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2015 (6) TMI 322 - ITAT DELHI

2015 (6) TMI 322 - ITAT DELHI - tmi - Penalty u/s 140A(3) - non payment of self assessment tax which was shown as payable in the return of income filed - CIT(A) deleted the penalty levy - Held that:- No penalty notice was issued to the assessee u/s 221 of the Act and the penalty order was also not passed u/s 221 of the Act and there is no penalty provision u/s 140A of the Act and the AO misunderstood the relevant provision of the Act while issuing notice and imposing penalty against the assessee .....

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ons of the Act by the AO and thus, penalty order cannot be held as in accordance with law and sustainable and the first appellate authority i.e. CIT(A) was quite justified and correct in demolishing the same.

In view of the observations of the Hon’ble High Court of Delhi in the judgment dated 12.8.2013 in assessee’s own case (2015 (6) TMI 308 - DELHI HIGH COURT), we are also in agreement with the conclusion of the CIT(A) that the assessee was facing financial constrain and acute liqui .....

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etitioner: Sh. M.B. Reddy, CIT DR For the Respondent: Sh. Sudesh Garg, Adv. ORDER PER SHRI C.M. GARG, J.M. This appeal by the Revenue has been directed against the order of the Commissioner of Income Tax (Appeals)-XXXI, dated 10.06.2013 for A.Y. 2009-10 by which penalty order vide dated 31.05.2012 u/s 140A(3) of the Income Tax Act, 1961 (for short the Act) has been set aside by deleting the penalty imposed on the assessee. 2. The Revenue raised the following grounds in this appeal: 1. The order .....

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i.e. 2009-10 on 03.09.2010 declaring an income of ₹ 9,39,00,720/- without payment of self assessment tax of ₹ 4,12,62,460/- which was shown as payable in the return of income. The assessment was completed u/s 143(3) of the Act and, thereafter, the AO issued a show cause notice u/s 140A(3) of the Act on 23.11.2011 asking the assessee to show cause why he should not be treated as an assessee in default as per provisions of section 140A(3) of the Act. The AO had also asked the assessee .....

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ore CIT(A) during the first appellate proceedings: (i) That on the basis of the facts and circumstances of the case. The AO has grossly erred in imposing the penalty of ₹ 4,12,62,460/- which is illegal and liable to be quashed; (ii) That the perversity of the order is also evident as penalty order has been passed u/s 140A(3) instead of section 221 of the Act. Therefore, the same is liable to be quashed on this account also. 5. The CIT(A) after considering the submissions and contentions of .....

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ut raising any objection. 6. The CIT(A) allowed the appeal of the assessee on merits by passing the impugned order by accepting submissions and explanations of the assessee on the issue. Now the aggrieved Revenue is before this Tribunal in the second appeal with the grounds as reproduced hereinabove. 7. The ld. Departmental Representative (DR) supporting the penalty order submitted that no supporting document in regard to shortage and scarcity of the funds or liquidity crunch was filed before th .....

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y contended that the payment of tax cannot be delayed by saying that it has to make payment on income which is not linked to it and was shown in the return of income only for the sake of commitment made by way of surrender and the said surrendered income shown in the return of income was voluntarily offered by the assessee. Therefore, the assessee was under obligation to pay tax on the returned income before filing the return of income as required u/s 140A(1) of the Act and the non payment of ta .....

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ns for delay of payment of tax because reasons shown by the assessee during penalty proceedings were not bonafide and sustainable. The ld. DR finally submitted that the impugned order may be set aside by restoring the penalty order of the AO. 9. The ld. DR has placed reliance on the ratio of the following judgments as relied by the AO for levy of penalty: a) Commissioner of Income Tax vs. Devedayal Stainless Steel India Pvt. Ltd. (1991) 189 ITR 506 (Bom.); b) Commissioner of Income Tax vs. Pitam .....

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d that the benefit of the ratio of the judgments relied by the AO is not available for the Revenue as the provisions of section 140A(3) of the Act have changed substantially several times even prior to 1989 and the judgments relied and followed by the AO are related to the assessment years which are prior to A.Y. 1989-90. The ld. DR in his rejoinder submitted that the AO rightly placed reliance on the decisions/judgments to support levy of penalty. However, he could not controvert the fact that .....

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rovision of section 140A of the Act have been amended several times hence, we respectfully note that the ratio of these judgments cannot be applied blindly in view of subsequently amendments in section 140A of the Act. We also note that the judgment of Hon ble Apex Court in the case of ITO vs. A.M.S. Salimaricer (supra) the constitutional validity of section 140A of the Act was upheld which is not a subject matter before us and the Hon ble Supreme Court observed that the issue is no more relevan .....

