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2021 (7) TMI 805 - AT - Income TaxPenalty levied u/s 221(1) - non-payment of tax demanded in the assessment order - HELD THAT:- Penalty under sec.221(1), if the assessee is in default or is deemed to be in default in making a payment of tax. In the instant cases, the penalty proceedings u/s 221(1) has been initiated by the AO, since both the assessee have failed to pay the demand raised in the reassessment order and hence they have become “assessee in default”. Provisions of sub. Sec. (2) further state that the penalty levied shall be cancelled, where as a result of final order the amount of tax, with respect to the default in payment of which the penalty was levied, has been wholly reduced. In the instant cases, as on today, the assessment orders have been quashed by the Tribunal, vide its order dated 03-02-2021 (referred above) in the hands of both the assessee by holding that reopening of assessment is invalid. Hence, as on today, the demand has become Nil. Accordingly, as per the provisions of sub. Sec. (2) of sec. 221, the penalty levied u/s 221(1) is liable to be cancelled, if the orders passed by the Tribunal becomes final order, i.e., the operation of sub. Sec (2) would depend upon the question as to whether the orders passed by the Tribunal have become “final” or not? If the revenue has accepted the orders passed by the Tribunal in the hands of both the assessees, then the same will result in a final order, in which case, the impugned penalty levied u/s 221(1) of the Act shall be liable to be cancelled. We hold that the impugned penalty levied in the hands of both the assessee is liable to be quashed. We order accordingly. However, in the event of reversal of orders passed by the Tribunal in the quantum proceedings in the hands of both the assessee for AY 2007-08, the impugned penalty levied u/s 221(1) in the hands of both the assesses shall revive. - Appeals of the assessees are treated as allowed.
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