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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order by the Commissioner of Income Tax (Appeals) dated 04.12.2015 and pertains to the assessment year 2010- 11.
The grounds of appeal
read as under:
1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming penalty levied by Assessing Officer of Rs.100000/- under section 221(1) of the Act. Provisions of the Act ought to have been properly construed and regard being had to facts of the case no such penalty should have been levied. Reasons assigned by him are insufficient to justify levy of penalty under section 221(1) of the Act.
(A.Y. 2010-11) M/s. Rishab Steel (House) vs. Asst. CIT 2. On the facts and in the circumstances of the case and in law the order made under section 221(1) of the Act is illegal, bad-in-law, ultra virus, without allowing reasonable opportunity of the hearing, and without appreciating facts, submission and evidences in their proper perspective is liable to be annulled. 3. The issue in this case is non-payment of outstanding demand of tax. The Assessing Officer has noted that the assessee has failed to pay the outstanding demand against him for assessment year 2010-11. Since the assessee did not give any reply to the notice in this regard, the penalty u/s. 221(1) amounting to Rs.1 lacs was levied.
Before the ld. Commissioner of Income Tax (Appeals) the assessee submitted that the assessee has reasonable belief that addition on which the demand has arisen will be deleted as the issue relates to the bogus purchases and Hon'ble Bombay High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014) has deleted the entire addition. However, the ld. Commissioner of Income Tax (Appeals) was not convinced, he held that the assessee has neither paid the tax nor approached the Assessing Officer for a stay of demand. Hence, the penalty levied u/s. 271(1)(c) was confirmed.
Against this order, the assessee is in appeal before us.
We have heard both the counsels and perused the records. The ld. Counsel of the assessee submitted that the assessee had reasonable belief that addition on which demand has arisen would not be sustained in appellate proceedings inasmuch as the issue relates to bogus purchases in which the Assessing Officer has added Rs.8,83,95,948/- being peak investment in bogus purchase. The ld. Counsel of the assessee submitted that in view of the Hon'ble jurisdictional High Court decision in (A.Y. 2010-11) M/s. Rishab Steel (House) vs. Asst. CIT the case of Nikunj Eximp Enterprises (supra) the assessee was of the bonafide belief that the addition will not be sustained. He submitted that this view has also been oxygenated by the final order of the ITAT in which only 5% disallowance of the bogus purchase has been sustained. Hence, the ld. Counsel of the assessee submitted that there was a reasonable cause for the assessee in not paying the demand.
Furthermore, the ld. Counsel of the assessee placed reliance upon the decision of Hon’ble Apex Court decision in the case of Hindustan Steel Ltd. vs. State of Orissa [1972] 83 ITR 26 (SC) for the proposition that penalty need not to be levied if conduct of the assessee is found to be not contumacious.
Per contra, the ld. Departmental Representative relied upon the orders of the authorities below.
We have carefully considered the matter and perused the records. We find that section 221(1) under which penalty has been levied reads as under:
Penalty payable when tax in default. 221. (1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the Assessing Officer may direct, and in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears : Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard : Provided further that where the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons, no penalty shall be levied under this section.
(A.Y. 2010-11) M/s. Rishab Steel (House) vs. Asst. CIT Explanation.—For the removal of doubt, it is hereby declared that an assessee shall not cease to be liable to any penalty under this sub-section merely by reason of the fact that before the levy of such penalty he has paid the tax. (2) Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded.
We find that penalty under this section need not be levied if there are good and sufficient reasons. We find considerable cogency in submission of the ld. Counsel of the assessee that there was a Hon'ble jurisdictional High Court’s decision on similar issue deleting the entire addition and finally ITAT sustained only 5% addition as against Rs.8,83,95,948/- done by the Assessing Officer. We are of the considered opinion that on the facts and circumstances of the case it can be construed that the default was for good and sufficient reason and penalty in this regard need not be levied. Furthermore, the decision of Hon’ble Apex Court in the case of Hindustan Steel Ltd. (supra) also comes to the rescue of the assessee as the assessee’s conduct cannot be said to be contumacious so as to warrant levy of penalty. Accordingly, we set aside the order of the authorities below and delete the levy of penalty.
In the result, this appeal by the assessee stands allowed. Order pronounced in the open court on 01.03.2018