TMI Blog2001 (4) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... arising out of these short-term capital gains in purchasing the shares of Bramha Bazaz Hotels Ltd., a company under the same group which was promoting a Five Star Deluxe Hotel "Le Meridian". Because of this investment, the assessee did not have the funds to pay the taxes. The total tax liability was worked out at Rs. 1,20,40,939 which sum was payable by the assessee before the date of filing of return, i.e., 30th Nov., 1997. However, the AO found that till July, 1999, the assessee had paid only a sum of Rs. 39,35,600 and the balance amount of Rs. 92,23,610 was still payable. As the assessee-company had not paid the taxes, the AO initiated penalty proceedings under s. 221 of the IT Act. 3. In response to the show-cause notice, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m in paras 3 and 4 of his order. After considering the same, he observed that it may be true that the assessee could not pay the taxes on account of the financial crunch faced by it; but the fact remains that such financial crunch was self-created on account of investment made by the assessee in the shares of Bramha Bazaz Hotels Ltd. He further held "In my opinion, priority has to be given to payment of revenue in case the Government of the country has to be allowed to function properly. Even if it was necessary for the appellant to invest funds in purchase of shares of an associate concern, even then, in my opinion, as a good citizen, the appellant should not have invested the entire money in the purchase of shares, but should have set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) heard the appeal, the assessee had cleared all the demand and for that, the assessee-company had raised the following loans: (1) Advance from sister concern M/s Bramha Finance Corporation, who in turn has taken advances from friends, relatives and others Rs. 1,26,58,400 (2) Received from M/s Bramha Builders Rs. 10,15,000 (3) Received from Shri R.K. Aggarwal Rs. 27,82,200 Rs. 1,64,55,600 He submitted that financial stringency is a reasonable cause and since the assessee was having financial crunch, levy of penalty is not justified. In support of his contentions, he relied upon the following decisions: (1) CIT vs. Raunaq Co. (P) Ltd. (1983) 140 ITR 407 (Del); (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee was for good and sufficient reasons. For levying penalty under s. 221, default must be wilful and not merely accidental. The imposition of penalty under s. 221 is within the discretion of the AO. The expression "may direct" in s. 221 of the Act indicates that imposition of penalty is not mandatory, but the same is discretionary. However, the exercise of discretion is not to be arbitrary, but is dependent on the facts and circumstances of the case. It is also clear from the provisions of s. 221 that penalty is not automatically attracted in case of default in the payment of advance tax/regular demand and the same is to be imposed if the facts and circumstances on which the discretion is to be exercised so justify. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created by the assessee was self-created and in any case, such an act cannot be mala fide by any standard. We further have noted that the CIT(A) after taking into consideration the facts and circumstances of the case reduced the penalty to one-half and that shows that he was also convinced that the assessee-company was placed in mitigating circumstances. The assessee ultimately raised loans to the tune of Rs. 1,64,55,600 from its sister concerns as per details given in para 6 and liquidated the entire demand including substantial amount of interest under ss. 234B, 234C and 220. Under the circumstances, we find that the assessee-company s explanation was not frivolous but bona fide based on sound, legal, commercial and accounting reasoning. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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