TMI Blog2015 (8) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... irect AO to confine the penalty u/s 221(1) of the Act to 5% of the admitted tax liability in each case - Decided partly in favour of assessee. - ITA No. 555/Hyd/2014, 557/Hyd/2014, 558/Hyd/2014, 559/Hyd/2014, 560/Hyd/2014, 561/Hyd/2014, 562/Hyd/2014 - - - Dated:- 5-8-2015 - SHRI P.M.JAGTAP and AND SHRI SAKTIJIT DEY, JJ. For The Appellant : Shri S.Rama Rao For The Respondent : Shri Solgy Jose T.Kottaram DR ORDER Per P.M. Jagtap, Accountant Member These seven appeals filed by seven assessees against seven separate orders passed by the learned Commissioner of Income-tax(Appeals)-VII, Hyderabad involve a common issue relating to imposition of penalty under section 221(1) read with section 140A(3) of the Income Tax Act, 1961 and the same, therefore, have been heard together and are being disposed of by a single composite order for the sake of convenience. 2. All the seven assessees in the present case are companies which belong to a group of companies established by Sri Ramalinga Raju and his family members. During the previous year relevant to A.Y. 2008-09, all these seven companies alongwith other group companies sold certain extent of land and the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the course of penalty proceedings, statements of the Directors of the assessee companies were also recorded by the Assessing Officer under section 131. They however could not offer any explanation to the satisfaction of the Assessing Officer for the default in payment of tax by the assessee companies. The assessee companies also filed their reply to the show cause notices in writing offering their explanation as under : (i) At the outset it is submitted that there has been no willful of any kind by the assessee to evade payment taxes and th proposed initiation of penalty proceedings is unsubstantiated without cause. (ii) We further submit that as per the reasons mentioned in the earlier show cause notice there has been no establishment of any willful intent or attempt on the part of the assessee in evading the payment of taxes. The returns were filed b the assessee on 30th September, 2008 by which date the assessee was not having immediate means to pay the tax and the monies by it for the purpose of paying tax amounts. (iii) Further, the subsequent events are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese penalty proceedings continued to exist. As there was change of incumbency of the office, a fresh opportunity of being heard was given. Hence, it is not correct to conclude that the earlier penalty proceeding has not established any willful intention of tax default by the assessee company. The submission that, it did not have any means on 30.09.2008 while filing the return of income, for tax payment is also notacceptable. What stopped the assessee company from making any tax payment as advance tax, when it actually derived income during the F.Y. 2007-O8? The assessee is a well established company carrying out business for years, with the support of many professionals. Hence, it is appropriate to conclude that it was well aware of the tax liability also when it entered into any transactions which derived income for it. As mentioned above, the company had liquidity as per the Bank Statement and was having sufficient current assets to clear the tax dues. This dearly shows that the assessee company does not have good and sufficient reasons for non-payment of the tax. (iii) The submission that the subsequent events are well within the knowledge of revenue and all the properties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 221(1) read with section 140A(3) of the were imposed by the Assessing Officer on all the seven assessee companies as under : Sl. No. Name of the Assessee Penalty imposed by the Assessing Officer Rs. 1. M/s. Konar Agro Farms P. Ltd., 25,00,000 2. M/s.Sindhu Greenlands P. Ltd. 50,00,000 3. M/s.Nagavalli Green- lands P. Ltd. 35,00,000 4. M/s.Medravathi Agro Farms P. Ltd. 20,00,000 5. M/s.Himagiri Bio-Tech P. Ltd. 40,00,000 6. M/s.Himagiri Greenfields P. Ltd. 40,00,000 7. M/s. Goman Agro Farms P. Ltd. 40,00,000 3. The penalties imposed by the A.O. under section 221(1) read with section 140A(3) of the I.T. Act were challenged by the assessee companies in the appeals filed before the Learned CIT(A) and elaborate submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT with a prayer for suitable arrangement for the payment of taxes in relation to demand raised u/s 143(1) was also given. In this letter, the refund due from M/5 Maytas Properties Ltd for AYs 07-08, 08-09 and 09-10 amounting to ₹ 11.45 crores was requested to be adjusted against six companies - (a) Swarnamukhi Greenfields Pvt Ltd (b) Himagiri Biotech Pvt Ltd Cc) Sindhu Green lands Pvt Ltd (Goman Agro Farms Pvt Ltd) (d) Himagiri Greenfields Pvt Ltd were mentioned. It is noted that the appellant company is not among these six companies. h. In terms of the Company Law Board Order, dated 13.01.2011, M/s IL FS was inducted into HCPL in the best interest of the company, stake holders and public interest. Post induction M/s. IL FS negotiated for suitable arrangement for payment of outstanding demand in the 14 LOC subsidiary companies and finally tax payments were made in the case of the appellant on 21/2/11 (5O lakhs), 16/3/11 (50 lakhs), 16/3/11 (77.97 lakhs), 3/6/11 (75 lakhs) and 10/04/12 (23.59 lakhs). i. Imposition of penalty u/s 221 is only discretionary and not mandatory. j. There was good and sufficient reason in the appellant s case for non levy of penalty. CBD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ems that the company along with other sister companies associated with M/s Satyam computers ran int since the self confessed statement of Sri Ramalinga Ra u, the chairman of the group in January, 2009. The material point is that these were later events and cannot justi what transpired in FY 2007-08 when all the advance tax instalments fell due and were ignored. The appellant d receive lot of funds and deployed them elsewhere as evidenced from the balance sheet (current assets) with ut bothering about the tax liability, which it very well new, would arise. 5.3. The appellant had cited the following case laws governing the levy of penalty. The gist of the submissions inferred from the said case laws and my remarks are summarized below : Sn. Case Law Gist Remarks 1. Hindustan Steel Ltd V/s. State of Orissa (83 ITR 26)(SC) An Order imposing the. penalty for failure to carry out a statutory obligation is the result of quasi criminal proceedings. Penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance payment. Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction [or collection] at source or by advance payment [or by payment under sub-section (1A) of section 1 9 2, as the case may be, in accordance with the provisions of this Chapter. 5.3.2. Section 191 provides for direct payment of taxes, if there was no TDS. The essential thing to not is the requirement to pay as you earn by any means so that revenues keep coming at a steady pace and would not cause difficulty either to the tax payer or to the Govt. Section 1 9 1 - Direct payment [* ** ] In the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct. 5.4. The taxes are the revenue of the Govt enabling it to carry out its functions and when the li ility is self determined (not through a highly disputed assessment), the responsibility on the tax payer is more and so would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he default was for good and sufficient reasons, no penalty shall levied. From the plain reading of the aforesaid provision, it becomes clear that imposition of penalty u/s 221(1) is not automatic or mandatory. AO has been given discretion to impose penalty in an appropriate case whereas assessee has also been given an opportunity to satisfy AO that there is good and sufficient reasons for default in making payment. 30. Keeping in view the aforesaid statutory provision, let us examine the facts of the present case. At the cost of repetition, we would like to observe that there is dispute that assessee has defaulted in discharging its tax liability u/s 140A at the time of filing of return of income. It is the claim of assessee that due to liquidity problem, it could not pay the tax liability on the date of filing return as assessee did not have sufficient funds with him. However, it is a fact on record that assessee has received about ₹ 16.67 crores on sale of land in June, 2007. On perusal of bank account copies submitted in the paper book, though it appears that the balance at the beginning of the year and at the end of the year is nil, but at same time there are substanti ..... 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