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Income Tax Appellate Tribunal, HYDERABAD BENCHES “SMC”, HYDERABAD
Before: Smt. P. Madhavi Devi
This is assessee’s appeal for the AY.2005-06, directed against the order of the Commissioner of Income Tax (Appeals)-1, Hyderabad, dated 01-06-2017.
Brief facts of the case are that, there was a search and seizure operation u/s.132 of the Income Tax Act [Act] in the residential premises of the assessee on 09-10-2007. Consequent to the search and seizure operation, the Assessing Officer (AO) issued a notice u/s.153A of the Act, dt.26-06-2008 for the AYs.2002-03 to 2007-08. The assessee filed his return of income on 09-09-2009, admitting total income of Rs.50,49,197/-, but did not pay any taxes on the admitted income. The total self-assessment tax payable as per the return of income was Rs.26,48,136/-. Thereafter, the assessee filed a revised computation of income. But the AO did not accept the same.
The assessee filed an appeal against the assessment order before the CIT(A), who accepted the revised computation of income and deleted the addition made by the AO. Meanwhile, the AO issued a notice
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u/s.221(1) of the Act for levy of penalty for non-payment of admitted tax. The assessee filed a reply on 15-09-2010, stating that he has filed an appeal against assessment order u/s.143(3) of the Act before the CIT(A). The AO did not accept the contentions of assessee and held that the assessee is liable to pay taxes on the admitted income and on failure to do so, 30% of the self-assessment tax due from the assessee which worked out to Rs.7,94,440/- was levied as penalty u/s.221 of the Act. He ordered accordingly.
Aggrieved by the penalty order, the assessee preferred an appeal before the CIT(A). Meanwhile, the CIT(A) dealing with the appeal against the assessment order u/s.143(3) of the Act, has deleted the entire addition after accepting the revised computation of income of the assessee. The same was brought to the notice of the CIT(A) in the penalty proceedings. However, the CIT(A) confirmed the penalty u/s.221(1) of the Act, against which, the assessee is in further appeal before the Tribunal, by raising the following Grounds:
“1. The order of the Commissioner of Income Tax (Appeals)- 1, Hyderabad, is erroneous both on facts and in law. 2. The Ld.CIT(A) erred in dismissing the appeal. 3. The Ld.CIT(A) erred in upholding the penalty levied of Rs.7,94,440/- u/s.221(1) of the Act. 4. The appellant may add or alter or modify or substitute or delete and / or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal”.
4.1. The case was taken up for hearing on 02-06-2020 through video conferencing and both the parties were heard.
The Ld.Counsel for the assessee, reiterating the submissions made before the authorities below has drawn our attention to the decision of the CIT(A), Guntur, dt.15-06-2011 in the appeal against the assessment order, wherein in paras 3.3 to 4.2, the CIT(A) has held as under:
“3.3. With regard to disallowance of Rs.2,61,000/- on account of provisions made by the assessee against deficit cash. the appellant has submitted his explanation as under:-
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"The Assessing Officer has erred while disallowing the provisions amounting to Rs.2,61,000/- without considering the information and explanations offered by the assessee. The list for the same has been filed along with the return of income describing the nature of expenditure as Rs.2,00,000/- towards car maintenance and Rs. 61,000/- towards the interest payable. The Assessing Officer has added the same on the ground that no interest payment was made in the assessment year and also in the subsequent years and disallowed the provision created in the cash flow statement and added back to the returned income which is not correct, bad in law and not justified”. The appellant also further submitted as under:-
"The Assessing Officer has added the above amount on the ground that no interest payment was made and the assessee had also not identified the persons to whom the payment should be made in the relevant Assessment year and also in the subsequent years and disallowed the provision created In the cash flow statement and added back to the returned income which is not correct, bad in law and not justified.
The Assessee has filed a paper book as additional evidence which consists the Income Tax Return copy, Revised Computation filed by Assessee, and the details of interest paid along with cheque numbers and depreciation claimed on car which may please be considered in favour of the Assessee and the disallowance for the above asst. years may please be deleted”.
I have considered the submissions made by the appellant, gone through the order of the AO and perused all other information brought to my notice. At the stage of assessment, even though there was compliance the AO has drawn an adverse inference, though the appellant has explained the same. Since the decision of the AO is not based on the information furnished by the appellant in course of the s & s assessment proceedings, the addition made by the AO does not survive. In addition there is no finding of the AO that his decision is based on any finding or material found in course of the action under section 132(1) of the IT Act, 1961. In the circumstances, the AO is directed to delete the same.
4.1. With regard to second addition of Rs.1,00,00,000/- on account of unexplained investment u/s. 69 in M/s DNA Biotech Ltd., the appellant has submitted his explanation as under.-
"The Assessing Officer has erred while disallowing the investment made by the assessee in M/s DNA Biotech Ltd. and treated it as unexplained Investment u/s 69 of the IT Act which is not correct, bad in law and not justified. The Assessing Officer has added to the tune of Rs.1,00,00,000/- contending that the assessee has not offered any explanations and added back to the returned income. The assessee has not accepted for any additions. The assessee has also submitted the revised computations but which were not at all considered by the Assessing Officer and issued the assessment orders. The assessee has offered all the information and explanations as required by the AO for carrying on the assessment proceedings but which are not considered by
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the Assessing Officer and added to the income returned which is not correct." 4.2. I have considered the submissions made by the appellant, gone through the order of the AO. In as much as this addition is concerned there is no finding of the AO that his decision is based on any finding or material found in course of the action under section 132(1) of the IT Act, 1961. In the circumstances, the AO is directed to delete the same”.
