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Facts
The assessee, an individual operating M/s S.K. Enterprises, engaged in manufacturing and trading carpets, filed an ITR for AY 2009-10. The AO made several additions/disallowances, including deduction for self-occupied property, enhancement of gross profit by rejecting books, disallowances for freight, rent, and audit fees under Section 40(a)(ia), and cash expenses under Section 40A(3), significantly increasing the total income. Penalties were also levied under Sections 24(b), 40(a)(ia), and 140A(3) for non-payment of self-assessment tax.
Held
The Tribunal dismissed the Revenue's appeal regarding the Section 24(b) disallowance, confirming the CIT(A)'s deletion. For Gross Profit, the Tribunal partly allowed the Revenue's appeal, directing an addition of 1.5% of trading sales. It partly allowed the assessee's quantum appeal by deleting audit fees disallowance (retrospective application of 40(a)(ia) proviso) and partly for freight expenses, and allowed stationery expenses for statistical purposes. All penalties levied under Sections 24(b), 40(a)(ia), and 140A(3) were deleted, citing lack of concealment, retrospective application of provisos, and existence of reasonable cause for non-payment of self-assessment tax.
Key Issues
The key legal issues included the validity of additions/disallowances made by the AO under various sections for self-occupied property, gross profit, TDS defaults, and cash payments, and the legality of penalties imposed for non-payment of self-assessment tax, including the retrospective application of certain statutory provisos.
Sections Cited
Section 143(1), Section 143(2), Section 143(3), Section 142(1), Section 250(6), Section 144(1), Section 145(3), Section 24(b), Section 40(a)(ia), Section 40A(3), Section 194J, Section 201(1), Section 140A(3), Section 221(1), Section 220(2), Section 139, Section 234B, Section 234C
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Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
ORDER PER S.RIFAUR RAHMAN, AM: 1. These cross appeals in ITA No.6812/Del/2019 and 6811/Del/2019 filed by the Assessee as well as in by the Revenue against the orders of Learned Commissioner of Income Tax (Appeals)-35, New Delhi [“Ld. CIT(A)”, for short], dated 05/04/2019 & 08/04/2019 for Assessment Year 2009-10. First we take up the quantum appeals filed by both the parties and followed by penalty appeals.
The facts relating to grounds raised by the Revenue and Assessee are, the Assessee is an individual and is regularly assessed to tax in Delhi, during the relevant precious year, the assessee is engaged through his proprietorship concern M/s S.K. Enterprises, in the business of manufacturing and trading in carpets and durries. He filed Return of Income (‘ITR/Return”) for AY 2009-10 declaring income of Rs.31,69,270/-. The same was processed u/s 143(1) of the Act and thereafter, the Ld. Assessing Officer ("AO") selected the case for scrutiny by issue of Notice u/s 143(2) of the Act dated 1.09.2010. He called for various details vide notices u/s 142(1) of the Act and after examining the details furnished by the Assessee from time to time, including the books of account, purchase and sales ledger, bills and vouchers etc. He passed the Assessment Order u/s 143(3) of the Act on 29.12.2011 making the following additions / disallowances to the total income thus determining the total income at Rs.3,65,23,680/- (in place of Rs.34,34,267/- declared in the Return): a. Disallowance of deduction claimed u/s 24(b) of the Act Rs.1,50,000/- b. Enhancement of Gross Profit by rejecting books of accounts Rs.3,06,70,410/-
c. Disallowance of rent expenses u/s 40(a)(ia) - Rs.4,49,000/- d. Disallowance of freight expenses u/s 40(a)(ia) - Rs.20,00,000/- e. Disallowance of expenses incurred in cash in excess of the limit prescribed u/s 40A(3) of the Act - Rs.50,000/-.
In the first appeal filed before the Commissioner of Income Tax (Appeals)- 35, New Delhi, ["CIT(A)/CIT-A"] the assessee raised the following grounds of appeal: Grounds of appeal: The appellant has raised grounds in Form no.35 are reproduced below:
1. That the impugned assessment order is not only bad in law and nature but it also whimsical and therefore, the same is liable to be quashed.
2. That on the facts and circumstances of the case, the Ld. AO has grossly erred in making disallowance of deduction u/s 24(b) amounting to Rs. 1,50,000/-, which is illegal and liable to be deleted.
3. That on the facts and circumstances of the case, the Ld. AO has grossly erred in making enhancement of Gross Profit by an amount of Rs.3.06,70,410/-which is illegal and liable to be deleted.
4. That on the facts and circumstances of the case, the Ld. AO has grossly erred in making disallowance u/d 40(a)(ia) amounting to Rs.24.84,000/- which is illegal and liable to be deleted.
5. That on the facts and circumstances of the case, the Ld. AO has grossly erred in making disallowance u/s 40(a)(ia)/40A(3) amounting to Rs.50,000/- which is illegal and liable to be deleted.
6. The assessee craves for the addition, modification, deletion of any of the grounds of appeal. 7.
4. In the course of first appeal proceedings the following additional grounds were raised by the assessee: The appellant has filed additional grounds of appeal vide letter dated 26.12.2018 which is reproduced below: That on the basis of the facts and circumstances of the case, the Ld. AO has grossly erred in rejecting the books of accounts and framing the order under Section 144(1) read with Section 145(3) of the Income Tax Act, 1961. Moreover, the order so framed is illegal, as the application and framing of the order is not only erroneous but also illegal, as: i. Once the books of accounts rejected, the same books cannot be relied for framing the assessment; and ii. Rejection of the books of accounts has been made on whimsical ground no. cogent reasons have been given; and iii. The Ld. AO has applied the GP rate for addition, but has also not allowed the expenses incurred against GP.
5. The Assessee made oral as well as written submission together with the supporting documents and prayed for deletion of the additions made arbitrarily based only on conjectures and surmises. The Ld CIT-A has duly reproduced the assessee's submissions in her order. The Ld CIT(A) called for and obtained the remand report from the AO and after considering the same as well as the rejoinder of the Assessee, passed a detailed order u/s 250(6) of the Act partly allowing the assessee's appeal.
