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2021 (2) TMI 586 - HC - Income TaxLevy of penalty u/s 221 - Error / Mentioning of wrong AY in the penalty order - Financial incapacity of an assessee to pay the tax - Year of assessment - HELD THAT - From perusal of Annexure-B annexed with the memorandum of appeal, it is evident that the assessee has paid tax in respect of Assessment Year 2008-09. It is also not in dispute that admittedly the assessee has committed a default in respect of Assessment Year 2007-08 and did not pay the tax on account of financial hardship. However, the authorities under the Act have taken into account the fact in respect of the Assessment Year 2007-08 and have held the assessee to be in default in respect of Assessment Year 2008-09 and have created the penalty under Section 221 of the Act in respect of Assessment Year 2008-09. The aforesaid mistake, if any, is not same under Section 292B of the Act under which only clerical error or accidental omissions can be protected. Therefore, the decisions on which reliance has been placed by the learned counsel for the revenue, has no application to the factual matrix of the case. We have no option but to quash the order dated 14.03.2011 passed by the Tribunal and remit the matter to the Tribunal. Needless to state that it will be open for the parties to urge their contentions before the Tribunal and all questions of law are kept open to be raised before the Tribunal
Issues:
1. Applicability of penalty under Section 221 of the Income Tax Act based on financial incapacity. 2. Adjudication of specific grounds raised by the assessee regarding default in Assessment Year 2008-09. 3. Interpretation of Section 292B of the Income Tax Act regarding clerical errors in assessment proceedings. 4. Validity of penalty levied for Assessment Year 2008-09 based on facts of Assessment Year 2007-08. Analysis: 1. The appeal raised the question of whether financial incapacity of an assessee to pay tax warrants the levy of a penalty under Section 221 of the Income Tax Act for Assessment Year 2008-09. The assessee, a company, declared an income of ?4,07,660/- and paid the assessed tax of ?1,37,619/-. However, the Assessing Officer imposed a penalty of ?50,00,000/-, which the assessee contested based on financial constraints. The matter was escalated to the Income Tax Appellate Tribunal, which upheld the penalty. The court analyzed the facts and remitted the case back to the Tribunal for further consideration, emphasizing that financial incapacity may impact the imposition of penalties. 2. The specific ground raised by the assessee regarding default in Assessment Year 2008-09 was not adjudicated by the Commissioner of Income Tax (Appeals) or the Tribunal. The court noted that the failure to address this ground and the consideration of facts from the previous assessment year led to a lack of clarity in the penalty imposition process. The case was remitted for a fresh decision to ensure proper examination of all grounds raised by the assessee. 3. Section 292B of the Income Tax Act was invoked to address clerical errors or omissions in assessment proceedings. The court highlighted that this provision protects proceedings from invalidation due to minor mistakes if they align with the intent of the Act. Citing relevant case law, the court clarified that clerical errors, like incorrect mention of assessment years, can be rectified under this section. However, in the present case, the mismatch between the assessment years and the penalty imposition raised substantive concerns beyond clerical errors. 4. The validity of the penalty levied for Assessment Year 2008-09 based on facts from Assessment Year 2007-08 was a key issue. The court observed that while the penalty orders referred to the correct assessment year, the authorities considered defaults from the previous year, leading to confusion. The court emphasized that the protection under Section 292B does not extend to substantial errors like misattributing defaults to a different assessment year. Consequently, the court quashed the Tribunal's order and remitted the case for a fresh determination, maintaining neutrality on the merits of the case.
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