,42,037 levied by the Assessing Officer (A.O.). The assessee, a partnership firm engaged in civil construction and real estate, had filed its return of income on 29th October 2007, declaring a total income of Rs. 47,15,420. However, the self-assessment tax was not paid before filing the return, prompting the A.O. to issue a show-cause notice under Section 140A(3) read with Section 221.

The assessee cited reasons such as liquidity crunch, resignation of auditors and tax consultants, and manpower constraints for the delay in payment. Despite these explanations, the A.O. rejected the assessee's plea, stating that there was no nexus between the reasons cited and the government tax dues. Consequently, the A.O. imposed a 100% penalty amounting to Rs. 16,42,037.

Upon appeal, the Commissioner (Appeals) analyzed the bank balances and concluded that the assessee had sufficient funds to meet its tax liability on time. Despite this, the Commissioner (Appeals) reduced the penalty to 20%, amounting to Rs. 3,28,407, considering the assessee's payment of the self-assessment tax within three months and its non-default history.

Before the Tribunal, the assessee reiterated its financial constraints and business exigencies, arguing that the delay was not intentional. The Tribunal noted that the aggregate position of the bank accounts showed a net credit balance of Rs. 91,576, supporting the assessee's claim of insufficient funds at the time of filing the return. Given the reasonable cause and the discretionary nature of penalty under Section 221, the Tribunal decided to delete the penalty sustained by the Commissioner (Appeals).

2. Inclusion of Interest Under Sections 234B and 234C:
The second issue concerned the inclusion of interest chargeable under Sections 234B and 234C while imposing the penalty. The Commissioner (Appeals) held that the provisions of the Act were clear and consequential regarding the chargeability of interest. However, since the Tribunal deleted the penalty, the issue of interest inclusion became academic. The Tribunal noted that the interest was already part of the self-assessment tax paid by the assessee and did not require separate adjudication.

Conclusion:
The Tribunal allowed the assessee's appeal, deleting the penalty of Rs. 3,28,407 and treating the second ground as infructuous due to the deletion of the penalty. The order was pronounced in the open Court on 15th January 2014.