The Ld. CIT(A) deleted the following additions/disallowances made by the AO:- a. Disallowance of deduction claimed u/s 24(b) of the Act Rs. 1,50,000/- b. Enhancement of Gross Profit and by rejecting books of accounts Rs.3,06,70,410/- c. Disallowance of rent expenses u/s 40(a)(ia) - Rs.4,49,000/-.
The Ld CIT(A) confirmed the following additions/disallowances made by the AO:
a. Disallowance of freight expenses u/s 40(a)(ia) - Rs.20,00,000/- b. Disallowance of expenses incurred in cash in excess of the limit prescribed u/s 40A(3) of the Act - Rs.50,000/-. 7. Aggrieved by the Order of the Ld CIT(A), the Department as well as the Assesssee have filed cross appeals. The grounds raised by the Revenue in Grounds of Appeal:
1. On the facts and circumstances of the case. The CIT(A) has erred in deleting the addition of Rs. 1,50,000/- made by the AO, on the basis of disallowance of deduction claimed by the assessee u/s 24(b) of the I.T. Act. inspite of the fact that the property under question was not constructed.
2. On the facts and circumstances of the case, the CIT (A) has erred in deleting the addition of Rs. 3,06,70,410/- made by the AO, on account of suppressed Gross Profit Margin.
3. On the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 24,84,000/- made by AO u/s 40(a)(ia) of the I. T. Act to Rs.20,35,000/- inspite of the fact that the assessee had not deducted TDS against such payments.
8. The grounds raised by the Assessee in are as under: “1. That Ld. CIT (A) has erred in confirming addition on account of Freight Expenses of Rs. 20.00.000/ us 40(a)(ia) of the Income Tax Act, 1961 without considering the submissions made during the appellate proceedings that the payments have been have already been shown by the parties in their respective Income Tax Returns and disallowance have been wrongly made in contrary to the provisions of the second proviso to Section 40(a)(ia) read with provisions of first proviso to Section 201(1) of the Income Tax Act, 1961, so it is liable to be deleted.
2. That Ld. CIT (A) has erred in confirming addition on account of Audit Fees of Rs 35,000/-w/s 40(a)(ia) of the Income Tax Act, 1961 without
considering the submissions made during the appellate proceedings that the payment has aleady been shown by the party in us Income Tax Return and disallowance has been wrongly made in contrary to the provisions of the second proviso to Section 40(a)(ia) read with provisions of first proviso to Section 201(1) of the Income Tax Act, 1961, so it is liable to be deleted.
That Ld. CIT (A) has erred in confirming addition of Rs.50,000/-by applying provisions of section 40A(3) of the Act without appreciating that the payments were made to different persons on different occasions, so it is liable to be deleted.
The appellant craves leave for addition, modification, alteration, amendment, deletion of any of the grounds of appeal
.
9. On Department appeal, the Ld DR brought to our notice page 1 and 2 of assessment order and submitted that assessee has claimed payment of interest as allowable claim on the basis of self occupied property. He submitted that the Inspector was deputed to verify the claim of the assessee, as per the ITR reports, it was found that there was no premises existed and also noticed there were no construction activities going on. Since, assessee could not furnish proper record to claim the above expenditure, he submitted that findings of the AO are proper. Further, he brought to our notice page 49 of the appellate order and brought to our notice findings of the Ld. CIT(A) that the report of the ITA was submitted during the assessment proceedings i.e. in the year 2011 whereas the assessee has claimed the expenditure in the financial year 2008-
09. He submitted that the Ld. CIT(A) has merely relied on the telephone bills to grant the benefit as well as approved the claim of the assessee that assessee was residing on that place during the impugned year under consideration. Therefore, he objected to the findings of the Ld. CIT(A) and vehemently argued that the findings of the Assessing Officer is proper.
10. On the other hand, the Ld AR made following Submissions on disallowance of deduction u/s 24(b) in respect of self occupied property:
10.1 The AO had disallowed the claim on the basis of the Inspector's report that the premises were demolished and the construction work was being done. (Ref: Para 2 and 2(a) of Asst Order). The report of the Inspector was for the FY 2011-12 whereas the claim pertained to the self occupation of the property during the F.Y. 2008-09 when the premises was under self occupation. The CIT(A) has allowed the claim duly appreciating this fact. The relevant para on Page 49 of the Order of CIT(A) is as under: The submissions of the appellant have been considered and in the instant matter, it is seen that the AO has relied upon the report of ITI submitted during the assessment proceedings i.e. in the year 2011, whereas the deduction has been claimed by appellant for the Financial Year 2008-09. The Appellant on the other hand submitted the Telephone Bills for Mobile, as well as Fixed Connection installed at the same premises supporting his view that the appellant was residing in such property during the period under appeal. Based on the facts and submissions made above, the appellant has made his point with supporting evidences that the property was in habitable condition during the period relevant to A.Y. 2009-10 and therefore, the appellant has correctly claimed the deduction. In these facts and circumstances, the claim of the appellant is found to be correct and therefore, the AO is hereby directed to allow the deduction of Rs. 1,50,000/-as claimed by the appellant in his income tax return, as per the provisions of Section 24(b) of the Act. The Ground no. 3 is accordingly allowed. a. It is submitted that in view of the above there is no merit in the ground raised by the Revenue and it is prayed that the same may kindly be dismissed.
Considered the rival submissions and material placed on record. We observe from the record submitted before us that it was found by Ld CIT(A) that the ITI report was submitted after analyzing the position of the property in the year of inspection i.e., during 2011 and the claim made by the assessee during the current FY ie., 2008-09. We cannot rely on the report collected on the existence and occupation of the assessee, when the same was vacated by the assessee due to relocation. It is fact on record that the assessee was incurring interest expenditure for the purpose of taking loan on redevelopment of the house. The issue is whether the assessee has occupied the house during the current AY. The possible evidence which a normal person submits to prove are, electricity bill, land line telephone bills. In this case, Ld CIT(A) has accepted the telephone bill as possible claim of the assessee. We do not see any reason to disturb the findings of the Ld CIT(A), accordingly, the ground raised by the revenue is dismissed.