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e for assessment of tax which does not relate to the provision/imposition of penalty; (ii) No penalty u/s 140A of the Act can be imposed as this is not a penalty imposing provision and the AO in the penalty order has only referred to section 140A of the Act for imposition of impugned penalty which is not sustainable. The ld. Counsel submitted that for this reason only the appeal of the Revenue deserves to be dismissed as the penalty order passed only u/s 140A(3) of the Act cannot be accepted as .....

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cannot be used in conjunction with each other. Penalty for non payment of tax can be imposed only u/s 221 of the Act as per ratio laid down by the Hon ble Punjab & Haryana High Court in the case of Great Value Food (2014) 41 taxmann.com 72 (P&H) and by Hon ble Bombay High Court in the case of PB Hathiramani 207 ITR 483 (Bom.); (v) Penalty order with allegation of non payment of tax cannot be considered to be an order u/s 221 of the Act as procedure required u/s 221 of the Act has not bee .....

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self) the argument of acute cash liquidity problem of the respondent was accepted by the Hon ble High Court and the CIT(A) was directed to admit the appeal of the assessee for adjudication on merits, hence this cause was rightly accepted by the CIT(A) as good and reasonable cause for allowing appeal of the assessee; (viii) There was a payment of ₹ 5,000/- as instalment on 2.12.2011 which also shows cash crunch and liquidity problem and at the same time this act also shows honesty and since .....

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siness operations of the assessee which caused unavoidable delay in payment of tax which was beyond control of the assessee due to good and sufficient reasonable cause; (x) Order of penalty passed with the approval of the Additional Commissioner of Income Tax is bad in law. 13. The ld. Counsel of the assessee has also placed reliance on the following decisions to support the said contentions of the assessee and to support the impugned order: (a) Agio Pharmaceuticals Ltd. Vs. ACIT (2013) 39 Taxma .....

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nd case laws relied by both the sides, at the very outset, we note that the AO issued notice vide dated 23.11.2011 which is reproduced below for the sake of clarity: In the above subject reference your attention is drawn towards return of income submitted in this office on 3rd September, 2010. From the documents and details filed, it has been perused that as per computation chart annexed with the return of income filed for the A.Y. 2009-10, tax payable has been shown at ₹ 4,12,62,460/-. As .....

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ncome rather the amount has been shown as payable. Provisions of sub section 3 of section 140A, provides as under: If any assessee fails to pay the whole or any part of such tax or interest or both in accordance with the provisions of sub-section (1), be shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid, and all the provisions of this Act shall apply accordingly. In view of the .....

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above show cause, your case stands fixed in the O/o of the undersigned on 1st December, 2011 at 1.00 p.m. You may furnish evidence of the tax paid as computed in the return of income. In case no such evidence is submitted or no compliance is made, proceedings u/s 140A(3) for imposing penalty will be considered and decided on merits. 15. From penalty order we further observe that the assessee submitted following reply during the penalty proceedings before the AO: We acknowledge the receipt of th .....

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FC Bank Ltd. 0510308 51677 50,00,000.00 23.04.2011 HDFC Bank Ltd. 0510308 51234 10,00,000.00 27.04.2011 HDFC Bank Ltd. 0510308 53572 10,00,000.00 30.04.2011 HDFC Bank Ltd. 0510308 58382 5,00,000.00 05.05.2011 HDFC Bank Ltd. 0510308 52571 10,00,000.00 13.05.2011 HDFC Bank Ltd. 0510308 51183 10,00,000.00 18.05.2011 HDFC Bank Ltd. 0510308 51215 8,00,000.00 28.05.2011 HDFC Bank Ltd. 0510308 50717 10,00,000.00 31.05.2011 HDFC Bank Ltd. 0510308 52560 5,00,000.00 06.06.2011 HDFC Bank Ltd. 0510308 53079 .....

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10,00,000.00 10.02.2012 HDFC Bank Ltd. 0510308 52166 25,00,000.00 11.02.2012 HDFC Bank Ltd. 0510308 50988 25,00,000.00 16.02.2012 HDFC Bank Ltd. 0510308 51115 80,00,000.00 16.02.2012 HDFC Bank Ltd. 0510308 51167 84,57,460.00 Total 4,12,62,460.00 The assessee has deposit the same but deposit the same late due to the following reasons: a) The assessee is suffering the liquidity crunch and find it difficult to pay the self assessment tax. b) The cash generation source of the business has been close .....

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the surrender and as such the assessee was made to pay taxes for the discrepancies as well as for the discrepancies which were not in the books but which were made to pay as per the surrender thereby making it difficult to comply with the both as such the amount was paid with some delay. Our view is supported by the following case laws: Section 140A - Held, that the proviso to section 140A(3) enjoined upon the ITO to afford a reasonable opportunity to the assessee of being heard before the deci .....

