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TMI Blog2015 (6) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration i.e. 2009-10 on 03.09.2010 declaring an income of Rs. 9,39,00,720/- without payment of self assessment tax of Rs. 4,12,62,460/- which was shown as payable in the return of income. The assessment was completed u/s 143(3) of the Act and, thereafter, the AO issued a show cause notice u/s 140A(3) of the Act on 23.11.2011 asking the assessee to show cause why he should not be treated as an assessee in default as per provisions of section 140A(3) of the Act. The AO had also asked the assessee to show cause as to why penalty u/s 140A(3) of the Act should not be imposed for not complying with the provisions of sec. 140A(1) of the Act. After receiving reply from the assessee the AO imposed penalty of Rs. 4,12,62,460/- u/s 140A(3) of the Act vide his order dated 31.05.2012. 4. Aggrieved assessee preferred an appeal before CIT(A) which was allowed by passing the impugned order and the AO was directed to delete the penalty. The assessee raised following main and substantial grounds before CIT(A) during the first appellate proceedings: (i) "That on the basis of the facts and circumstances of the case. The AO has grossly erred in imposing the penalty of Rs. 4,12,62,460 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion of the AO also submitted that the assessee will fully did not make the payment of admitted tax liability and committed default within the provisions of section 140A(3) of the Act. Therefore, penalty is leviable on the assessee. 8. The ld. DR alleging impugned order submitted that the CIT(A) rightly rejected legal objection of the assessee but the CIT(A) was not correct and justified in accepting the reasons for delay of payment of tax because reasons shown by the assessee during penalty proceedings were not bonafide and sustainable. The ld. DR finally submitted that the impugned order may be set aside by restoring the penalty order of the AO. 9. The ld. DR has placed reliance on the ratio of the following judgments as relied by the AO for levy of penalty: a) Commissioner of Income Tax vs. Devedayal Stainless Steel India Pvt. Ltd. (1991) 189 ITR 506 (Bom.); b) Commissioner of Income Tax vs. Pitambardas (J.) & Co. (1995) 216 ITR 172 (Bom.); c) Taylor Instrument Co. (India) Ltd. Vs. Commissioner of Income Tax (1998) 232 ITR 771 (Del.); d) Govinda Chetty (V.) vs. Commissioner of Income Tax (1998) 231 ITR 615 (Mad.); e) Ramachandra Pesticides P. Ltd. Vs. Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision and the AO in the penalty order has only referred to section 140A of the Act for imposition of impugned penalty which is not sustainable. The ld. Counsel submitted that for this reason only the appeal of the Revenue deserves to be dismissed as the penalty order passed only u/s 140A(3) of the Act cannot be accepted as an order passed u/s 140A(3) r.w.s. 221 of the Act; (iii) It was also submitted on behalf of the assessee that penalty notice and orders imposing penalty must be strictly in accordance with the procedure laid down as per law and even smallest of deviation from the same make them non-sustainable; (iv) The section 140A of the Act holds assessee in default for both tax and interest and penalty u/s 221 of the Act can be imposed only for nonpayment of tax and this major distinction indicates that two cannot be used in conjunction with each other. Penalty for non payment of tax can be imposed only u/s 221 of the Act as per ratio laid down by the Hon'ble Punjab & Haryana High Court in the case of Great Value Food (2014) 41 taxmann.com 72 (P&H) and by Hon'ble Bombay High Court in the case of PB Hathiramani 207 ITR 483 (Bom.); (v) Penalty order with allegation of non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions and contentions of both the sides and vigilant perusal of the relevant material placed on record before us, inter alia, penalty notice, penalty order, impugned order of the CIT(A) written submissions of the assessee and case laws relied by both the sides, at the very outset, we note that the AO issued notice vide dated 23.11.2011 which is reproduced below for the sake of clarity: "In the above subject reference your attention is drawn towards return of income submitted in this office on 3rd September, 2010. From the documents and details filed, it has been perused that as per computation chart annexed with the return of income filed for the A.Y. 2009-10, tax payable has been shown at Rs. 4,12,62,460/-. As per provisions of sec. 140A(1) of the Income Tax Act, 1961, the assessee is liable to pay such tax together with interest payable under any provision of the Act before furnishing the return of income and such return of income shall be accompanied by proof of payment of such tax and interest. Whereas in your return this amount of