With regard to ground No.2, he brought to our notice page 2 and 3 of the assessment order and submitted that the financial results submitted by the assessee for the current assessment year are not reliable. Considering the fact that Assessing Officer has brought on record and discussed elaborately the reasons for rejecting the submissions of the assessee on Gross Profit declared by the assessee, they are not matching with the turnover declared by the assessee. He brought to our notice that the turnover declared by the assessee during the year has multiplied many fold. He submitted that the G.P declared by the assessee in comparison to previous assessment years were substantially less. He submitted that the assessee neither submitted any books of account before the Assessing Officer nor shown the relevant details of purchase and sales and also not disclosed the trade discounts claimed to have allowed by the assessee anywhere in the books account nor on the face of the purchase and sales bills. He brought to our notice findings of the Ld. CIT(A) from page 50 to 58. He submitted that the assessee has submitted before the Ld. CIT(A) that assessee has submitted all the relevant documents before the AO, however, from the reading of the assessment order, the assessee has not submitted anything before the Assessing Officer. The Ld. DR objected to the relief granted to the assessee by the Ld CIT(A) and submitted that the same are without proper findings by the CIT(A).
On the other hand, Ld AR made following Submissions on rejection of books of accounts and GP addition:
13.1. It is submitted that the assessee has a proprietary concern by the name M/s S.K. Enterprises which is engaged in manufacturing as well as trading in carpets and durries. For the relevant assessment year i.e. A.Y. 2009-10, the GP rate for manufacturing was 16.65% as compared to 18.01% in the immediately preceding assessment year. Similarly the GP rate for trading activity was 4.88% as against 5.98% for the immediately preceding assessment year. The combined GP rate for the relevant assessment year was 4.14% as against 9.39% in the immediately preceding assessment year. The Ld. AO compared the combined GP rates achieved by the assessee and called for explanation on the fall in GP. Dissatisfied with the explanation and submission made by the Assessee, the AO rejected the books of account and estimated the GP for the current year at 10%. He also enhanced the total turnover to Rs.50,00,00,000/- on an estimate basis.
13.2. The comparative combined gross profit figures as mentioned in Para 3 of the assessment order are as under:- A.Y. 2007-2008 2008-09 2009-10 F.Y. 2006-07 2007-08 2008-09 Turnover 3,75,62,348/- 7,80,12,125/- 34,60,30.917/- GP In % 10.66 9.36% 4.14% 13.3. Further, he submitted that apart from relying upon and reiterating before this Hon'ble Bench, the submissions made before the Ld. CIT(A) as summarized by her, the Respondent herein makes the following further submissions for kind consideration of the Hon'ble Bench: a. It is humbly submitted that the AO has passed the Assessment order without considering the detailed submissions made and explanations given for the fall in GP rate from 10.66% in AY 2007- 09 and 9.39% for AY 2008-09 to 4.14% for the relevant A Y 2009- 10. b. He completely ignored the important fact that the turnover for the year had gone up by almost 5 times from Rs.7.8 crore to Rs. 34.6 crore and while achieving such a huge rise in a short period, the gross profit margin was bound to be affected. The turnover had increased from Rs.7,80,12,125/- for the A.Y. 2008-09 to Rs.34,60,30,917/- for the current A.Y. c. The AO also completely ignored the submissions that the trade margin had come down due to focus given to increasing the sales volume and also due to tough competition in the industry. Even though the Assessee time and again submitted that he had not allowed any discount in the bills, but, at the time of accepting the purchase order he had agreed to lower the price so as to increase the sales volume, the AO kept on reiterating that the discount allowed by the assessee was not available. d. The basic hypothesis of the AO that the increase in purchase price of items has been compensated by corresponding increase in sales prices was ill founded as for example in the case of carpets there was a net loss of Rs.41.31 per square meter compared to the last year figures as the increase in sales price was only Rs.6.15 per meter whereas the increase in purchase price was Rs.47.46 per square meter which is one the main reasons for decline in GP rate. e. The AO also wrongly kept on ignoring the settled accounting principle of valuation of closing stock. He held that the value of closing stock inventory can never be less than the average purchase price. This stand of the AO is contrary to the ICDS-II "Valuation of inventories" of Income Computation and Disclosure
Standards (ICDS) issued by the Government of India in exercise of powers conferred to it under section 145(2) of the Act according to which the stock can be valued at cost or at net realizable value, whichever is lower. The AO ignored the fact that accounting has been done, as per the regular accounting system followed by the assessee and there was no question of adopting average purchase price for valuation of the closing stock. The appellant had valued the closing stock at lower of the cost or the market value on FIFO basis whereas the AO has determined the closing stock of durries taking average of opening stock and purchases during the year. Thus he had adopted incorrect figures and methods for valuing the closing stock in order to make out the case for rejecting books of accounts. It is submitted that the AO had again and again considered the wrong details which were submitted due to clerical mistake and even after submitting the correct inventory and purchase details, the AO has kept on adopting the incorrect figures. f. As already submitted, the appellant's concern was engaged in manufacturing as well as trading activity. The AO completely went wrong in adding the sale value of manufacturing with the sales in the trading account again and thus holding that the sales figure and purchase figures do not tally with the figures given in Form 3CD report. Further, in spite of intimating him that there was a mistake in the details and in spite of submitting the correct details, the AO kept on adopting the old figures in order to make out a case for rejection of books of account. g. It is submitted that the AO wrongly compared the appellant's GP rate with that of other business entities whose business profiles were not comparable. The AO has completely ignored the submission that the assessee's business involved both manufacturing and trading of carpets and durries, whereas, Shri Satish Kumar Gupta, who's GP rate had been compared with that of