2007 (7) TMI 177 - HC - Income Tax

Penalty imposed u/s 221 as assessee not filed appropriate form with IT dept. nor deposited tax deducted at source from time to time Tribunal cancelled penalty held that even though order of tribunal on the point of law was not correct its finding that the discretion to levy penalty on assessee had not been fairly exercised was based on appreciation of evidence & material on record so tribunal was justified in cancelling of penalty revenue s appeal against tribunal order is rejected

Summary

Issues:
Imposition of penalty under section 201(1)/221 for financial years 1982-83 and 1983-84.

Analysis:
The case involved the imposition of penalties under section 201(1)/221 of the Income Tax Act for the financial years 1982-83 and 1983-84. The development authority, being the respondent-assessee, failed to comply with provisions regarding tax deduction at source and filing appropriate forms with the Income Tax Department. The Income Tax Officer levied penalties totaling Rs. 2,67,510 for various defaults committed during different periods. The Appellate Assistant Commissioner partially allowed the appeal, granting relief of Rs. 67,610. Subsequently, the Tribunal canceled the entire penalty, stating that penalties should not be imposed if taxes were paid without any action by the Income Tax Officer. The Tribunal emphasized that penalty imposition is discretionary and should be exercised fairly. It also noted discrepancies in the penalty rates imposed by the Income Tax Officer, indicating unfair exercise of discretion.

The Revenue argued that penalties were justified as the development authority failed to deduct tax at source and deposit it within the prescribed period. They contended that paying taxes before penalty imposition does not absolve liability, citing legal precedents supporting this view. The Tribunal's decision to cancel penalties based on the grounds of tax and interest payment before penalty initiation, unfair exercise of discretion by the Income Tax Officer, and non-filing of required forms was challenged by the Revenue.

The High Court analyzed the grounds for penalty deletion. It disagreed with the Tribunal's view that penalties cannot be imposed if taxes and interest were paid before penalty proceedings, citing the Explanation to section 221(1) of the Act. Legal precedents were referenced to support the position that paying interest does not absolve liability for penalties. The Court also disagreed with the Tribunal's stance on non-filing of Form No. 26C, stating that penalty proceedings were initiated under section 201(1) of the Act, not for form non-compliance. Regarding the fair exercise of discretion, the Court upheld the Tribunal's decision, emphasizing that the Tribunal's findings were based on evidence and not perverse.

Ultimately, the Court upheld the Tribunal's decision to delete the penalties, stating that while the Tribunal's legal position was correct, there was no reason to interfere with the issue of fair discretion exercise. The question was answered in favor of the assessee against the Revenue, with no costs awarded.