TMI Blog2015 (7) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... he submission on behalf of the appellant that penalty under Section 221 of the Act would be payable only when the same is in addition to the arrears of payment of tax deducted also stands negatived by the Explanation added to Section 221(1) of the Act. This Explanation clarifies that an assessee shall continue to be liable to penalty even if the tax has been paid before levy of penalty. The proviso under Section 201 would have no application to the facts of the present case. The legislature did not provide for the words "by or under this Act" in the proviso as in the absence of deducting tax, the occasion to deposit it within time as provided in the Rules would not apply. This is so as the time begins to run from the date of the deducting of tax as is evident also from Section 200 of the Act which provides that any person deducting any sum shall pay it within the prescribed time, the sum so deducted to the Central Government. It must be borne in mind that the assessee continues to be in default in case the tax has not been deposited with revenue within the time prescribed under the Act. Tax deposited thereafter but before penalty proceedings are initiated would not cleanse th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her for final disposal and are being disposed of by this common order. 2. The Reference Application under Section 256(1) of the Income Tax Act, 1961 (the 'Act') arises out of two orders dated 14 September 2014 of the Income Tax Appellate Tribunal (the 'Tribunal') for the Assessment Year 1985-86 and 1987-88 seeking our opinion on the following question of law: Whether on the facts and circumstances of the case, the Tribunal was right in law in upholding the levy of penalty u/s. 221 of the I.T. Act, 1961, for failure to pay tax deducted at source within the prescribed time? 3. The two appeals under Section 260A of the Act arise from common order dated 16 March 2000 of the Tribunal for the Assessment Years 1987-88 and 1988-89. Both appeals were admitted on 22 January 2002 on the following substantial questions of law: 1. Whether the interpretation placed by the Tribunal upon Sections 221 and 201 of the Income Tax is correct? 2. Whether the Tribunal, in any event acted unreasonably and perversely in confirming the levy of penalty upon the appellant to the extent of 5% of the TDS? 4. It is agreed position between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d time. Consequently the appellant was liable for penalty under Section 221 of the Act. 9. By letter dated 27 August 1990, the appellant responded to the show cause notice. The appellant pointed out that the delay in depositing the tax was essentially on account of financial difficulties and also in view of the sheer volume, size and spread of its operations. This was as the requisite information from offices situated all over India had to be collected before depositing the amounts deducted as tax at source. In any case, it was submitted that no penalty can be imposed under Section 221 of the Act, when failure to deduct and deposit is for good and sufficient reasons. In this case, it was submitted by the appellant that there were good and sufficient reasons for delay in depositing the tax with the revenue. Thus it was submitted that no penalty under Section 221 of the Act be imposed. 10. The Deputy Commissioner of Income Tax by an order dated 31 August 1990, titled as an order under Section 221 read with Section 201 of the Act disposed of the show cause notice dated 24 July 1990. By the above order the Deputy Commissioner of Income Tax condoned the delay in certain cases, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence and two years under appeals are as under: Assessment Year Penalty as per AO (Rs) Penalty as per Tribunal (Rs) 1985-86 20,36,911 1,00,000 1986-87 28,35,524 1,00,000+1,50,000 1987-88 76,79,118 38,38,059 1988-89 84,63,403 42,31,701 13. Mr. Mistry, the learned Senior Counsel for the appellant in the reference and in two appeals in support submits as under: (a) Impugned order and proceedings leading to penalty under Section 221 of the Act are without jurisdiction as the condition precedent for the exercise of the same is that an assessee is in default or is deemed to be in default in making a payment of tax is not satisfied. This being in default or being deemed to be in default can only arise when an appealable order is passed under Section 201(1) of the Act prior to initiation of penalty proceedings. This admittedly is not done in all the three cases under consideration; (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady been paid to the revenue. In the alternative, it is submitted that the explanation below Section 221(1) of the Act would apply only in cases where demand is raised for payment of tax remaining unpaid at the time of initiation of penalty proceedings. In the present case, the applicant/appellant has paid the tax alongwith interest thereon much before notice to impose penalty under Section 221 of the Act was issued; (f) Section 201(1) of the Act was amended by Finance Act, 2002 with retrospective effect from 1 April 1962 to cover cases where there has been a failure to deduct whole or any part of the tax. At the relevant time, when these proceedings commenced and orders passed, no penalty was imposable in case there was part payment of the tax deducted at source to the revenue; (g) In any case, no penalty ought to have been levied upon the appellant in view of proviso to Section 221 of the Act which provides in case of default for good and sufficient reasons, no penalty can be imposed. It is the appellant's submission that delay in payment of the tax deducted at source into the revenue was due to its diverse locations, lack of computer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for imposition of penalty under Section 221 of the Act cannot be faulted with; (d) It is submitted that above view stands fortified by the fact that under Section 205 of the Act, where tax has been deducted and not deposited, the revenue cannot proceed against the person from whose income, tax has been deducted. Thus the proviso to Section 201(1) of the Act has no application where tax is deducted but not deposited; (e) The penalty for the Assessment Years 1985-86, 1986-87, 1987-88 and 1988-89 is reasonable. For the first two years it was ₹ 1 lakh and 1.50 lakh while for subsequent two years it was higher bearing in mind that appellant is a persistent defaulter having defaulted in Assessment Years 1985-86 and 1986-87; and (f) The various contentions raised by the applicant/appellant before this Court should not be considered s they had not filed any cross objection from the order of CIT(A) to the Tribunal. 