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TMI Blog2011 (9) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... d that:- There is no provision of law to wait for finalization of the quantum appeal before levying penalty. decided against Assessee. - IT APPEAL NOS. 3412 & 3413 (DELHI) OF 2011 - - - Dated:- 16-9-2011 - R.P. TOLANI, K.D. RANJAN, JJ. B.L. Gupta and Ms. Manju Goel for the Appellant. Salil Mishra for the Respondent. ORDER K.D. Ranjan, Accountant Member. These appeals by the Revenue and the Cross Objection by the assessee for assessment years 2008-09 and 2009-10 arise out of common order of the ld. CIT (Appeals)-XXX, New Delhi. These were heard together and are being disposed of, for the sake of convenience, by this consolidated order. First we take up the appeals filed by the Revenue. 2. The common grounds of appeal raised by the Revenue in both the years are as follows:- "(1) Quashing / deleting the penalty of Rs. 5,17,712/- imposed by the assessing officer under section 221(1) holding that no proper opportunity has been given to the assessee before imposing the penalty. The observation of CIT (Appeals), is wrong, incorrect and unacceptable because as per the record assessee was given sufficient time / opportunity to deposit the demand raised under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposing penalty u/s 221(1) of Rs. 5,17,712/- being 2% of outstanding demand of Rs. 2,58,85,648/-. In this order the assessing officer had observed that notice under section 221(1) of the Act issued on 30th November, 2009 was sent through Speed Post asking the assessee to deposit the demand by 7th December, 2009. In response thereto the assessee vide letter dated 11/12/2009 (received on 16/12/2009) submitted that the assessee was under heavy financial crunch and, therefore, was unable to deposit the demand in lump sum and, therefore, they were depositing the demand in parts. The assessing officer rejected the reply of the assessee as not acceptable on the ground of financial crises. Since the assessee company had deducted tax of Rs. 96,89,402/- in financial year 2008-09 and Rs. 1,61,96,246/- in financial year 2009-10 up to 20th November, 2009 but had failed to deposit the same to the account of the Central Government within the stipulated time, the default committed by it could not be condoned. The installment plan was neither given by the AO nor approved by the Department. The Assessing Officer, therefore, proceeded to impose penalty under section 221(1) of the Act at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if any. In case of recovery of the demand, he should also have given opportunity to the assessee before imposing penalty under section 220 221 of the Act. The ld. CIT (A) further noted that the assessee was aware of its default for not paying to the Govt. the TDS made by it. The AO should have attached the bank account of the assessee and then imposed the penalty under section 221(1) after giving proper opportunity to the assessee. 6. Before us, the ld. Sr. DR submitted that it was not fresh demand created by the assessing officer. The tax deducted at source was statutory liability and should have been paid within the time prescribed. Therefore, the ld. CIT (Appeals) was not justified in cancelling the penalty. On the other hand, the ld. AR of the assessee submitted that the penalty u/s 221(1) has been imposed on the same day as mentioned in the notice dated 29th December, 2009 which was received by the assessee on 30th December, 2009. Hence, the penalty under section 221(1) of the I. T. Act has been imposed without giving opportunity of being heard. He further, submitted that assessing officer had not issued notice u/s 156 and hence time limit for payment demand was not give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax. (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) of section 200. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make payment were over. It is only when all these three stages had passed and the assessee fails to comply with the notice of demand that he can become an assessee in default. Therefore, while dealing with the legal fiction introduced by expression 'deemed to be an assessee in default' it would be necessary to assume all those facts on which alone the fiction can operate were over and there had been a failure on the part of the assessee to comply with the notice of demand. 9. Now coming to the contention of the assessee that no demand notice was issued under section 156 of the Act and hence, no time for payment of demand was given to the assessee when he passed order under section 201(1) on 25th November, 2009. Hence the assessee cannot be deemed to be an assessee in default. Under section 156 when any tax, interest, penalty, fine or any other sum payable in consequence of any order passed under this Act, the AO shall serve on the assessee a notice of demand in prescribed form specifying the sum so payable. Therefore, a notice of demand u/s 156 is issued when any sum becomes payable in consequence of any order passed under this Act. Now question arises as to whether the tax d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice of a notice of demand under section 156. The reason is that no liability arises in such a case until service of a notice of demand, because the liability to pay tax, until determined by means of a proper assessment, remains merely ambulatory, and becomes fixed only