the Appellant, was in the business of trading of carpets. Further he also ignored the fact that Shri Satish Kumar Gupta was an exporter of carpets and his profit margins are generally higher than that of the appellant, who's buyers were based in India. The AO also wrongly compared the appellant's GP rate with that of his wife's concern ignoring the submission that her business profile was completely different. The raw materials used in the business of the appellant and that of his wife, as well as the sources of those raw materials were different and hence the results were not comparable. AO ignored his own finding that almost half of the appellant's sales were to his wife's concern which would mean that the finished products from the appellant's business were the raw materials for his wife's business. h. The AO was also wrong in holding that even though almost half of the sales were made to his wife's concern, the quantity and value of any of the items was not matching. The AO tried to compare the banner products (broad classification of the goods), viz., Carpets and Durries mentioned in the appellant's sales ledger with the individual items mentioned in the inventory details of the wife's concern. He thus arrived at wrong conclusions. i. As noted by Ld CIT(A) in her order, the AO has held at various places in the assessment order that the Assessee did not produce books of accounts which is factually incorrect as the same were duly produced before him during the assessment proceedings as also during the remand /appeal proceedings. The Appellant had also produced the purchase and sales register and bills and vouchers for verification by the AO. The appellant had also produced various details as called for u/s 142(1) of the Act though the Counsel had taken some time to submit all the required details. In the remand report, the AO has changed his stand on submission of books of accounts and bills and vouchers and has submitted that the assessee had not produced the purchase and sale bills for verification. j. It is submitted that all the above aspects have been rightly appreciated by the Ld CIT(A) who has allowed the ground with the following operational portion of her order:
I have carefully considered the assessment order passed by AO and submissions made by appellant. In this case, the AO has rejected the books of appellant based on the wrong details, wrong assumptions such as observing closing stock at avg. price of Opening Stock and purchases instead of purchase cost, based on wrong comparable such as comparing the gross profit results of appellant with other assessee where the products as well as customers are totally different and therefore, the AO has been on wrong footings while rejecting the books of accounts and estimating the turnover as well as Gross Profit, whereas the AO could not point out a single instance proving that the sales have been outside books of accounts. In these facts and circumstances of the case, I am of the considered opinion that rejection of books of account is not correct, based on wrong figures adopted by AO and consequently addition made on estimate basis alleging suppression of sale and Gross Profit is not correct, accordingly additions made by AO of Rs.3,06,70,410/- is hereby deleted. Accordingly, the Ground No. 2 and 4 are allowed.
In view of the above it is submitted that there is no merit in present ground raised in the Departmental appeal which deserves to be dismissed.
Considered the rival submissions and material placed on record. We observed from the record that the AO analyzed the financials of the assessee submitted before him and noticed that the assessee has achieved the turnover many fold compared the previous year and there is decline in the GP declared by the assessee. It is relevant to note that he has analyzed the combined financial data of two types of business carried on by the assessee viz., Trading and manufacturing. We observed that the business has grown from Rs. 7.80 crores in FY 2008-09 to Rs. 34.60 crores in FY 2009-10. On careful analysis, we observed that the assessee has achieved the turnover and GP as under: TRADING ACCOUNT FOR THE YEAR ENDED ON 31st MARCH 2009 Particulars Qty Amount (Rs.) Particulars Qty Amount (Rs.) To Opening Stock 1,777.23 40,64,450.00 By Sales 50,991.52 15,71,08,554.65 To Purchases 53,404.53 15,71,80,177.93 By Closing Stock 4,190.24 84,83,372.99 To Finishing Charges 10,12,340.00 To Washing Charges 6,75,400.00 To Weaving Charges 18,76,500.00 To Gross Profits 7,83,059.71 Total A 55,181.76 16,55,91,927.64 Total 55,181.76 16,55,91,927.64 MANUFACTURING ACCOUNT FOR THE YEAR ENDED ON 31st MARCH 2009 Particulars Qty Amount (Rs.) Particulars Qty Amount (Rs.) To Opening Stock 1,532.00 37,51,840.00 By Sales 92,000.59 18,89,22,362.35 To Purchases/ Manufacturing 1,03,493.26 15,17,54,630.75 By Closing Stock 13,024.67 1,21,67,073.25 To Finishing Charges 81,48,264.00 To Washing Charges 73,98,160.00 To Weaving Charges 1,64,90,010.00 To Gross Profits 1,35,46,530.85 Total 1,05,025.26 20,10,89,435.60 Total 1,05,025.26 20,10,89,435.60 TRADING AND MANUFACTURING ACCOUNT FOR THE YEAR ENDED ON 31st MARCH 2009 Particulars Qty Amount (Rs.) Particulars Qty Amount (Rs.) To Opening Stock 3,309.23 78,16,290.00 By Sales 1,42,992.11 34,60,30,917.00 To Purchases/ Manufacturing 1,56,897.79 30,89,34,808.68 By Closing Stock 17,214.91 2,06,50,446.24 To Finishing Charges 91,60,604.00 To Washing Charges 80,73,560.00 To Weaving Charges 1,83,66,510.00 To Gross Profits 1,43,29,590.56 Total 1,60,207.02 36,66,81,363.24 Total 1,60,207.02 36,66,81,363.24 From the above, it can be noticed that the assessee has achieved GP of 0.50% of sales in the Trading Activities and achieved GP of 7.17% of sales in Manufacturing Activities. In combine, it has achieved GP of 4.14% of Sales. The AO has proceeded with the analysis of the business of the assessee on the basis of combined results. It is not the proper way of assessing the results of any business. The nature and activities as well as risk also differs in each of the business. We observed that the AO has proceeded to reject the books with the wrong perception and wrong appreciation of facts on record. No doubt Ld CIT(A) has given relief to the assessee, however, we observed that the assessee has given cash discount to its customers with the motive to increase its sales but achieved meager GP of 0.50%. The margin achieved in the manufacturing activities are reasonable. With regard to valuation of closing stock also, the purchase and stocks holding period are different for both type of activities and cannot be combined and valued. To meet the ends of justice, we are of the view that assessee could have achieved better profit in the trading activities, considering the fact that it gave good discount to its customers and failed to maintain the margin in its case, may looking at the future prospects.