15. Before considering the rival submissions, it would be useful to reproduce Sections 2(7), 201 and 221 of the Act as existing at the time when penalty was imposed upon the appellant by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the [Assessing] Officer may direct, and in the case of a continuing default, such further amount or amounts as the [Assessing] Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears: Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard: [Provided further that where the assessee proves to the satisfaction of the [Assessing] Officer that the default was for good and sufficient reasons, 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 penalty paid shall be refunded. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as passed an order which is tittled as an order under Section 201 and 221 of the Act. The impugned order imposing penalty is after having accepted the assessee to be in default. In normal cases, where there is some dispute with regard to the amount of tax deducted and amount of tax deposited and/or delay in deposit and/or the interest payable thereon then the passing of an order under Section 201 of the Act before initiating penalty proceedings may be necessary. This is because there is a dispute on the factual determination whether or not the assessee is in default or deemed to be in default and the extent of default. 19. The appellant before us is not disputing the position that they were late in depositing the tax deducted at source with the revenue. Therefore they were assessess in default. In these facts, giving of a notice and/or passing an order for determining that the assessee is in default or deemed to be in default would not arise. The fact that an appeal is provided under Section 246(i) of the Act from an order passed under Section 201 of the Act would not by itself require the passing of separate order under Section 201 of the Act prior to passing of an order under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricity Board v. DCIT 200 ITR 434 relied upon by the petitioner can have no application. Both the above decision were rendered in the context of Section 143(1A) of the Act. 21. It was next submitted on behalf of the appellant that penalty under Section 221 of the Act would be payable only when the same is in addition to the arrears of payment of tax deducted. This according to them is the plain reading of the words. We do not find so. The Parliament has specifically provided for the words in addition to the amount of arrears alongwith the amount of interest payable be liable for penalty only with a view of qualifying that payment of the amount of arrears and the interest payable would by itself not wipe away the liability to penalty under Section 221 of the Act. The aforesaid submission on behalf of the appellant also stands negatived by the Explanation added to Section 221(1) of the Act. This Explanation clarifies that an assessee shall continue to be liable to penalty even if the tax has been paid before levy of penalty. 22. It was next contended that in view of the proviso to Section 201(1) of the Act, invocation of Section 221 of the Act is barred where the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 201 would have no application to the facts of the present case. The legislature did not provide for the words by or under this Act in the proviso as in the absence of deducting tax, the occasion to deposit it within time as provided in the Rules would not apply. This is so as the time begins to run from the date of the deducting of tax as is evident also from Section 200 of the Act which provides that any person deducting any sum shall pay it within the prescribed time, the sum so deducted to the Central Government. 24. It was next submitted on behalf of the appellant that the Explanation below Section 221 of the Act which clarifies that penalty will continue to be imposable even if the assessee has paid the tax before the levy of penalty would not apply to the present facts. This for the reason it is submitted the penalty would be imposable under Section 221 of the Act only if the assessee is in default at the time of initiation of penalty proceedings. In the present case it is submitted that the amounts deducted have been deposited long before the notice for penalty under Section 221 of the Act was issued. This stand was also taken by the CIT(A) while allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en penalty proceedings were initiated. 26. It was next urged on behalf of the appellant that Section 201(1) of the Act was amended by the Finance Act, 2002 with the retrospective effect from 1962. This amendment was brought in to include an assessee to be in default, on failure to deduct or failure to pay the whole or any part of the tax as required by or under this Act. Prior to the amendment, the words the whole or any part of the tax were not there. The consequences of failure to pay were attached/attracted only where the tax was not deducted and paid in whole. It was submitted that prior to amendment, if a part of the tax was deducted and paid to the revenue, then Section 201 of the Act would not be triggered. We do not find any merit in this submission. The amendment by the Finance Act, 2002 with the retrospective effect was clarificatory in nature. The words does not deduct or after deducting fails to pay tax in the preamended Section 201 of the Act would in its plain reading also cover a failure to part deducting and/or failure to make a part payment of the already deducted tax to the revenue. The amendment being only clarificatory in nature does not for the first tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Commissioner of Wealth Tax v. S.L. Hendra 191 ITR 565 where penalty was set aside under the Wealth Tax Act on payment of self assessment tax due to final stringency caused by the acquisition of property. This was found by the Tribunal to be a reasonable cause and on this fact the Court refused to interfere. In the present facts also the Tribunal has rendered a finding of fact that the reason set out by the appellant for failure to deposit the tax within time is not a good and sufficient cause. At the hearing, the appellant had not been able to show that the above finding of the Tribunal is in any manner perverse and/or arbitrary. 28. It was lastly submitted by the appellant that no penalty ought to have been imposed upon it in all the assessment years under consideration, in view of the fact that the CIT(A) had held while interpreting Section 221 of the Act that no penalty is imposable. It was submitted that the interpretation by CIT(A) is a plausible one. In such circumstances, there is no justification to impose any penalty upon the appellant. On the other hand it was contended by the revenue that the interpretation put by the CIT(A) on Section 221 of the Act is in face ..... X X X X Extracts X X X X X X X X Extracts X X X X
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