2022 (7) TMI 544 - AT - Income Tax

Penalty u/s 221 r.w.s. 140A - default of non-payment of taxes on due date - assessee submitted that there is no default as the self-assessment tax as determined in the return of income u/s 139(4) has been paid - HELD THAT - We first find that assertion of the learned assessing officer that the return was revised on 19/1/2018 is a revised return is devoid of any merit. This is so because in the acknowledgement of return filed in 19/1/2018 assessee says it is still an original return. Based on that return i.e. filed on 17/10/2016 he proposes to levy the penalty u/s 221 holding assessee to be an assessee in default . We find that when the return filed on 17/10/2016 was held to be an invalid return thus deemed never to have been filed by the assessee or as if the assessee has failed to furnish the return we failed to understand that how the penalty can be initiated stating that assessee has failed to pay tax according to the invalid return filed by the assessee. When a return of income is held to be invalid it cannot be considered that such return has ever been filed u/s 139. Provisions of Section 140A (3) can apply only when there is a self-assessment tax payable with respect to the return filed u/s 139 of the act. Further if there is a failure u/s 140 A (3) then only assessee can be held to be assessee in default . As in the present case there is no return of income filed u/s 139 of the income tax act therefore any penalty based on that return does not survive. There is one more aspect to the issue on one hand Act treats defective return as Failure to furnish the return of income and on the other hand AO initiates penalty based on that defective return for non payment of taxes. Thus there is an apparent dichotomy in the action of the AO. Accordingly we find that the penalty levied by the learned assessing officer as per order dated 14/05/2018 u/s 221 (1) of the income tax act is not sustainable. Hence orders of lower authorities are reversed. Ground no 1 to 4 are allowed.

Summary

Issues:
Penalty under Section 221(1) of the Income-tax Act, 1961 for default in payment of self-assessment tax.

Analysis:
The appeal was filed against the order confirming the penalty levied under Section 221(1) of the Act. The Assessee's grounds of appeal included contentions regarding the alleged default in payment of self-assessment tax, being an 'assessee in default' under Section 140A, and the applicability of penalty post-amendment. The Assessee, a textiles manufacturing company, filed its return of income but failed to rectify defects, leading to invalidation of the return. The Assessing Officer issued a notice for non-payment of taxes, which the Assessee contested, claiming the self-assessment tax was paid. The Assessing Officer imposed a penalty, citing intentional wrong claims and irresponsibility by the Assessee. The CIT (A) upheld the penalty, leading to the Assessee's appeal.

The Assessee argued that the penalty based on an invalid return was unjustified, as the return filed under Section 139(4) did not have default in tax payment. The Departmental Representative supported the lower authorities' orders, emphasizing the defective original return and subsequent non-payment of due taxes. The Tribunal examined the sequence of events, noting the invalidation of the original return and the subsequent filing of a valid return under Section 139(4). The Tribunal found the Assessing Officer's assertion of a revised return on 19/1/2018 to be incorrect, as the return was still considered original by the Assessee. It concluded that penalties based on an invalid return were not sustainable, as the Assessee cannot be held 'assessee in default' without a valid return under Section 139. The Tribunal highlighted the discrepancy in treating a defective return as a failure to furnish and initiating penalties for non-payment, leading to the reversal of the penalty imposed.

The Tribunal allowed grounds 1 to 4, reversing the penalty imposed under Section 221(1) of the Act. Ground 5 was dismissed due to the lack of arguments presented. The appeal was partly allowed, with the order pronounced on 07.07.2022.