2016 (4) TMI 296 - AT - Income Tax

Penalty under section 221 r.w.s. 140A(3) - levy the maximum penalty - Penalty payable when tax in default - Held that - Examination by the learned CIT(A) of the assessee s bank account, for the period under consideration, evidenced that the assessee did not have sufficient funds therein and that the payment of taxes in six installments from 22.11.2011 to 09.03.2012 were made by margin moneys deposited with various brokers being withdrawn by the assessee. Before us, except for reiterating the ground raised, Revenue had not been able to controvert the above factual findings of the learned CIT(A) that the assessee was in severe financial hardship in the said period, as evidenced by the fact that when the AO attached the assessee s bank account, the balance therein was only ₹ 48,487/-. Financial hardship is further buttressed by the observation of the CIT(A) that for making the payment of taxes the assessee had withdrawn margin money placed by it with various brokers. Revenue has also not been able to justify before us, as to why, in these factual circumstances, the AO proceeded to levy the maximum penalty, i.e. to the extent of tax arrears. In these above factual circumstances, we concur with the view of the learned CIT(A) that the AO s action in levying the penalty under section 221 r.w.s. 140A(3) of the Act on the maximum amount of tax payable appears to be excessive, especially considering the severe financial constraints faced by the assessee and the fact that the payment of tax in six installments from 22.11.2011 to 09.03.2012 was made by withdrawing margin money kept with various brokers. In this view of the matter, we uphold the order of the learned CIT(A) in confirming the penalty levied on the assessee under section 221 r.w.s. 140A(3) of the Act to the extent of ₹ 1,00,000/- only. - Decided against revenue

Summary

Issues:
Penalty under section 221 r.w.s. 140A(3) of the Income Tax Act, 1961 for A.Y. 2011-12.

Detailed Analysis:

1. Facts of the Case:
The appellant, a taxpayer, did not pay the self-assessment tax before filing the return of income for A.Y. 2011-12. The Assessing Officer (AO) initiated penalty proceedings under section 221 r.w.s. 140A(3) of the Act due to non-payment of tax. The AO levied a penalty at the maximum limit of the tax amount in arrears. The appellant faced financial hardship due to losses in the capital market, leading to delayed tax payment.

2. Appeal Before CIT(A)-6:
The appellant appealed against the penalty levied by the AO. The CIT(A)-6 observed that the appellant faced financial constraints but still managed to pay taxes in installments by withdrawing margin money from brokers. The CIT(A) reduced the penalty to a lesser amount, considering the financial difficulties faced by the appellant.

3. Grounds Raised by Revenue:
The Revenue appealed against the CIT(A)'s order, arguing that the penalty should not have been reduced as the appellant failed to pay the full self-assessment tax before filing the return. Revenue contended that the appellant's actions led to a loss to the government exchequer.

4. Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision to reduce the penalty. It noted that the appellant's financial hardship was evident from the bank account balance and the use of margin money to pay taxes. The Tribunal agreed that the AO's imposition of the maximum penalty was excessive given the circumstances. Consequently, the Tribunal dismissed Revenue's appeal, affirming the reduced penalty amount.

5. Cross Objection by Assessee:
The appellant's cross objection was withdrawn during the hearing, rendering it inconsequential. The Tribunal dismissed the cross objection accordingly.

6. Final Decision:
Both Revenue's appeal and the appellant's cross objection for A.Y. 2011-12 were dismissed by the Tribunal, upholding the reduced penalty amount determined by the CIT(A)-6.

This judgment highlights the importance of considering financial hardship as a mitigating factor in penalty proceedings under tax laws and emphasizes the need for a balanced approach in imposing penalties based on individual circumstances.