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2015 (10) TMI 381 - AT - Income TaxLevy of penalty under section 221(1) - Assessee did not pay self-assessment tax but filed return of income on due date - CIT(A) deleted part penalty - Held that:- There is no dispute with reference to the fact that assessee’s company was stopped by Pollution Control Board and assessee had to construct a new plant at Nandigama. Further, in spite of financial crunch assessee has declared large amount of profits and the taxes due were also admitted. Due to severe cash crunch, assessee could not discharge tax liability immediately. However, the same was discharged as stated by the assessee before the Ld. CIT(A). Penalty under section 221(1) is not automatic and mandatory. The proviso to section 221(1) states that where assessee proves to the satisfaction of the A.O. default for good and sufficient reasons, no penalty shall be levied under this section. In fact, this aspect was examined by the Ld. CIT(A) and came to the conclusion that there are good and sufficient reasons for the assessee not to discharge the self-assessment tax at the particular point of time due to financial crunch. However, he restricted the penalty to 10% instead of deleting the whole of the amount. The assessee had made out a good case in its support and the facts do indicate that there are good and sufficient reasons for assessee’s delay in payment of taxes. Relying on the various case law which are extracted by the Ld. CIT(A) in para-7 of the order, it can be concluded that penalty under section 221(1) is not a mode of recovery of taxes and this punitive action can be taken in case of willful default. Assessee is not a willful defaulter and it has sufficient reasons to not to discharge the tax liability at the time of filing return, but within period of 7 months discharged entire admitted tax. In fact the cheques issued in the month of March, 2011 were encashed by the A.O. in the months of March and June,2011. In these circumstances, we are of the opinion that assessee cannot be considered as willful defaulter. Since it has bonafide reasons, we are of the opinion that penalty under section 221(1) is not attracted on the facts of the case. Therefore, we delete the penalty partly confirmed by the Ld. CIT(A). - Decided in favour of assessee.
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