tax amounting to Rs. 4,12,62,460/- has been shown as payable. No evidence in respect of tax payable of Rs. 4,12,62,460/- has been submitted with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 0510308 51215 8,00,000.00 28.05.2011 HDFC Bank Ltd. 0510308 50717 10,00,000.00 31.05.2011 HDFC Bank Ltd. 0510308 52560 5,00,000.00 06.06.2011 HDFC Bank Ltd. 0510308 53079 10,00,000.00 18.06.2011 HDFC Bank Ltd. 0510308 51050 5,00,000.00 02.12.2011 State Bank of India 0004329 01009 5,000.00 05.12.2011 State Bank of India 0004329 15720 5,00,000.00 05.12.2011 State Bank of India 0004329 15989 5,00,000.00 06.12.2011 State Bank of India 0004329 09810 10,00,000.00 07.12.2011 State Bank of India 0004329 09221 10,00,000.00 08.12.2011 State Bank of India 0004329 21946 1,00,000.00 12.12.2011 HDFC Bank Ltd. 0510308 54702 14,00,000.00 03.02.2012 HDFC Bank Ltd. 0510308 52193 10,00,000.00 10.02.2012 HDFC Bank Ltd. 0510308 52166 25,00,000.00 11.02.2012 HDFC Bank Ltd. 0510308 50988 25,00,000.00 16.02.2012 HDFC Bank Ltd. 0510308 51115 80,00,000.00 16.02.2012 HDFC Bank Ltd. 0510308 51167 84,57,460.00 Total 4,12,62,460.00 The assessee has deposit the same but deposit the same late due to the following reasons: a) The assessee is suffering the liquidity crunch and find it difficult to pay t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty was imposed by the AO with the following conclusion and findings: "4. Reply filed on behalf of the assessee company has been considered and discussed with the Authorized Representative of the assessee company. In the reply, the assessee company has submitted that it has deposited the tax liability on the admitted income shown in the return of income, but delayed. For the delay in depositing the tax, it has contended to build up its case in view of shortage of funds. However, no supporting documents in this regard have been filed to show scarcity of funds or liquidity crunch. Further, the assessee has taken the plea of attachment of bank account made by the Department for recovery of outstanding demand. In this regard, it is to be brought on record that the bank accounts of the assessee were attached in March'2011 as the assessee was not making the payment of demand raised after completion of assessment proceedings whereas the liability of tax u/s 140A(1) was raised in prior period i.e. April to September, 2009. The assessee has contended that it could not pay the tax within time on income surrendered during search and had deposited due tax after some delay. This contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 247 ITR 808 (SC). 6. Keeping in view the detailed discussion in view of the assessee, I am of the considered opinion that the assessee has failed to establish any reasonable cause of non payment of admitted tax liability u/s 140A(1) of the Income Tax Act, 1961 within the time limit prescribed by the Income Tax Act, 1961 and is in default within the provision of sec. 140A(3) of the Act. Moreover, failure on the part of the assessee has also been examined in view of the decisions of Hon'ble Apex Court and High Courts as mentioned above. Therefore, the assessee is held in default for not making payment of admitted tax liability of Rs. 4,12,62,460/- within the time limit as prescribed by the provisions of Income Tax Act, 1961. A penalty of an amount equal to admitted tax liability is imposed u/s 140A(3) of the Income Tax Act, 1961." 17. We further observe that the CIT(A) granted relief for the assessee with the following findings and determination: "3.5 The AR has further argued upon the meaning of "good and sufficient reasons" for levying penalty under the Act. He has also made detailed submissions that the provisions of section 140A(3) should be read harmoniously in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal proceedings for default of SA tax payment after gap of almost a year of completion of assessment and after a gap of 14 months of filing the return thus, shows that the AO has not considered the default very seriously. 3.10 Looking to all the circumstances and the conduct of the appellant in making tax payments in 24 installments, including as small a sum as Rs. 5000/-. I am of the view that the appellant must have faced liquidity crunch due to a large sum of additional income offered during the search under Rajdurbar group. The appellant has made the payments of the taxes due, as and when he could organize the funds. Though the bank accounts had been attached during a different period. It cannot be denied that search action and attachment of bank accounts together, do, create some kind of disturbance in the conduct of any business which might have added to liquidity problems. Further the appellant has paid off the dues in several instalments before the levy of penalty. As on the date of levy of penalty, the appellant had paid off the entire