5.1. The Ld.DR has relied on the orders of the authorities below.
5.2. Having regard to the rival contentions and the order of the CIT(A) in the appeal against the assessment order, it can be seen that the CIT(A) has considered the revised computation of income filed by the assessee and has deleted the additions made by the AO. The Revenue has not filed any appeal against the order of CIT(A). Hence, the said order has become final.
5.3. The Learned Counsel for the assessee had drawn my attention to the provisions of Section 221(2) of the Act, which reads as under:
“Section 221(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”.
5.4. In the case before this Tribunal, the final order of the CIT(A) has to be taken into consideration.
Though the Ld.DR supported the orders of the authorities below, I find that since the very addition has been deleted and there is no outstanding demand of tax, the penalty u/s.221 of the Act is not sustainable.
6.1. I also find support from the decision of the Co-ordinate Bench at Mumbai in the case of Heddle Knowledge (P) Ltd., Vs. ITO (2018) [90 taxmann.com 376] (Mumbai), wherein the Tribunal has considered the amended provisions of 140A(3) of the Act w.e.f. 01-04-1989 and held that it does not envisage any penalty for non-payment of self-assessment tax and therefore the AO was not justified in levying penalty by taking
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recourse to Section 221(1) of the Act. For the sake of ready reference, relevant paragraph of the said order is reproduced herein below:
“6. 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 Sec. 140A(3) of the Act and, therefore, if one is to read the same with Sec. 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 Sec. 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. Sec. 221(1) of the Act prescribes for penalty when assessee is in default in making the payment of tax. On the face of it, 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 Sec. 140A(3) in the unamended provision was on the statute alongwith the penalty envisaged u/s 221 of the Act. Once Sec. 140A(3) of the Act has been amended w.e.f. 01.04.1989, as we have seen earlier, there is no amendment of Sec. 221 of the Act and it continues to remain the same. What we are trying to emphasise is if the plea of the Revenue is to be accepted, based on the amendment to Sec. 140A(3) of the Act, it would mean that prior to 01.04.1989 the same default invited penal provisions under two sections, namely, Sec. 140A(3) as well as Sec. 221(1) of the Act, which would appear to be peculiar and unintended. Furthermore, the intention of the legislature at the time of insertion of the amended Sec. 140A(3) makes it clear that the old provisions of Sec. 140A(3) prescribing for levy of penalty for nonpayment of self-assessment tax was no longer found necessary because the said default would henceforth invite mandatory charging of interest. Ostensibly, the legislature did not envisage that consequent to the amendment, the default in payment of self- assessment tax would hitherto be covered by the scope of Sec. 221 (1) of the Act. The emphasis of the Revenue is to point out that the non-payment of self-assessment tax renders the assessee "in default" in the amended provision which further prescribes that "all the provisions of this Act shall apply accordingly" and, therefore, the default is hitherto (from 01.04.1989) covered by Sec. 221 (1) of the Act. In our view, the consequence of the aforesaid two expressions contained in Sec. 140A(3) are also not of the type sought to be understood by the Revenue, and rather the assessee is to be treated as an "assessee in default" for the limited purpose of enabling the Assessing Officer to make recovery of the amount of tax and interest due and not for levy of penalty, an aspect which has been specifically done away in the new provision. Therefore, considered in the aforesaid light, in our view, the fact that the amended Sec. 140A(3) w.e.f. 01.04.1989 does not envisage any penalty for non-payment of self-assessment tax, the Assessing Officer was not justified in levying the impugned penalty by making recourse to Sec. 221 (1) of the Act. Before parting, we may again emphasise that Sec. 221 of the Act remains unchanged, both
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during the pre and post amended Sec. 140A(3) of the Act and even in the pre-amended situation, penalty u/s 221 of the Act was not attracted for default in payment of self-assessment tax, which was expressly covered in pre 01.04.1989 prevailing Sec. 140A(3). Thus, without there being any requisite corresponding amendment to Sec. 221 of the Act in consonance with the amendments carried out in Sec. 140A(3) of the Act w.e.f. 01.04.1989, the Assessing Officer erred in levying the impugned penalty. Thus, on this aspect, we hereby set-aside the order of CIT(A) and direct the Assessing Officer to delete the penalty imposed u/s 140A(3) r.w.s. 221(1) of the Act. 7. In the result, appeal of the assessee is allowed, as above”.
Respectfully following the above order and in view of the provisions of Section 221(2) of the Act, I delete the penalty levied u/s.221(1) of the Act. Accordingly, the appeal of assessee is allowed.
Order pronounced in the Open Court on 11th June, 2020
Sd/- (P. MADHAVI DEVI) JUDICIAL MEMBER
Hyderabad, dated 11th June, 2020. TNMM & Vinodan/sps
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Copy to:
Shri Sama Ramachandra Reddy, C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, 1stFloor, Somajiguda, Hyderabad. 2.The Deputy Commissioner of Income Tax, Central Circle-2, Hyderabad.
CIT (Appeals)-1, Hyderabad.
The Pr.CIT-1, Hyderabad.
D.R. ITAT, Hyderabad.
Guard File.
By Order
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