TMI Blog2008 (10) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... ve." 2. The facts are that for the year under consideration, the assessee filed its return of income on 30th Oct., 2004, showing Rs. 3,33,29,720 as its returned income. A note was appended to the return that the interest under ss. 234B and 234C was liable to be waived; and that the assessee, being a new firm, had started its business in the middle of February, 2004 and could not estimate its income. The return was processed on 17th March, 2002 (sic) and a demand of Rs. 13,51,857 was raised. as per intimation. Vide letter dt. 21st April, 2006, the assessee filed an application under s. 154 of the IT Act, stating that it was not liable to pay the first two instalments of advance tax, since it was formed during the previous year relevant to the asst. yr. 2004-05 and it had started its business in the middle of February, 2004 only; that interest under ss. 234B and 234C worked out at Rs. 7,55,897 and Rs. 1,07,985, respectively, was wrongly charged as against that of Rs. 9,52,313 and Rs. 3,99,543, respectively. The application was decided vide order dt. 26th June, 2006, observing that there was nothing on record to indicate that the business of the assessee was started in the middle of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the return of income was filed on 30th Oct., 2004 and the advance tax was payable on the income earned in the last quarter by 15th March, 2006, it was not paid; that the assessee could have paid the taxes by way of self-assessment tax on 31st March, 2003, which was also not done without any explanation; that the assessee could also have paid the taxes by way of self-assessment tax before filing of the return on 30th Oct., 2004; that the assessee thus had more than seven months to make the payment, which it did not do; that it was only on 17th March, 2006 that the return was processed, showing the amount as payable; that this intimation-cum-notice of demand was duly received on 21st April, 2006, but even then no payment was made and it was only on 28th June, 2006 that the amounts were paid by the assessee on receipt of notice under s. 221 (1) of the Act; that so far as regards the liability of interest under s. 234C, the levy of interest under this section is automatic; that no authority lower than the Chief CIT has the power to waive or reduce the interest chargeable under these sections; that thus, the assessee was liable to pay such interest; that the assessee had deliberatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year of business; that the business was started only 40 days before the closing of the year; that a major portion of the income had not even been recovered; that these facts are patent on record; that the assessee was, under these facts, under a bona fide belief that interest under ss. 234B and 234C was liable to be waived; and that since the assessee was a new firm and had started its business only in the middle of February, 2004, it could not estimate its income. In support of the contention of bona fide belief that interest was liable to be waived, reliance has been placed on the decision in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC). The learned counsel for the assessee has averred that without prejudice to his foregoing arguments, in the facts and the circumstances of the case, the assessee is not at all liable to levy of 100 per cent penalty and that if at all, only a token penalty ought to have been levied; that as per the provisions of s. 221 (1), it is only where there is a continuous default that levy of penalty is called for; and that moreover, no reason has been recorded by the learned CIT(A) while confirming the penalty erroneously lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest. Explanation: Where the amount paid by the assessee under this sub-section falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance if any, shall be adjusted towards the tax payable." 11. As evident, s. 140A provides that where any tax is payable on the basis of any return to be furnished, after taking into account the amount of tax, if any such tax has already been paid, the assessee shall be liable to pay such tax together with any interest payable for, inter alia, any default or delay in the payment of advance tax, before furnishing the return and proof of payment of such tax and interest is to accompany the return. As per the Explanation, where payment made under s. 140A(1) falls short of the aggregate of the tax and interest payable as envisaged by s. 140A(1), the amount paid shall be first adjusted towards the interest payable and the balance, if any, shall be adjusted towards the tax payable. 12. Sec. 221 (1) and the Explanation thereto read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s still pending; that the assessee had made the entire payment of Rs. 11,55,440 on 28th June, 2006 on account of interest under ss. 234B and 234C; that the explanation offered by the assessee was satisfactory; that it was due to the fact that this was the first year of the existence of the assessee firm and the business of the assessee had started only in the middle of February, 2004, that the assessee had not been able to estimate or anticipate its advance tax. 17. First of all, undeniably, the assessee was in default of making the payment of interest of Rs. 11,55,440 under ss. 234B and 234C, for which reason only, penalty under s. 221 (1) of the Act has been levied. This, as correctly argued on behalf of the assessee, militates against the very provisions of s. 221(1), as quoted hereinabove. The section nowhere provides for levy of penalty for non-payment of interest. 18. In the present case, the fact remains that an application for waiver of interest did stand filed on 12th July, 2006 and it is hitherto pending. The penalty order is dt. 8th June, 2007. The order of the CIT(A) confirming the penalty is dt. 20th Nov., 2007. On the filing of an application under s. 154 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings and penalty will ordinarily not be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of his obligation; and that penalty will also not be imposed merely because it is lawful to do so. In the present case, the assessee's conduct, as discussed hereinabove, does not amount to the assessee either having acted deliberately in defiance of law or in conscious disregard of its obligation or to contumacious or dishonest conduct. 25. Further, as noted, as on the date of passing of the order of penalty, the assessee's application for waiver of interest under ss. 234B and 234C was pending before the learned Chief CIT, Amritsar. 26. In Nachimuthu Industrial Association vs. CIT, it has been held that the fact that income was exempt and that there was paucity of funds are relevant circumstances for deletion of penalty under s. 221 (1) of the Act. In the present case, the assessee had started its business in the middle of February, 2004. Asst. yr. 2004-05 was its first year o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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