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TMI Blog1997 (5) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged. (3) 7 appeals filed by Shri Jyotindrasinhji as L.R. of Late Shri Vikramsinhji of Gondal--Being ITA Nos. 2001 to 2007/Ahd./1992 for assessment years 1964-65 to 1970-71--Levy of penalties under section 221 aggregating to Rs. 1,20,240 has been challenged. 2. H.H. Shri Vikramsinhji--Ruler of the erstwhile State of Gondal expired in the year 1969. Shri Jyotindrasinhji, his son is only legal heir of Late H.H. Shri Vikramsinhji as per his last will - placed at page 52 of the paper book. 3. The assessee went before the Settlement Commission who passed the orders on 25-5-1989 and 2-6-1989 in respect of assessment years 1964-65 to 1970-71 and assessment years 1970-71 to 1982-83 respectively. The Assessing Officer passed the assessment orders and issued demand notices on 10-8-1989. The Assessing Officer issued notices under section 221 on 21-6-1990 which were received by the assessees on 27-6-1990 and which were to be replied within three days thereof. Thus, only a period of three days was given to the assessees to file the explanations. On 11-9-1989 the assessees wrote a letter to the Assessing Officer (page 13 of the paper book) wherein it was stated that the assessee's h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer had levied the penalties on wrong demand without considering the letters and submissions and therefore the levy of penalty was unjustified, arbitrary and deserved to be cancelled. The CIT (Appeals) conformed the penalties holding that the assessee's request for adjustment/rectification was not ascertainable, and that the assessees persistently defaulted in the payment of taxes with the result that the T.R.O. had to sell Gold Bonds of the assessee to recover the taxes. The CIT(Appeals) concluded "in any case, nothing prevents the assessee in paying the admitted tax liability which was never paid. This being the position, there is every justification for penalising the assessee under the provisions of section 221 of the Act". 6. Shri K.C. Patel, the learned counsel for the assessee submitted that there was no justification for the impugned penalties. He submitted that Shri Jyotindrasinhji is the only legal heir of Late H.H. Shri Vikramsinhji as per his last will. All the assessments were completed in pursuance to the orders of the Settlement Commission which was not accepted by the assessees and a special leave petition was filed before the Hon'ble Supreme Court. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bona fides of the assessees, and, hence, there was no justification for levy of impugned penalties. In support of his contentions, he relied upon the following authorities : (1) CIT v. Venilal Dwarkadas Mehta [1974] 93 ITR 140 (Ori.) (2) CIT v. Leader Valves (P.) Ltd. [1996] 220 ITR 591 (Punj. Har.) (3) CIT v. Dadu Wala Co. [1988] 170 ITR 491 (Raj.) (4) CIT v. Raunaq Co. (P.) Ltd. [1983] 140 ITR 407/[1982] 9 Taxman 85 (Delhi) (5) CIT v. Chembara Peak Estates Ltd. [1990] 183 ITR 471/[1989] 47 Taxman 166 (Ker.) (6) M.L.M. Mahalingam Chettiar v. Third ITO [1967] 66 ITR 287 (Mad.) (7) Om Prakash Agarwal v. ITO [1967] 166 ITR 175 (All,). 7. Shri K.K. Kanwat, the learned DR strongly supported the orders of the authorities below. He submitted that even after one year from the orders of Settlement Commission, the assessee did not pay the demands. He submitted that only minor adjustments were called for in the calculations of taxes and the assessee could have made such adjustments himself and paid the undisputed demands. According to the learned DR. affect the orders of the Settlement Commission, the demand was final and the assessee was duty bound to make the payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court and had also approached the CIT for the stay of demand. The Assessing officer was not justified in levying the impugned penalties when the stay petitions were pending as held by the Hon'ble Punjab Haryana High Court in the case of Leader Valves (P.) Ltd. 8.2 The whole purpose of giving an opportunity under section 221 before penalty is imposed is to see whether the default committed by the assessee was for good and sufficient reasons. For levying penalty under section 221, default must be wilful and not merely accidental. The imposition of penalty under section 221 is within the discretion of the Assessing Officer. However, the exercise of discretion is not to be arbitrary but is dependent on the facts and circumstances of the case. It is also clear from the provisions of section 221 that penalty is not automatically attracted in case of default in the payment of advance tax/regular demand and the same is to be imposed if the facts and circumstances on which the discretion is to be exercised so justify. From the facts of the case, it is evident that the assessee all through co-operated with the department. As soon as the assessment orders were received, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed supra. The assessment order in the case of Shri Jyotindrasinhji (individual for assessment year 1987-88 was passed on 30-3-1990 and it was served on the assessee on 25-4-1990. On 28-4-1990, the assessee moved for stay of demand before the Assessing Officer. The stay was, however, refused vide order dated 15-5-1990 by the Assessing Officer. Thereafter the assessee applied to the CIT for granting the stay on 16-5-1990. The petition is placed at page 9 of the paper book. It was submitted as under in the stay petition: "Primarily demand has arisen on account of alleged levy of capital gain on sale of gold bond and income from Trust in foreign countries. As far as levy of capital gain is concerned, the levy is unjustified. Similarly, matter of taking income of trust is under dispute." When the stay petition was pending before the CIT, the Assessing Officer issued notice under section 221. One week's time was given to the assessee to file the explanation. A notice is placed at page 11 of the paper book and it is noted that it is undated. It was explained to the Assessing Officer that the demand created was under dispute and the assessee had approached the CIT for stay of demand, b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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