2018 (9) TMI 874 - AT - Income Tax

Penalty u/s 221(1) - default in payment of arrears of tax - Held that - Penalty u/s 221(1) levied in respect of tax liabilities determined in orders U/s 201(1A) for the aforesaid year. As the aforesaid orders u/s 201 r.w.s. 201(1A) of IT Act for Financial Year 2007-08 (Assessment Year 2008-09) and Financial Year 2008-09 (Assessment Year 2009-10) have been set aside by Delhi Bench of ITAT and restored to the file of the AO, the penalty levied U/s 221(1) Employees provident Fund Organization Regional Office Delhi have no legs to stand at present. We set aside the aforesaid orders of the Ld. CIT(A) for A.Y. 2008-09 (F.Y. 2007-08) & A.Y. 2009-10 (F.Y. 2008-09); and restore the corresponding matter regarding penalty u/s 221(1) of the IT Act to the file of the Assessing Officer for fresh orders. The Assessing Officer shall pass fresh orders U/s 221(1) of I.T. Act after the consequential orders U/s 201 r.w.s. 201(1A) of I.T. Act pursuant to aforesaid order dtd. 03.08.2016 of ITAT are passed. The Assessing Officer will give reasonable opportunity to the assessee before passing fresh orders U/s 221(1) of IT Act - Appeals of the assessee are partly allowed for statistical purpose.

Summary

Issues:
- Confirmation of penalty order under section 221(1) by CIT(A)
- Justification of penalty imposition for default in tax payment
- Legality of lower authorities' orders

Analysis:

Confirmation of Penalty Order under Section 221(1) by CIT(A):
The Assessee raised grounds of appeal against the CIT(A)'s confirmation of the penalty order under section 221(1) for both Assessment Years 2008-09 and 2009-10. The penalty amount levied was ?5,00,000 for each year. The Assessee contended that the default in tax payment was for valid reasons, and therefore, no penalty should have been imposed. The Ld. CIT(A) dismissed the Assessee's appeals against the penalty orders, leading to the present appeals before the ITAT.

Justification of Penalty Imposition for Default in Tax Payment:
The penalty under section 221(1) of the IT Act was imposed by the Assessing Officer for the two Assessment Years, even though the tax liability orders under section 201 r.w.s. 201(1A) were set aside by the ITAT and remanded to the Assessing Officer for fresh orders. The ITAT noted that since the tax liability orders were set aside, the penalties imposed had no basis. Consequently, the ITAT set aside the CIT(A)'s orders confirming the penalties and directed the Assessing Officer to pass fresh penalty orders after the consequential tax liability orders were finalized. The Assessee was to be given a reasonable opportunity before fresh penalty orders were issued.

Legality of Lower Authorities' Orders:
The ITAT considered the arguments presented by both the Assessee's counsel and the Departmental Representative. The Assessee relied on the ITAT's previous order and relevant legal provisions, while the Departmental Representative supported the decisions of the lower authorities. Ultimately, the ITAT partially allowed the Assessee's appeals for statistical purposes, setting aside the penalties and remanding the matter back to the Assessing Officer for fresh orders in line with the finalized tax liability determinations.

In conclusion, the ITAT found that the penalties imposed under section 221(1) were premature due to the unsettled tax liability orders and directed the Assessing Officer to reevaluate the penalties once the tax liability issues were resolved. The ITAT's decision provided relief to the Assessee by setting aside the penalties and ensuring a fair opportunity for the Assessee in the penalty reassessment process.