dues. Hence, the AO should have been a little sympathetic before levying the penalty at the rate of hundred percent of the unpaid tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuation where if any assessee fails to pay whole or any part of such tax or interest or both as per provisions of section 140A(1) of the Act then he shall be deemed to be an assessee in default in respect of unpaid tax or interest or both. While from the language used by the legislation in section 221 of the Act we clearly observe that this provision provides penalty leviable and payable when the assessee is in default in making a payment of tax then the AO may impose penalty does not exceeds the amount in arrears. For the sake of clarity in our observations and conclusion, we find it appropriate to reproduce section 221 of the Act as under: 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 and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the AO may direct and in the case of a continuing default, such further amount or amounts as the AO 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act either in the notice dated 23.11.2011 nor in the penalty order dated 31.05.2011 as reproduced hereinabove. The CIT(A) in para 3.6 of the impugned order has held that the provisions of section 292B of the Act would cover such inadvertent mistakes in quoting the correct section of the Act. As we have already noted that as per first proviso to section 221(1) of the Act it is mandatory that before levying such penalty the assessee shall be given a reasonable opportunity of being heard and second proviso to the said sub section further provides that where the assessee proves to the satisfaction of the AO that the default was for "good and sufficient reason" then no penalty shall be levied under this proviso. 22. In view of language used by the legislature in first and second proviso to sub section (1) of section 221 of the Act, it is ample clear that no penalty can be levied without affording a reasonable opportunity of being heard to the assessee and if assessee succeeds to prove to the satisfaction of the AO that the default was for "good and sufficient reason" then no penalty shall be levied on the assessee u/s 221 of the Act. In the light of legal provision if assessee has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty order was passed. The ld. DR has not controverted this fact that the assessee paid entire amount of tax upto 16.02.2012 in 24 instalments, wherein on 02.12.2011 there was a payment of Rs. 5,000/- which shows that the appellant was really facing liquidity crunch. From the copies of the bank statements of the relevant period April, 2010 to March, 2011, placed before authorities below, we note that the assessee was operating 5 bank accounts with RBS Bank, Dena Bank, Federal Bank, Indian Overseas Bank & Union Bank, wherein the total balance as on the date of filing of return shown was less than Rs. 2.5 lacs and this fact has not been considered and controverted by the AO. This fact also supports good and reasonable cause of the assessee for non payment of tax at the time of filing of return. 25. At this juncture, we respectfully take cognizance of the order of the Hon'ble High Court of Delhi dated 12.08.2013 in assessee's own case i.e. ITA No. 384/Del/2013 (supra), wherein the Hon'ble High Court upheld the conclusion of the Tribunal which directed the CIT(A) to hear the first appeal of the assessee on merits. The relevant operative part of the order of Hon'ble High Court rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non payment of tax came to its notice then the assessee was not liable for penalty u/s 221 of the Act. In the present case undisputedly the assessee had paid entire demand of tax by way of last instalment paid on 16.02.2012 and this fact was also noticed by the AO while passing the impugned penalty order. However, we also hold in view of Explanation to sub section (1) of section 221 of the Act the assessee does not secure any immunity from levy of penalty only on the ground that he had paid entire amount of tax arrears before levy of penalty meaning thereby there was no amount of tax remained unpaid against the assessee when the penalty order was passed by the AO. 28. To sum up, we are inclined to hold that the no penalty notice was issued to the assessee u/s 221 of the Act and the penalty order was also not passed u/s 221 of the Act and there is no penalty provision u/s 140A of the Act and the AO misunderstood the relevant provision of the Act while issuing notice and imposing penalty against the assessee. Consequently the assessee was also not provided due opportunity of hearing prior to imposing penalty u/s 221 of the Act as required by first proviso to section 221(1) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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