After analyzing the overall results, in our view, the assessee should not have missed the opportunity of retaining the profit of previous year. We noticed that previous year, it has achieved 9.39%, if we remove the manufacturing GP of 7.17% (considering the increase in sales and absolute increase in the GP in Manufacturing activities, the declared results seems to be acceptable), the difference of profit is 2.22%, whereas it has actually achieved 0.50%. We cannot expect to receive similar margin in the trading activities also. The risk factor is very less and hence the expected profit also thin. Due to increase in volume of sales achieved in trading, the GP achieved is not at mark and in our view, it should have achieved at least 2% of the sales, without going into the intricacies like competition, heavy discounts offered merely to achieve sales target etc., in our view, it could have been at 2%. The difference of GP of 1.5% on trading activities, propose to sustain the addition will meet the ends of justice. We propose the above addition due to the fact that the assessee has not maintained the cash discount offered to customers, this is the grey area otherwise, the trading results cannot be rejected as all the bills of purchase and sales are properly accounted. Therefore, we are inclined to direct the AO to sustain 1.5% of trading sales as additional GP. Accordingly, the ground raised by the revenue is partly allowed.
With regard to ground No.3, Ld DR brought to our notice page 19 and page 20 of the assessment order and submitted that assessee has failed to deduct TDS u/s 194J of the Act on payment of rent. Since, the assessee has not deducted TDS, he supported the findings of the AO that it is disallowable as per provisions of the Act. He also brought to our notice page 60 of the First Appellate Order wherein the Ld.CIT(A) has granted relief to the assessee with the observation that the assessee has given rent to various weavers, office and godowns which is less than the maximum limit of Rs.1,20,000/- prescribed u/s 194J of the Act. He submitted that nothing was substantiated before the Ld. CIT(A) for granting such relief.
On the other hand, Ld AR supported the findings of Ld CIT(A) and submitted that the relief granted by the Ld CIT(A) w.r.t. the disallowances of rent expenditure of Rs.4,49,000/- made u/s 40(a)(ia) of the Act and the Ld. CIT(A) has rightly appreciated that the payments made under this head have been made to weavers for using their premises and towards office and godown rent where the rent amount did not exceed Rs.1,20,000/- prescribed u/s 194J of the Act for making TDS. [Ref: last para on page 60 of order Ne din of CIT(A).]. Hence, there is no merit in the grievance of the department.
Considered the rival submissions and material placed on record. We observe that the assessee utilizes lot of weavers in its business and they are the back bone of the business. It made certain arrangement with the workers and allowed certain allowance by offering them rent and also taken up godowns for its business purpose. It is brought to our notice the submissions made before CIT(A) and the break up of the payments are small and within the limits prescribed under the provisions of section 194J. Therefore, we do not see any reason to disturb the findings of First Appellate Authority. Accordingly, the ground raised
by the revenue is dismissed.
19. In the result, the appeal filed by the revenue is partly allowed.
With regard to Assessee appeal, we observed that Ld CIT(A) has sustained following disallowances: a. Disallowance of Freight expenses u/s 40(a)(ia) - Rs.20,00,000/- b. Disallowance of Auditor Fees - u/s 40(a)(ia) -Rs.35,000/- c. Disallowance of Stationery Expenses u/s 40A(3) - Rs.50,000/- 20.2 In this regard, Ld AR brought to our notice Para-16 of assessment order and Page-60 to 62 of order of Ld CIT(A) and submitted that the assessee has made following justification for not deducting tax at source and cash payments not being beyond the limit prescribed u/s 40A(3) of the Act. a. Freight expenses: Even though the payment towards freight expenses were made to a number of persons/ transporters, only one person's name was mentioned in the voucher giving all the break up as annexure. However,
while preparing the data for submission before the Ld. AO, the staff had not understood the gravity of the issue and had submitted the payments as made to the single person appearing in the voucher. The same was discovered when the AO raised the query, and the figures had been submitted before the AO which have not been properly appreciated by the AO and the Ld CIT(A). It is submitted that being a Cottage industry, all the manufacturing process can't be done at one place and to complete process from Raw Material to Finished Product material has to be sent to different centres and therefore, the payment were made to a number of persons that includes 'thelawalas', hand carts, Mini Tempos including bullock carts and loading & unloading charges. The assessee has also duly submitted the copy of ledger account of the expense before the AO as well as the Ld CIT(A) as duly noted by her at page 60 of the Order and also submitted that the main two parties have declared this amount as income in their Income Tax Return and paid the taxes as per the provisions of Act, and therefore the disallowance was not called for in view of second proviso to Section 40(a)(ia) and first proviso to Section 201(1) of the Act. b. Auditor Fees: Amount not disallowable. Payment to auditor for services taken from time to time each of which was below the limit prescribed u/s 40(a)(ia) of the Act. Further, even in respect of these payments the second proviso to section 40(a)(ia) r.w.s 201(1) of the Act are clearly applicable which was not looked into by the Authorities below. The said proviso is applicable retrospectively from 2005. Similar disallowance made under similar facts in the hands of the Appellant's wife has been deleted by Hon'ble ITAT in ITA no.6829/Del/2019. c. The Ld CIT(A) has rejected the submission w.r.t. applicability of 2nd proviso to section 40(a)(ia) r.w.s 201(1) of the Act by holding that the same was not applicable to AY 2009-10 as the same was effective w.e.f. 01.04.2013. In this regard the following is submitted. i. The 2nd Proviso to Section 40(a)(ia) of the Act r.w. Proviso to Section 201(1) of the Act provides that disallowance of expenses under Section 40(a)(ia) of the Act cannot be made unless the assessee has been treated as assessee in default under Section 201(1) of the Act for its failure to deduct tax at source. ii. In the event if the amount paid by payer have been included by the payee in its return of income for the relevant assessment year, filed under Section 139 of the Act and has paid the tax due on the income declared in such return, to the extent recipient from such assessee is included the sum in his return of income and filed the same, no disallowance under Section 40(a)(ia) of the Act can be made by the Ld. AO in view of the 2nd Proviso to Section 40(a)(ia) r.w.s. First Proviso to Section 201(1) of the Act. iii. The 2nd Proviso to Section 40(a)(ia) of the Act inserted by Finance Act, 2012 and on furnishing of certificate in Form 26A as prescribed under Proviso to Section 201(1) r.w. Rule 31ACB of IT Rules, no disallowance under Section 40(a)(ia) of the Act can be made. However this opportunity was denied at the threshold by the authorities below. iv. The 2nd Proviso to Section 40(a)(ia) of the Act has been inserted in the statute by the Finance Act, 2012 w.e.f. 01.04.2013 but has retrospective effect from 01.04.2005 as held by Hon'ble Delhi High Court in Commissioner of Income Tax -1 vs Ansal Land Mark Township (P.) Ltd [2015] 377 ITR 635 (Delhi) and in CIT vs Rajinder Kumar [362 ITR 241].
