TMI Blog1997 (5) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... alties under s. 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 p. 52 of the paper-book. 3. The assessee went before the Settlement Commission who passed the order on 25th May, 1989, and 2nd June, 1989, in respect of asst. yrs. 1964-65 to 1970-71 and asst. yrs. 1970-71 to 1982-83, respectively. The AO passed the assessment orders and issued demand notices on 10th Aug., 1989. The AO issued notices under s. 221 on 21st June, 1990, which were received by the assessee on 27th June, 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 11th Sept., 1989, the assessee wrote a letter to the AO wherein it was stated that the assessee had received the assessment orders in pursuance to the orders of the Settlement Commission but wanted to verify the calculations of taxes and requested the AO to provide such calculations. The AO did not provide the calculations and a reminder was sent on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees persistently defaulted in the payment of taxes with the result that the TRO had to sell Gold Bonds of the assessees to recover the taxes. The CIT(A) 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 s. 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 Jyotinderasinhji 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 has not been accepted by the assessees and a SLP was filed before the Hon'ble Supreme Court. As soon as the demands were created, and before levy of penalties under s. 221, the assessees approached the AO with the request that certain rectification/adjustments were called for and certain adjustments were also called for in the tax calculations. In this regard he drew our attention to the correspondence with the ITO, Dy. CIT, Rajkot, and the CIT to give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Baunac Co. (P) Ltd. (1983) 140 ITR 407 (Del); (5) CIT vs. Chembara Peak Estates Ltd. (1990) 80 CTR (Ker) 69 : (1990) 183 ITR 471 (Ker); (6) M.L.M. Mahalingam Chettiar vs. Third ITO (1967) 66 ITR 287 (Mad); and (7) Om Prakash Agarwal vs. ITO (1967) 66 ITR 75 (All). 7. Shri K.K. Kanwat, the learned Departmental Representative strongly supported the orders of the authorities below. He submitted that even after the 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 Departmental Representative, after the orders of the Settlement Commission the demand was final and the assessee was duty-bound to make the payments. The learned Departmental Representative submitted that the Gold Bonds were offered for sale after the levy of penalties and no cognizance of the same should be taken. He, therefore, concluded that the levy of penalties was justified. 8. We have considered the rival submissions and perused the facts on records. In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 default must be wilful and not merely accidental. The imposition of penalty under s. 221 is within the discretion of the AO. 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 s. 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 cooperated with the Department. As soon as the assessment orders were received the assessee approached the AO, TRO and the CIT. The applications for adjustments/rectifications were filed before the AO but the AO did not bother to dispose of the same before levy of penalties. The assessee offered Gold Bonds for sale which were ultimately sold by the TRO through SBI, Bombay, and the sale proceeds were adjusted against the outstanding demands. The assessee entered into an agreement with the CIT for payment of taxes by instalments and as per the agreement the assessee not only paid regular demands but also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 AO issued notice under s. 221. One week's time was given to the assessee to file the explanation. A notice is placed at p. 11 of the paper-book and it is noticed that it is undated. It was explained to the AO that the demand created was under dispute and the assessee had approached the CIT for stay of demand, but the AO levied the impugned penalty by cyclostyled order stating that "the explanation submitted has been examined and found to be not satisfactory". 10. On appeal, the CIT(A) confirmed the penalty observing as under: "I have carefully considered the matter. There is no dispute regarding the demand over Rs. 32 lacs, which was outstanding in this case. However, the assessee had defaulted in making the payment of taxes due. Merely because the assessee had moved for stay of demand will not justify withholding the payment of tax which has been determined by the process of law. I, therefore, find no merit in the contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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