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TMI Blog2007 (10) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... ,005 out of which the appellant deposited a sum of Rs. 25,00,000 on23rd Sept., 2004. The AO issued and served notice under s. 221(1) on 5th Nov., 2004 on the appellant with directions to produce challan(s) for tax payments and also to show cause as to why penalty should not be levied under s. 221 (1) of the Act in case the payment of outstanding tax demand had not been made and the hearing was fixed on 9th Nov., 2004. The AO further stated that on9th Nov., 2004nobody from appellant's side attended his office. Another notice was issued on3rd Dec., 2004on which date appellant deposited Rs. 6,00,000. The AO levied the penalty as no evidence was produced before him regarding payment of the balance demand. The penalty was levied on Rs. 1, 18,24,225. 3. Aggrieved with the order of AO the assessee filed an appeal before the CIT(A) and submitted before him that the AO levied penalty under s. 221(1) on an amount of Rs. 1,18,24,225 which was worked out as follows: Income-tax Rs. 33,07,221 Interest under s. 234B Rs. 23,80,419 Interest under s. 220(2) Rs. 59,29,365 Penalty under s. 27l(1)(c) Rs. 33,07,220 Rs. 1,49,24,225 ------------- Less paid Rs. 31,00,000 --------------- Rs. 1,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. In this case the first penalty notice under s. 221(1) dt.5th Nov., 2004was served upon the assessee to show cause as to why penalty should not be levied under s. 221 (1) of IT Act. Another notice was issued to the assessee on3rd Dec., 2004, on which date the assessee deposited a sum of Rs. 6 lakhs. In response to the notice the assessee in a letter dt.13th Dec., 2004explained to the AO that they had filed an application dt. 9th Dec., 2004 for waiver of the interest under s. 220(2a) of the Act before the CIT(A) and were prepared to pay the balance demand in instalments of Rs. 7 lakhs, Rs. 7 lakhs, Rs. 6,00,640 and Rs. 5,87,640 from December, 2004 to March, 2005 respectively. In the letter the assessee indicated that they were not in a position to pay the said demand in lump sum till February, 2005 because of the huge financial constraint on account of long outstanding dues from Jaipur Municipal Corporation which were not forthcoming. 8. In response thereto the AO replied in letter dt.17th Dec., 2004and mentioned that the request for payment in instalments was not acceptable because the additions have been confirmed by the High Court. The AO through the letter again directed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that the assessee before the CIT(A) has shown the details of payment amounting to Rs. 61,89,106 from the period28th Sept., 2004to18th March, 2005, which show that the assessee had all the intentions of making the payment of the outstanding dues and has also been making the payments regularly. The assessee has also been able to show from record that a dispute was going on with Jaipur Municipality for recovery of huge amount from the corporation out of which a sum of Rs. 5,03,142 was still not received from the corporation and the dispute was pending in the High Court, as is clear from the orders of the Single Bench and Division Bench of Hon'ble High Court of Rajasthan. 12. From these facts, it is clear that the assessee was having financial constraints on account of which it was unable to make the payment of the demand in lump sum and so he made a genuine request to be allowed to make the payments in instalments which was not justifiably declined by the AO. 13. We have also looked into another aspect of the matter that in the instant case out of the outstanding total initial demand of Rs. 1,49,24,225 the assessee was required to pay tax under s. 143(3) of the Act at Rs. 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of interest. 18. In this view of the matter, since, there were arrears of tax amounting to Rs. 2,07,221 only at the time of penalty order passed under s. 221 of the Act no penalty for the default of payment for the penalty amounts and amount of interest outstanding at the time of penalty order could be levied under s. 221 of the Act. 19, The Tribunal, Pune Bench, in the case of Bramha Bazaz Inns (P) Ltd. vs. Jt. CIT (2003) 79 TTJ (Pune) 342 have held paucity of funds due to financial stringency constituted a reasonable cause for inability to pay the tax in time and, therefore, penalty under. s. 221 of the Act was not leviable. 20. Taking a similar view the Tribunal Ahmedabad Bench in the case of Shri Jyotindrasinhji of Gondal vs. ITO (1997) 59 TTJ (Ahd) 310, held that the AO having levied penalties under s. 221 of the Act without making necessary adjustments/rectifications and giving only three days time when stay petitions are pending before the ITO, the penalties are liable to be cancelled. Similar views were expressed by their Lordships of Delhi High Court in the case of CIT vs. Raunaq & Co. (P) Ltd. (1983) 140 ITR 407 (Del), Kerala High Court in Abdulla vs. Agrl. ITO (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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