2016 (9) TMI 606 - AT - Income Tax

Penalty imposed u/s. 221(1) r.w.s. 201(1) - no reasonable and sufficient reason for delay in payment of the TDS - financial stringency - Held that - What needs to be examined in the present case is as to whether there was any good and sufficient reason with the assessee for having defaulted in the deposit of the requisite TDS into the Government exchequer within the stipulated period. Before us, assessee has pleaded good and sufficient reason for the delay in deposit of tax on two grounds. Firstly, it is sought to be made that there was absence of adequate cash liquidity at the relevant point of time, which lead to the delay in deposit of tax into the Government Exchequer. Absence of adequate cash liquidity or financial crunch, in our view, is not a good and sufficient reason to mitigate the rigors of section 221(1) of the Act , as has been held by the Hon ble Calcutta High Court in the case of Jubilee Investments & Industries Ltd. (1999 (5) TMI 574 - CALCUTTA High Court ) as held any loss or profit in the business of the assessee has nothing to do with the deposit of the TDS amount, therefore, the plea of financial stringency cannot be a ground to mitigate the rigors of section 221(1) of the Act.Therefore, following the aforesaid decision, we reject the plea of the assessee based on the financial stringency. Second ground as canvassed as good and sufficient reason the Explanation below section 221(1) of the Act, in our view, is distinguishable, having regard to the facts of the present case. Notably, the Explanation refers to a situation where the tax has been paid before the levy of such penalty , whereas the situation before us is qualitatively different inasmuch as in the instant case, assessee has deposited the requisite TDS along with applicable interest into the Government Treasury even before any proceedings under section 201(1) of the Act were initiated by the Assessing Officer. In our considered opinion, considering the penal nature of section 221 of the Act, it would be in the fitness of things to make a distinction between a case where the TDS is deposited suo-motu before any proceedings are initiated by the Assessing Officer and a case where the deposit of the TDS is made after initiation of proceedings by the Assessing Officer but before levy of penalty. Considered in the aforesaid light, in our view, the said Explanation would not militate against the assessee in the present case, because of the aforesaid distinction. Having considered the entirety of circumstances canvassed by the assessee, which are based on bonafide considerations, it deserves to be construed that there existed good and sufficient reasons to mitigate the default in question, and thus, the first proviso to section 221(1) of the Act clearly comes to the rescue of the assessee, and the penalty levied under section 221(1) r.w.s. 201(1) of the Act by the Assessing Officer deserves to be set-aside. - Decided in favour of assessee

Summary

Issues involved:
Appeal against penalty imposed under section 221(1) r.w.s. 201(1) of the Income Tax Act, 1961 for delayed deposit of tax deducted at source.

Analysis:
1. Consolidated Order for Two Assessment Years:
The appeals relate to the same assessee for two assessment years and involve a common issue. Hence, they have been clubbed together for convenience. ITA No.4045/Mum/2015 for assessment year 2011-12 is taken as the lead case due to the similarity in facts and circumstances.

2. Grounds of Appeal:
The appeal challenges the penalty imposed under section 221(1) r.w.s. 201(1) of the Act for delayed deposit of tax deducted at source. The appellant contests the penalty, citing a valid adjournment application and asserts that the penalty should be deleted.

3. Factual Background:
The appellant, a HUF, failed to deposit tax deducted under section 194A within the prescribed period. The Assessing Officer issued a notice for non-payment of the tax, and a penalty of ?5,10,000 was levied, equivalent to 3% of the defaulted TDS amount. The CIT(A) upheld the penalty, noting the admitted non-deposit of TDS.

4. Assessee's Arguments:
The appellant argued financial constraints led to the delayed deposit, which was made promptly upon availability of funds. It was highlighted that interest payments were made post TDS deposit, demonstrating good faith. The appellant's financial losses were also presented to support the plea against penalty imposition.

5. Revenue's Stand:
The Departmental Representative contended that financial difficulties do not warrant penalty waiver, citing legal precedents. The Department emphasized that depositing tax does not absolve the assessee from penalty under section 221(1) of the Act.

6. Judicial Analysis - Financial Stringency:
The Tribunal rejected the plea based on financial constraints, aligning with legal precedents that financial challenges do not justify TDS default. The Hon'ble Calcutta High Court's decision was cited to support this stance.

7. Judicial Analysis - Good and Sufficient Reason:
The Tribunal acknowledged the appellant's prompt TDS deposit before initiation of proceedings, distinguishing it from cases where penalties were levied post-deposit. The Tribunal interpreted the law to favor the appellant's bonafide actions, setting aside the penalty under section 221(1) r.w.s. 201(1) of the Act.

8. Decision and Outcome:
The CIT(A)'s order was set aside, directing the Assessing Officer to delete the penalty of ?5,10,000 imposed under section 221(1) r.w.s. 201(1) of the Act for both assessment years. The appeals of the assessee were allowed.

9. Final Verdict:
The Tribunal's decision in the lead case applied mutatis mutandis to the subsequent assessment year, resulting in both appeals being allowed in favor of the assessee.

This detailed analysis covers the issues, arguments presented, legal interpretations, and the final outcome of the judgment.