On the other hand, Ld DR relied on the orders of lower authorities.
Considered the rival submissions and material placed on record. We observed that the Ld CIT(A) has rejected the submissions of the assessee by observing that the amended provisions in section 40(a)(ia) are applicable prospectively and not applicable to AY 2009-10. The Hon’ble Delhi High Court has held in the case of Ansal Land Mark Township (P) Ltd (supra) that it is applicable retrospectively. By respectfully, relying on the above decision, we are inclined to direct the AO to delete the disallowance made in the case of Audit fees. Accordingly, the ground no 2 is allowed.
With regard to Freight expenses, the assessee has submitted that two of the parties have filed their ROI and declared the income received from assessee as their income in the ROI. Therefore, we are inclined to direct the AO to consider the delete the amount relating to the income offered by these two parties. With regard to other disallowances, the assessee accepted that they have not maintained proper records and also paid the freight charges in cash. It is difficult to control this aspect and we are inclined to sustain the above said additions excluding the two parties. Accordingly, ground no.1 is partly allowed.
With regard to ground no 3, the AO observed that payment of Rs. 50000/- was made to Federal Stationery and it is not covered by exception provided under the Act, hence it is disallowed u/s 40A(3) of the Act. We observed that the assessee made a plea before Ld CIT(A) that the payments were made during the year in different occasions but not substantiated with evidence. After considering the submissions of the both parties, we are of the view that in case the payments are made in difference occasions and the amount is not more than Rs. 20000/- in each case, then AO may allow the expenses. The assessee is directed to file the ledger copy and relevant documents before AO. Accordingly this ground of appeal is allowed for statistical purpose.
In the result, appeal filed by the assessee is partly allowed as indicated above.
for AY 2009-10 (Penalty u/s 24(b))
At the time of hearing, Ld AR submitted that Ld CIT(A) deleted the quantum addition on MERIT, the penalty amount corresponding to the said income was also deleted. No fault can be found with action of CIT(A). When the underlying quantum addition stood deleted the penalty would not survive. Further submitted that the irrelevant limb in the penalty notice has not been struck off. It is an omnibus notice. The penalty order is void ab initio. [Hon'ble Jurisdictional High Court in Pr.Commissioner of Income Tax vs M/s Sahara India Life Insurance Company Ltd ITA 475/2019 & Ors.; M.A. Projects Pvt Ltd vs ACIT Circle-13, New Delhi dated 12.04.2023; Late Srizia Usmani through L/H and wife Smt. Mehvish Usmani vs CIT(A), Allahabad ITAT ITA No. 143/ALLD/2019]. Similar appeal filed by the Department in assessee’s wife case has been dismissed by the Hon'ble ITAT in ITA No.6019/Del/2019.
for AY 2009-10 (Penalty u/s 40(a)(ia))
With regard to assessee’s appeal, Ld AR submitted that there is no concealment of income as there is no merit in disallowance made by AO and confirmed by CIT(A). Disallowances are not warranted as each payment was less than the amount prescribed under the said sections. CIT(A) also does not dispute the facts stated by the Assessee and confirms penalty in a mechanical manner. 27.1 Further submitted that mere disallowance of a claim made in the Return would not amount to giving inaccurate particulars of income or concealment of income. [Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158].
27.2 Technical disallowances like disallowance of freight expenses or auditor's fees u/s 40(a)(1)(a) for failure to make TDS or disallowance for cash payment exceeding the limit prescribed u/s 40A(3) would not automatically amount to furnishing inaccurate particulars of income or concealment of income as the incurring of the said expenditure is not in dispute. (Principal CIT v Torque Pharmaceuticals P. Ltd., 2016 SCC On Line P&H 7150; Solidity Developers Private Ltd v CIT 2018 SCC On Line ITAT 20748).
27.3 Further submitted that Irrelevant limb in the penalty notice has not been struck off is an omnivous notice. Order is void ab initio - Decision of Delhi High Court in Pr. Commissioner of Income Tax vs M/s Sahara India Life Insurance Company Ltd ITA 475 of 2010 and M.A. Projects Pvt. Ltd. vs. ACIT Circle-13, New Delhi dated 12.04.2023. Late SriZia Usmani through L/H and wife Smt. Mehvish Usmani vs CIT(A), Allahabad ITAT ITA No. 143/ALLD/2019. Similar penalty levied in the hands of appellant's wife has been deleted by Hon'ble ITAT in 6831/Del/2019.
For the both the penalty appeals, Ld DR relied on the findings of lower authorities.
Considered the rival submissions and material placed on record. We observed that most of the additions proposed by the AO are deleted by the Ld CIT(A) and certain additions were deleted by us in this appeal proceedings. The claim of the assessee relating to the allowability of the expenses. As held in the various cases brought to our notice and the same were reproduced in the above paragraphs, the penalty cannot be levied in the issues raised by the AO in the assessment order and penalty order. Therefore, we are inclined to decided the issues raised by the revenue as well as by the assessee in favour of the assessee. Accordingly, we direct the AO to delete the penalty levied. Accordingly, the grounds raised
by the revenue are dismissed and grounds raised by the assessee are allowed.
30. In the result, appeal filed by the revenue is dismissed and appeal filed by the assessee is allowed. for Assessment Year 2009-10
The present appeal has been filed against order of Ld. Commissioner of Income Tax (Appeals), New Delhi dated 08.04.2019 in Appeal No. 226/18-19 issued in the Assessee’s case for AY 2009-10 whereby the Ld. CIT(A) has confirmed the penalty of Rs. 10,44,255/-levied by the Ld. AO u/s 140A(3) of Income Tax Act, 1961 (the Act) vide his order dated 27.06.2012.