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vs.Mysore Fertiliser Co., (1984) 39 CTR 292: (1985) 22 Taxman 133 : (1984) 145 ITR 91 (Mad.); CIT vs. Indo American Electricals Ltd., (1985) 21 Taxman 433: (1985) 45 CTR 146 155 ITR 63 (Cal.). In the facts of the following cases, paucity of funds was held to be a good and sufficient reason for the non-payment of taxes. CIT vs. Chembara Peak Estates Ltd. (1989) 47 Taxman 166: (1989) 80 CTR 69: (1990) 183 ITR 471 (Ker); CIT vs. Jaipur Electro P. Ltd. (1990) 183 ITR 476 (Raj) CIT vs. Bhikaji Ramcha .....

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ive of the assessee company. In the reply, the assessee company has submitted that it has deposited the tax liability on the admitted income shown in the return of income, but delayed. For the delay in depositing the tax, it has contended to build up its case in view of shortage of funds. However, no supporting documents in this regard have been filed to show scarcity of funds or liquidity crunch. Further, the assessee has taken the plea of attachment of bank account made by the Department for r .....

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contention of the assessee cannot be accepted as the undisclosed income was admitted by the assessee voluntarily to cover up the incriminating documents found during search operation. The same was admitted by the assessee in the statement recorded u/s 132(4) and u/s 131 of the Act. Further, the payment of tax cannot be delayed by saying that it has to make payment on income which is not linked to it and was shown in the return of income only for the sake of commitment made for surrender. The inc .....

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ls furnished in the return of income for the A.Y. 2009-10. The contentions given do not carry any force and help the assessee company to build up any reasonable cause for delay in payment of admitted tax liability. From the above details and discussion, it is held that the assessee company wilfully did not make the payment of admitted tax liability and committed default within the provisions of section 140A(3) of the Income Tax Act, 1961. Further, the assessee has relied upon the decisions of va .....

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Commissioner of Income Tax vs. Pitambardas (J.) & Co. (1995) 216 ITR 172 (Bom.); c) Taylor Instrument Co. (India) Ltd. Vs. Commissioner of Income Tax (1998) 232 ITR 771 (Del.); d) Govinda Chetty (V.) vs. Commissioner of Income Tax (1998) 231 ITR 615 (Mad.); e) Ramachandra Pesticides P. Ltd. Vs. Commissioner of Income Tax (2006) 285 ITR 045 (Karn.); f) Income Tax Officer vs. A.M.S. Salimaricar (2001) 247 ITR 808 (SC). 6. Keeping in view the detailed discussion in view of the assessee, I am of .....

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aking payment of admitted tax liability of ₹ 4,12,62,460/- within the time limit as prescribed by the provisions of Income Tax Act, 1961. A penalty of an amount equal to admitted tax liability is imposed u/s 140A(3) of the Income Tax Act, 1961. 17. We further observe that the CIT(A) granted relief for the assessee with the following findings and determination: 3.5 The AR has further argued upon the meaning of good and sufficient reasons for levying penalty under the Act. He has also made d .....

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ITR 378 (Del.) 3.6 I agree with the AR that the AO has not mentioned the correct provisions of the act while passing the penalty order. Being a penalty matter, the appellant had the right to known under which section of the act he was being asked to show cause and under which section he would be ultimately penalised under the act. It is possible that provisions of section 292B of the I.T. Act would cover such inadvertent mistakes in quoting the correct section of the act as the appellant had par .....

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/- in one of the instances while discharging his tax liability shows that the appellant was really facing liquidity crunch and this is why he had to postpone the payment of SA tax. 3.8 The AR has filed copy of order of Delhi bench of Hon ble ITAT, in the appellant s case, decided against the refusal of CIT(A) to admit the appeal filed against assessment order, for the same assessment year, for non payment of admitted tax before filing the appeal. In the said order, the Hon ble ITAT has considere .....

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on of fresh penal proceedings for default of SA tax payment after gap of almost a year of completion of assessment and after a gap of 14 months of filing the return thus, shows that the AO has not considered the default very seriously. 3.10 Looking to all the circumstances and the conduct of the appellant in making tax payments in 24 installments, including as small a sum as ₹ 5000/-. I am of the view that the appellant must have faced liquidity crunch due to a large sum of additional inco .....

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alty. As on the date of levy of penalty, the appellant had paid off the entire dues. Hence, the AO should have been a little sympathetic before levying the penalty at the rate of hundred percent of the unpaid tax. 3.11 Most importantly, I consider that, Hon ble ITAT has already decided the issue in favour of the appellant when it directed CIT(A) to admit the appeal and dispose it off on merits. 3.12 In the above circumstances, I do not consider that the appellant deserved to be ...............fo .....

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tice vide dated 23.11.2011 (as reproduced hereinabove in para 14 of this order) and penalty order dated 31.05.2012 (as reproduced hereinabove in para 16 of this order), it is apparent that the AO show caused the assessee as to why a penalty u/s 140A(3) should not be imposed upon him for not complying with the provisions of section 140A(1) of the Act. From operative part of the penalty order para 6, it is also clear that the AO imposed penalty with a bottom line that the assessee is held in defau .....

