TMI Blog2021 (10) TMI 1103X X X X Extracts X X X X X X X X Extracts X X X X ..... e for discharging its admitted tax liability. We are in agreement with the view taken by the CIT(A) that as the assessee was in no financial position to pay the self-assessment tax at the time of filing of return of income, therefore, no penalty u/s 221(1) r.w.s 140A(3) could have been imposed on it. We, thus, in terms of our aforesaid observations concur with the view taken by the CIT(A) that considering the serious financial constraints of the assessee due to which it had failed to discharge its admitted self-assessment tax liability at the time of filing its return of income, and for a period thereafter, no penalty under Sec. 221(1) r.w.s 140A(3) could have even otherwise be imposed on it. Finding no infirmity in the view taken by the CIT(A) we uphold his order. Accordingly, the appeal filed by the revenue being devoid and bereft of any merit is dismissed. - ITA Nos.6897 And 6898/MUM/2019 - - - Dated:- 21-10-2021 - Shri Shamim Yahya (Accountant Member) And Shri Ravish Sood (Judicial Member) For the Assessee : Shri Mihir Naniwadekar, A.R For the Revenue : Shri Ajey Malik, D.R ORDER PER RAVISH SOOD, J.M: The captioned appeals filed by the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid explanation of the assessee. It was observed by the A.O that since the assessee had voluntarily declared the income in its return of income, therefore, the failure on its part to pay till date its admitted tax liability on the returned income was not acceptable by any stretch of logic and imagination. Accordingly, the A.O holding the assessee as being in default of the aforesaid outstanding tax liability, vide his order passed under Sec. 221(1) r.w.s 140A(3) dated 20.03.2015 imposed a penalty of ₹ 3,92,70,237/-. 5. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Before the CIT(A) the assessee assailed the validity of the order passed by the A.O imposing penalty u/s 221(1) r.w Sec. 140A(3) of the Act. It was the claim of the assessee that post amendment of Sec. 140A(3) w.e.f 01.04.1989 without there being any amendment in Sec. 221(1) of the Act no penalty could be levied for non-payment of self-assessment tax. In support of his aforesaid contention the assessee had relied upon two orders of the ITAT, Mumbai, viz. (i).Heddle Knowledge (P) Ltd. Vs. ITO (2018) 169 ITD 304 (Mum).; and (ii). Balraj Prakashchand Bansal, ITA No. 1058/Mum/2013, dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.R that as the assessee was in no financial position to discharge its admitted tax liability, therefore, the the CIT(A) considering the financial impediments of the assessee had in all fairness vacated the impugned penalty imposed by the A.O. It was submitted by the ld. A.R that as there was no infirmity in the view taken by the CIT(A), therefore, the appeal filed by the revenue being devoid and bereft of any merit was liable to be dismissed. 8. We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them. Briefly stated, the assessee company had developed a sea port at Karanja in the State of Maharashtra and does not have any other business. Income declared by the assessee in its return of income for the year under consideration i.e A.Y. 2011-12 comprised only of the interest income that had accrued on the funds that it had invested with NBFCs by placing ICD s. The source of the ICD s was the subscription of share capital of approximately ₹ 450 crores that was received by the assessee fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf-assessment tax, dismissed the appeal in limine. On further appeal, the Tribunal vide its order passed in ITA No. 1697/Mum/2017, dated 20.12.2018 restored the matter to the file of the CIT(A), with a direction to re-adjudicate the same after affording an opportunity of being heard to the assessee. 10. In the course of the set-aside proceedings, the CIT(A) vide her order dated 30.08.2019 found favour with the contentions advanced by the assessee, that, as per the post-amended sub-section (3) of Sec. 140A of the Act no penalty for non-payment of self-assessment tax could have been imposed on it. Also, the CIT(A) was of the view that considering the serious financial constraints due to which the assessee at the time of filing of its return of income, and for some period thereafter, had failed to discharge its admitted self-assessment tax liability, no penalty u/s 140A(3) r.w.s 221(1) ought to have been imposed. Backed by her aforesaid observations the CIT(A) had vacated the penalty imposed by the A.O. 11. Before us the revenue has assailed the order of the CIT(A), on the ground, that she had erroneously concluded that as per the post-amended sub-section (3) to Sec. 140A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof. The purpose and intention leading to the amendment of sub-section (3) to Sec. 140A, as was made available on the statute vide the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01.14.1989, has been explained by the CBDT in its Circular no. 549 of 31.10.1989, which reads as under :- Para 4.17: The old provisions of subsection (3) of the section provided for levy of penalty for non-payment of self-assessment tax, since the rate of mandatory interest for failure to pay the tax has now been increased, it is not necessary to retain this provision any more. The amending Act has accordingly omitted the said sub section (3). 