The AO noticed that the self-assessment tax payable under section 140A of the Act on the returned income had remained payable at the time of filing the return. The breakup of the said the self-assessment tax payable was as under: 2. As per the return, a sum of Rs. 10,44,260/- had been shown as tax payable u/s 140A of the Income Tax Act, 1961. The bifurcation of the same is as under: a. Taxes payable Rs. 9,69,600/- b. Default in payment of advance tax (Sec. 224B) Rs.38,784/- c. Default in payment of advance tax (Sec. 234C) Rs.35,871/- 33. The AO also noted that even until the date of finalization of the Assessment order, the assessee had not paid the said Self Assessment tax. He therefore, issued a show cause notice u/s 140A(3) of the Act on 29.12.2011 seeking compliance on 10.01.2012. On failure of the assessee to respond to the said show cause notice, the AO followed it up with two more notices dated 18.04.2012 and 13.06.2012. Since there was no response from the assessee, he proceeded to finalise the penalty proceedings by treating the assessee as ‘Assessee in default’ and levied a penalty of Rs. 10,44,255/- u/s 140A(3) r.w.s. 221(1) of the Act. He issued order u/s 140A(3) r.w.s. 221(1) of the Act on 27.06.2012 whereby he imposed a penalty of Rs. 10,44,255/- stating that the same was in addition to amount of arrears and amount of interest payable u/s 220(2) of the Act.
Aggrieved by the said penalty order the assessee filed first appeal before the Ld. CIT(A) on 05.05.2017 along with application for condonation of delay in filing the appeal. The grounds raised
before Ld. CIT(A) are as under: “1. That the impugned order is not only bad in law and nature but also whimsical and therefore, the same is liable to be quashed.
2. That the facts and circumstances of the case, the Ld. AO has grossly erred in levying the penalty of Rs.10.44,255/- by applying the provisions of section 140A(3) r.w.s 221(1), of the Act, which is illegal and liable to be deleted.
3. The assessee craves for the addition, deletion of any of the grounds of appeal.”
35. The assessee submitted before the first Appellate Authority that he had promptly deposited the tax amount every year on time for AY 2010-11, 2011-12 and 2012-13. However, due to mistake of the consultant in not informing and keeping the assessee in dark on the tax payable at the time of filing the return, the subject Self Assessment tax(SA) has remained payable. As soon as he came to know of the default, he cleared the SA tax arrears by 02.06.2016. He submitted before the Ld. CIT(A) that it was a bonafide mistake committed due to the carelessness of the consultant and that there was reasonable cause within the meaning of proviso to section 221(1) of the Act.
The Ld. CIT(A) condoned the delay in filing the first appeal. However, Ld. CIT(A) did not agree with the assessee’s plea and confirmed the order of the Ld. AO. The appeal thus came to be dismissed on 08.04.2019.
Aggrieved by the order of the Ld. CIT(A), the assessee has filed the present appeal on 16.08.2019 raising the following grounds:
“That Ld. CIT (A) has erred in confirming penalty of Rs. 10,44,255/- u/s 140A(3) read with section 221(1) of the Income Tax Act, 1961 because: (a) the assessee was having the reasonable cause of not depositing the tax on time and the good and sufficient reasons for not depositing the tax were totally ignored by the Ld. CIT(A). (b) the imposition of the penalty is discretionary in nature and not mandatory and the facts of the case were not considered in correct perspective and the discretion of imposing the penalty were made arbitrary. (c) the reasons stated by the appellant were not disputed,, but simply not considered whereas before rejection of the same there is a burden on the revenue to prove that the reasons stated for not depositing the tax were not good and sufficient enough to confirm the imposition of the penalty. (d) the citations to justify the stand of assessee were not controverted before confirming the penalty.
The appellant craves leave for addition, modification, alteration, amendment, deletion of any of the grounds of appeal. "
38. The assessee has also filed an application along with an affidavit seeking condonation of delay in filing the present appeal. In the said application it has been stated that the assessee was not served the copy of the appellate order which was received by him by hand on 14.05.2019. Further, it has been stated that the assessee was in his native place in Mirzapur and after his return from there he became busy in attending to litigation proceedings including prosecution matters initiated by the Income Tax department and in the meantime the limitation period for filing the appeal had expired. It has been submitted that the delay was on account of bonafide reasons and that it was not caused due to laches or negligence etc. The assessee has accordingly prayed for condonation of the delay in filing the appeal. On the other hand, Ld DR objected to the above condonation of delay.
Considered the submissions and the delay is condonable due to the reason brought on record. We proceed to hear the appeal.
The assessee has subsequently filed an application under Rule 11 of ITAT Rules, 1963.
1 .Additional Ground of Appeal:
THAT the penalty order framed under section 140A(3) r.w.s. 221(1) of IT Act 1961 is invalid and non-est in the eyes of the Law as 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.
Submission on admission of additional grounds: 10. It is submitted that the above additional ground of appeal is purely a legal ground emanating from the orders of the authorities below and the relevant facts are already on record and it goes to the very root of the matter and also relevant in deciding the present appeal. It is therefore prayed that the same may kindly be admitted. The appellant respectfully relies upon the ratio in the case of National Thermal Power Co. Ltd. vs Commissioner of Income Tax (1998) 229ITR 383 (SC) and Jute Corporation of India Ltd. vs CIT (1991) 187ITR 688 (SC) for the proposition that an additional ground of appeal which is a legal ground based on the facts on record may be admitted in appeal though not raised earlier.
11. Arguments of the appellant: It is humbly submitted that the Ld. AO has imposed the subject penalty without hearing the appellant who was completely in dark about the ongoing proceedings before the AO as he was stuck with handling various litigations including prosecution proceedings relating to the investigation conducted by DRI. The appellant had not received any intimation from his consultant about the default that had occurred due to nonpayment of SA tax. As soon as he came to know of it he deposited the same. Kind attention is invited to the fact that the appellant has been promptly depositing on time the taxes for AY 2010-11, 2011-12 and 2012-13. The default was on account of bonafide reasons as the consultant who handled the matter did not inform the same to the appellant. He had filed the return without informing that SA tax had remained payable. In view of the above it is submitted that there was a reasonable cause for the default in payment of SA tax within the meaning of Proviso to Section 221(1) of the Act which for the relevant period read as under: “Provided further that where the assessee proves to the satisfaction of the AO that the default was for good and sufficient reasons, no penalty shall be levied under this section.”