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and recovery of tax part D-collection and recovery . From vigilant reading of provision of section 140A & 221 of the Act, we note that section 140A(3) stipulates that if any assessee fails to pay the whole or any part of such tax or interest or both in accordance with provisions of sub section (1), he shall, without prejudice to any other consequence which he may incur, be deemed to be an assessee in default in respect of the tax or interest or both remained unpaid, and all the provisions of .....

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when the assessee is in default in making a payment of tax then the AO may impose penalty does not exceeds the amount in arrears. For the sake of clarity in our observations and conclusion, we find it appropriate to reproduce section 221 of the Act as under: 221. (1)When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable, by way of .....

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ns, no penalty shall be levied under this section. Explanation - For the removal of doubt, it is hereby declared that an assessee shall not cease to be liable to any penalty under this sub-section merely by reason of the fact that before the levy of such penalty he has paid the tax. (2) Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of .....

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es not exceed the amount of tax in arrears. First proviso to section 221(1) of the Act provides that before levying any such penalty the assessee shall be given a reasonable opportunity of being heard and second proviso provides that where the assessee proves to the satisfaction of the AO that the default was due to good for sufficient reasons no penalty shall be levied under this section. The legislation has also provides an explanation removing doubt that an assessee was not ceased to be liabl .....

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hat the AO issued show cause notice to the assessee u/s 140A(3) of hte Act and the penalty order was also passed by imposing penalty u/s 140A(3) of the Act and there is no mention of section 221 of the Act either in the notice dated 23.11.2011 nor in the penalty order dated 31.05.2011 as reproduced hereinabove. The CIT(A) in para 3.6 of the impugned order has held that the provisions of section 292B of the Act would cover such inadvertent mistakes in quoting the correct section of the Act. As we .....

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section (1) of section 221 of the Act, it is ample clear that no penalty can be levied without affording a reasonable opportunity of being heard to the assessee and if assessee succeeds to prove to the satisfaction of the AO that the default was for good and sufficient reason then no penalty shall be levied on the assessee u/s 221 of the Act. In the light of legal provision if assessee has not been show caused u/s 221 of the Act then it is a clear violation of mandatory provision of first provis .....

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enalty order has also not been passed u/s 221 of the Act then this mistake is not covered under the umbrella of provisions of section 292B of the Act. 23. Coming to the merits of the case from the penalty order, we note that the AO has rejected the cause of shortage of funds, liquidity crunch and shortage of cash available at the time of filing return by observing that no supporting documents in this regard have been filed. The AO has also rejected the plea of the assessee that the assessee s ba .....

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ring the search operation which further resulted into huge tax demand which was obviously an abnormal demand and the same was not related with the normal business of the assessee. The AO has rejected this contention of the assessee by observing that in the return of income said income was voluntarily surrendered and offered for tax and the assessee was under obligation to pay tax on the admitted and surrendered income before filing the return and, therefore, assessee is liable to pay penalty u/s .....

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which shows that the appellant was really facing liquidity crunch. From the copies of the bank statements of the relevant period April, 2010 to March, 2011, placed before authorities below, we note that the assessee was operating 5 bank accounts with RBS Bank, Dena Bank, Federal Bank, Indian Overseas Bank & Union Bank, wherein the total balance as on the date of filing of return shown was less than ₹ 2.5 lacs and this fact has not been considered and controverted by the AO. This fact .....

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eads as under: Tribunal in the impugned order has found and held that there was a financial constraint faced by respondent assessee. Therefore, he took time to arrange for money but the said amount was duly paid before the appeal was dismissed by the first appellate authority. It has been held that the appeal should have been treated as validly filed on the date when the tax amount was paid. Tribunal also examined the question whether delay in filing of the first appeal should be condoned in vie .....

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ch was wrongly rejected by the AO. 26. On a specific query from the bench the ld. DR could not assist us whether any defect notice as per Explanation (aa) of section 139(9) of the Act was issued to the assessee pointing out defects in the return by the Department. In absence of any detail, we may observe that the Department has not issued any notice under said provision of the Act pointing out defect in the return filed by the assessee. At the cost of repetition, we may again point out that the .....

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ct. 27. In view of above, we respectfully follow the ratio of the decision of ITAT Mumbai A Bench in the case of AGO Pharmaceuticals Ltd. Vs. ACIT (supra), wherein it was held that where the assessee has filed the return of income on 28.09.2009 and paid self assessment tax u/s 140A of the Act on 19.01.2010 then since assessee had paid self assessment tax immediately when fact regarding non payment of tax came to its notice then the assessee was not liable for penalty u/s 221 of the Act. In the p .....

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