4.18 : In order to vest the power of recovery of tax and interest due under this section on the basis of the return, amending Act 1987, has inserted a new sub section (3) in the section to provide that if any assessee has not paid self assessment tax and interest in full before filing the return, he shall be deemed to be an assessee in default in respect of such tax and interest. Notably, on a conjoint reading of the pre-amended Sec. 140A(3) i.e upto 31.03.1989 and the post-amended Sec.140A(3) w.e.f. 1.4.1989 a/w the explanatory notes provided in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment tax had been increased, can beyond any doubt be gathered from the Explanatory notes to the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01.14.1989 promulgated by the CBDT vide its Circular no. 549 of 31.10.1989. Also, the very purpose of retaining the term deemed to be an assessee in default in respect of the tax , as explained by the Explanatory notes in the CBDT Circular No. 549 (supra), was for the limited purpose to vest the power of recovery of tax and interest due under the section on the basis of the return of income filed by the assessee. Accordingly, the claim of the revenue that the availability of the term deemed to be an assessee in default under the post-amended Sec. 140A(3) sufficed to bring an assessee who had not paid its self-assessment tax in the realm of the penal provisions envisaged in Sec. 221(1) of the Act does not merit acceptance. We, thus, in terms of our aforesaid deliberations are of the considered view that as observed by the CIT(A), and rightly so, the assessee under the post-amended Sec. 140A(3) of the Act could not have been subjected to penalty under Sec. 221(1) r.w.s 140A(3) of the Act, for its failure to have paid the self-assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th effect from 01-04-1989 onwards. [Para 5] However, a contrary position is taken by the revenue to the effect that for having defaulted in payment of self-assessment tax within the stipulated period, assessee qualifies to be an assessee-in-default as prescribed in the amended section 140A(3) of the Act and, therefore, if one is to read the same with section 221(1] of the Act, the action of the Assessing Officer in imposing penalty is quite justified. In sum and substance, it is sought to be emphasised on the strength of section 221(1) of the Act that the penalty is leviable so long as the default is in the nature which renders the assessee as an assessee-in-default for payment of tax. Section 221(1) of the Act prescribes for penalty when assessee is in default in making the payment of tax. On the face of if, the argument of the revenue appears to be justified, so however, the same does not merit acceptance if one examines the issue in slight detail. Notably, the penalty envisaged under section 140A(3j in the unamended provision was on the statute along with the penalty. envisaged under section 221 of the Act, Once section 140A(3) of the Act has been amended with effect f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, without there being any requisite corresponding amendment to section 221 of the Act in consonance with the amendments carried out in section 140A(3) of the Act with effect from 01-04-1989, the Assessing Officer erred in levying the penalty. Thus, on this aspect, the order of Commissioner (Appeals) is set aside and the Assessing Officer is directed to delete the penalty imposed under section 140A(3) read with section 221(1) of the Act. [Para 6] In the result, appeal of the assessee is allowed. [Para 7] Further, the Hon'ble ITAT, Mumbai, in the case of Balraj Prakashchand Bansal in ITA No. 1058/Mum/2013 dated 19.03.2018 held as under: 5. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground raised in the present appeal had already been decided by the Coordinate Bench of Hon'ble ITAT in the case of Heddle Knowledge Pvt. Ltd vs. (TO, Ward-8(l)(4), Mumbai [2018] 90 taxmann.com 376(Mumbai Trib.) for AY 2009-1 on merits. The operative portion of the order of Hon'ble ITAT is contained in para no. 2 to 7 and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for the deay in deposit of self-assessment tax. In order to appreciate the point sought to Sec. 140A(3) of the Act, as it stands for the year under consideration, reads as under 140A(3) 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 (I), he 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. 5. Our attention has been drawn to the erstwhile Sec. 140A(3).of the Act which was operative upto 31.03.1989 and was amended by the Direct Tax Laws (Amendment) Act, 1987, and the erstwhile provision read as under (3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), the Assessing Officer may direct that a sum equal to two per cent of such lax or part thereof, as the case may be, shall be recovered from him by way of penalty for every month during which the default continues; Provided that before levying any such penalty, the assessee shall be given a reasonable oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO. The AO was bound to follow the judgments in its true letter and spirit. It was necessary for the judicial unity and discipline that all the authorities below the Tribunal must accept as binding the judgment of the Tribunal. The AO being inferior officer vis-a-vis the Tribunal, was bound by the judgment of the Tribunal and the AO should not have tried to distinguish the same on untenable grounds. In this behalf, it will be out of place to mention that in the hierarchical system of Courts which exists in our country, it is necessary for each lower tier including the High Court to accept loyally the decisions of the higher tiers. It