12. In the above background the appellant respectfully submits that the subject penalty was not leviable. This aspect was not appreciated by the Ld. CIT(A) who confirmed the penalty order in a mechanical way without application of mind. He did not appreciate that there were good and sufficient reasons for default in payment of SA tax. The concerned consultant had kept the appellant in dark throughout the assessment and penalty proceedings before the AO. The appellant had also not reee.ved any notices and it is in that background that the minor default payment of SA tax in time had occurred. As submitted before the Ld. CIT(A) the appellant has been promptly depositing the tax amount on time for AY 2010-11. 2011-12 and 2012-13 without any default. Payment of SA tax was further delayed as Department of Revenue Intelligence had taken action against the appellant and his accounts were frozen and after the matter was sorted out with DR1 the appellant was able to deposit the SA tax along with interest due hereon by 02.06.2016. Ld. CIT(A) has confirmed the penalty only for the reason that the appellant has not responded to the notices issued by the AO and that the SA tax had remained payable till the finalsation of the Assessment order. The Ld. CIT(A) failed to appreciate that there were good and sufficient reasons behind the alleged default as duly explained to him. The said explanation has been completely ignored. He has also ignored that the SA tax was subsequently paid by 02.06.2016 along with interest due thereon. Therefore there was no loss to the revenue. Submissions on Additional Grounds: 13. It is humbly submitted that the impugned penalty order is invalid and non-est in the eyes of the law as there is no provision under the Act empowering the AO to levy penalty for mere default in payment of SA tax. Section 140A(3) of the Act merely states that if there is a failure in payment of SA tax the assessee would be deemed to be in default in respect of the said tax, interest or fee remaining unpaid and that all provisions of the Act would apply accordingly. Thus section 140A(3) of the Act is not a charging section as far as levying penalty is concerned. It only enables AO to hold the assessee as assessee in default.
14. It is submitted that the penalty order u/s 140A(3) r.w.s 221(1) therefore is misconceived. It has been judicially held by the coordinate bench of this Hon'ble Tribunal in Heddle Knowledge Private Limited v. CIT, 2018 SCC OnLine ITAT 4055 that the objective of section 140A(3) of the Act is to treat the Assessee as 'Assessee in default' for the limited purpose of enabling the AO to make recovery of tax and interest due and not for levy of penalty as understood by the Revenue. The relevant para 3-6 of the said decision Heddle Knowledge Private Limited (supra) are reproduced below for ready reference: 3. Against the aforesaid background, the plea raised by the assessee before us is quite different from what has been raised before the lower authorities. At the time of hearing, the learned representative has given a new twist to the controversy by pointing out that the provisions of Sec. 140A(3) of the Act, as it stood for the year under consideration, did not envisage levy of penalty for the delay in deposit of self- assessment tax. In order to appreciate the point sought to be raised by the learned representative, the following discussion is relevant.
Sec. 140A(3) of the Act, as it stands for the year under consideration, reads as under:-
"140A(3) 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), 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 for interest or both) remaining unpaid, and all the provisions of this Act shall apply accordingly."
Our attention has been drawn to the erstwhile Sec. 1404(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 tax 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 opportunity of being heard." Quite clearly, in terms of the provisions of Sec. 140A(3) of the Act as existing till 31.03.1989, the Assessing Officer was empowered to levy penalty in cases where assessee had failed to pay the self-assessment tax, and such penalty was leviable for every month during which the default continued of a sum equal to 2% of such tax or part thereof. At the time of introduction of the new section by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01.14.1989, the Explanatory notes issued by CBDT vide Circular no. 549 of 31.10.1989 contained the following, which seeks to explain the import of the substitution of new section. The relevant paragraphs of the Circular dated 31.10.1989 (supra) are reproduced 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."
Quite clearly, if one is to read the earlier Sec. 140A(3) of the Act and the amended section w.e.f. 1.4.1989 alongwith the explanatory notes to the amendment conjointly, it is clear that the earlier provision prescribing for levy of penalty for default outlined in Sub-section (1) of Sec. 140A(3) has yielded place to mandatory charging of interest for such default. The aforesaid legislative intent also gets strength by the fact that simultaneously the legislature prescribed for mandatory charging of interest u/s 234B of the Act for default in payment of self-assessment tax w.e.f. 01.04.1989 onwards.
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 emphasized 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. 1404(3) in the unamended provision was on the statute alongwith the penalty envisaged u/s 221 of the Act. Once Sec. 1404(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 non-payment 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 during the pre and post amended Sec. 140A(3) of the Act and even in the pre-amended situation, penalty w/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.
In view of the above the appellant prays that the appeal may kindly be allowed and the penalty order be set aside.
Considered the rival submissions and material placed on record. We observe from the facts on record that the assessee could not remit the SA tax due to the fact that the Department of DRI has taken an action against the assessee and the bank accounts were seized. We observe that the AO has levied the penalty due to the reason that the assessee could not make the payment towards SAT till the last date of assessment. This is fact on record that the Sec.221(1) penalty is a tool to the assessee to levy penalty in order to force the assessee to comply, however, the assessee is also prone to pay the relevant penal interest till the relevant tax are paid. In this case, no doubt the assessee was not paid and also reasonable causes to submitted before the authorities that the payments were made as soon as it came to the notice of the assessee and also when he was in a position to make the payment. It was also submitted that the consultant has not brought to the notice of the assessee the relevant tax dues. Considering the overall situation and mental stress in coping up with the various proceedings initiated on the same time and section 221(1) is leviable only after considering the reasonable cause, in this case, in our considered view, there is reasonable cause brought on record by the assessee and also the assessee has paid the SAT before levy of penalty u/s 221(1) of the Act. Therefore, in our view, the penalty is not justified considering the fact on record. Accordingly, grounds raised
by the assessee is allowed.
42. In the result, appeal filed by the assessee i.e., ITA No.6810/Del/2019 filed by the Revenue are partly allowed. filed by the Revenue is dismissed and ITA No.6812/Del/2019 filed by the Assessee is allowed. ITA No.6811/Del/2019 filed by the Assessee is allowed.
Order pronounced on 11th September, 2024.