upon the completion of assessment and demand [see M. M. Parikh, ITO v. Navanagar Transport Industries Ltd. [1967] 63 ITR 663, 670, 671 (SC)]. On the other hand, sections 195, 200 201 deal with a liability which is at no time ambulatory, but which is attracted immediately upon the happening of an event, namely, payment and failure to deduct under section 195 or failure to credit the sum deducted as required by section 200. As soon as such failure occurs, the liability arises once and for all, and there is no further requirement of computation of assessment. Once the liability is incurred, no further demand is necessary to recover the tax and the interest due thereon, unless the Revenue were to initiate proceedings for imposition of penalty in terms of the proviso to section 201(1) read with section 221. In the present case no penalty is sought to be imposed." 10.2 From the decision of Hon'ble Kerala High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 18(7). 12. From the decisions of Hon'ble Calcutta High Court in the case of Black Wood Hodge India (P.) Ltd. (supra), and Hon'ble Kerala High Court in the case of Traco Cable Co. Ltd. (supra) it has to be held that order passed u/s 201(1) is not an order in respect of which demand notice u/s 156 is to be issued by the assessing officer. Order u/s 201(1) is to be made to treat the assessee 'deemed to be an assessee in default' which will enable the assessing officer to impose penalty u/s 221(1) of the Act. 13. Section 221(1) of the I.T. Act, runs as follows: "221. (1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears ... be liable, by way of penalty, to pay such amount as the Assessing Officer may direct, and in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears : Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard: Provided further that where the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009 asking the assessee to deposit the entire amount of tax deducted at source by 7th December, 2009. The assessee vide his letter dated 11/12/2009 had stated that due to heavy financial crunch the assessee was not in position to deposit the demand in lump sum and, therefore, the assessee was paying the demand in parts. This fact recorded by the assessing officer in order under section 221(1) has not been disputed. In order dated 30th December, 2009 imposing penalty u/s 221(1) there is no mention of notice dated 29th December, 2009. From these facts it is clear that assessing officer levied penalty u/s 221(1) on the strength of notice dated 30.11.2009 inspect of outstanding demand of Rs. 2,58,85,648/- and not on the basis of notice dated 29.12.2009 which was served on 30.12.2009 in respect of demand outstanding as on that date at Rs. 2,00,20,530/-. There is nothing section 221 to restrict levy of penalty only once. Section 221(1) rather empowers the assessing officer in the case of a continuing default to impose penalty of such further amount or amounts as he may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result of any final order the amount of tax, with respect to the default in the payment of tax on which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded. Hence, in our considered opinion the observation of the CIT (Appeals) is contrary to provisions of section 221(2) of the Act and is liable to be set aside. We order accordingly. 18. In the result, both the appeals filed by the Revenue are allowed. C. O. No. 301 (Del) of 2011 : 19. The grounds of appeal raised by the assessee in the cross objection are as follows:- "1. On the facts and circumstances of the case the departmental appeal is bad in law and is liable to be dismissed; 2. On the facts and circumstances of the case the departmental appeal is bad in law by stating in the grounds of appeal that sufficient opportunity was given to the assessee to deposit the demand raised under section 201(1), but silent on the opportunity provided before imposition of penalty which is against the principles of natural justice; 3. On the facts and circumstances of the case the CIT (A) has rightly observed that as per notice dated 29/12/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2009 and, therefore, penalty has been imposed after issue of show cause notice under section 221(1) of the Act. The fact that notice was issued on 30th November, 2009 has not been denied by the assessee. Therefore, this ground of cross objection is also deserves to be dismissed. 22. The assessee vide grounds in the cross objection Nos. 2 and 3 has supported the order of the ld. CIT (Appeals). We have, however, reversed the order of the ld. CIT (Appeals) for the reasons mentioned in the order. For the same reasons, ground Nos. 2 and 3 of the cross objection are dismissed. 23. In ground No. 4 of the cross objection the assessee has stated that the Departmental appeal is bad in law stating that there is no provision of law to wait for finalization of the quantum appeal before levying penalty. In Revenue's appeal we have held that the order of the ld. CIT (Appeals) is contrary to the provisions of section 221(2) of the Act and have reversed the findings of the ld. CIT (Appeals) on this issue. For the same reasons, this ground of cross objection is dismissed. 24. Ground No. 5 of the cross objection relates to the issue that demand notice under section 156 for outstanding demand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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