is inevitable in hierarchical system of Courts that there are decisions of the supreme appellate Tribunals which do not attract the unanimous approval of all members of the judiciary. But the judicial system only works if someone is allowed to have the last word, and that last word once spoken is loyally accepted'. The better wisdom of the Court below must yield to the higher wisdom of the Court above as held by the Supreme Court in the matter of CCE vs. Dunlop India Ltd. AIR 1985 SC 330. Further Hon ble Supreme Court in the case of Kamlaksh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from NBFC s, however, not a single rupee from the said amount was received by it. Insofar the aforesaid factual position is concerned, we find that the same had neither been controverted by the lower authorities nor rebutted before us by the ld. D.R. Notably, the CIT(A) considering the aforesaid factual position had found favour with the claim of the assessee that, it was but for the acute financial stringency which was further supplemented by absence of any other source of income that had triggered the failure on its part to discharge its admitted self-assessment tax liability. Backed by the aforesaid factual position, the CIT(A) was of the view, that considering the serious financial constraints to which the assessee was subjected, no penalty under sub-section (3) to Sec. 221(1) r.w.s 140A(3) could have been imposed on it. On a perusal of the order of the CIT(A), we find that she had accepted the claim of the assessee that due to its serious financial constraints it had failed to pay its admitted self-assessment tax liability at the time of filing of the return of income, and some period thereafter, observing as under: 9.4 The appellant company has developed a sea port at Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share capital and loans. These factors clearly show that the company did not have any liquidity or sources to make the payment of SA tax. Therefore, the company's plea that the SA tax could not be paid due to financial stringency is accepted. 9.7 Also, to be noted, though not relevant to the issue at hand is the fact that the interest income which has been considered by the assessee as income during the AYs. 2011-12 and 2012-13 has been deleted by the Hon'ble ITAT for AYs. 2013-14 to 2015-16 considering the interest income as capital receipt. 9.8 The Hon'ble High Court of Karnataka in the case of Ramchandra Pesticides (P.) Ltd. Vs. Commissioner of Income Tax (2006) 285 ITR 45 (Karnataka) has held as under: In the light of the language employed in section 140A and the various judgments, it is clear that though section 140A uses the word 'shall', the entire provision must be read harmoniously and reasonably. This being a taxing provision and a penal provision, the one has to give effect to a plausible interpretation which is in favour of the citizen, where two plausible views are permissible. Otherwise, it will lead to anomaly and hardship to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the Tribunal had already been accepted by the revenue and the same was not challenged before the Court. The Tribunal had refused to exercise its discretion in favour of the assessee only on the ground that it had no power to waive the penalty. The said approach of the Tribunal was contrary to section 140A(3). [Para 11] Therefore, no penalty was leviable upon the assessee. The above observations are u/s. 140A(3) as it stood before the amendment w.e.f from 01.04,1989. However, the provision of section 221 on this aspect are identical and, therefore, the judicial pronouncement of Karnataka High Court is relevant for the case of the appellant herein. The above contention stands fully supported by the Hyderabad ITAT decision rendered in the matter of Sheetal Refineries Ltd. [153 ITD 577], where the ITAT has held that Further, in spite of financial crunch assessee has declared large amount of profits and the taxes due were also admitted. Due to severe cash crunch, assessee could not discharge tax liability immediately. However, the same was discharged as stated by the assessee bef.ore the Ld. CIT(A), Penalty under section 221(1) is not automatic and mandatory. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iz. Mercantile Ports and Logistics Ltd. [formerly known as SKIL Ports Logistics ltd) Guernesey (SPLL-G)] for a specific purpose i.e for Karanja port development project, and were invested by it with the NBFC s, therefore, the same were not freely available to the assessee for discharging its admitted tax liability. Be that as it may, we are in agreement with the view taken by the CIT(A) that as the assessee was in no financial position to pay the self-assessment tax at the time of filing of return of income, therefore, no penalty under Sec. 221(1) r.w.s 140A(3) could have been imposed on it. We, thus, in terms of our aforesaid observations concur with the view taken by the CIT(A) that considering the serious financial constraints of the assessee due to which it had failed to discharge its admitted self-assessment tax liability at the time of filing its return of income, and for a period thereafter, no penalty under Sec. 221(1) r.w.s 140A(3) could have even otherwise be imposed on it. 15. Backed by our aforesaid observations, finding no infirmity in the view taken by the CIT(A) we uphold his order. Accordingly, the appeal filed by the revenue being devoid and bereft of any meri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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