M/S. GALAXY NIRMAAN PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

ORDER Per O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 17/01/2014 of the Ld. Commissioner of Income-tax (Appeals)-XXXI, New Delhi, for assessment year 2010-11, in relation to penalty levied by the Assessing Officer for non-payment of self-assessment tax by the assessee. In the form No. 36 filed along with the appeal, the assessee raised ground of appeal as under:

2. The assessee craves leave for addition, modification, deletion, any of the grounds of appeal either before the hearing of appeal or at the time of appeal.

2. However, the assessee revised its ground of appeal

on 11/05/2015, a copy of which was provided to the Departmental Representative by the bench. In view of no objection from the Departmental Representative the revised grounds of appeal have been admitted, which are as under:

1. The Ld. CIT(A) has erred on facts and in law in holding that imposition of penalty under Section 140A(3) of the Income Tax Act, 1961 is an inadvertent mistake and has further erred in holding that this mistaken can be ignored in view of Section 292B of the Income Tax Act, 1961.

2. The learned CIT(A) has erred in confirming the penalty order under Section 140A(3) of the Income Tax Act, 1961 when the law does not permit imposition of any such penalty under Section 140A(3) of the Income Tax Act, 1961.

3. The learned CIT(A) has erred on facts and in law in confirming the penalty under Section 140A(3) of the Income Tax Act imposed by the Ld. Assessing Officer after the processing/assessments under section 143(1)/143(3) were completed by the AO.

4. The learned CIT(A) has erred on facts and in law in holding that the appellant did not have liquidity problems which made it difficult for the appellant to make payments of tax under Section 140A of the Income Tax Act, 1961.

5. The assessee craves leave for the addition, modification, deletion of any of the grounds of appeal.

3. Facts in brief of the case are that due date of filing of return of income as per section 139(1) of the Income-tax Act, 1961 (in short the Act) in the case of the assessee for the year under consideration was 30/09/2010, however, the assessee did not file return of income on the due date. The Assessing Officer issued notice under section 142(1) of the Act on 8/02/2011, requiring assessee to file the return of income. The assessee did not comply this notice. Another notice under section 142(1) of the Act was issued on 11/08/2011, requiring the assessee to file the return of income. The assessee did not comply this notice also. Again a fresh notice was issued on 26/09/2011 under section 142 (1) of the Act for filing return of income. In response to this notice, the assessee filed return of income on 30/09/2011, electronically, declaring total income of Rs.2,39,16,490/-. The case was selected for scrutiny and notice under section 143(2) of the Act was issued and served. During the assessment proceeding except filing Auditors Report alongwith Annexure, no compliance of the various notices issued under section 142(1) of the Act calling for information, was made and the assessment was completed ex-party under section 144 of the Act at total income of Rs.3,49,17,860/- on 11/03/2013. 3.1 During the assessment proceeding, the Assessing Officer observed that tax liability of Rs.1,09,71,691/- on the income declared in the return of income was shown payable under section 140A of the Act. In view of non-payment of admitted tax liability under section 140A(1) of the Act the Assessing Officer asked the assessee to furnish the evidence of tax paid as computed in the return of income and issued show cause that in absence of no such evidence as why the penalty might not be levied for non-payment of admitted tax. In the show cause notice, the Assessing Officer mentioned the section 140A(3) of the Act for levy of penalty. 3.2 In response, the assessee submitted the circumstances under which the admitted tax could not be paid including liquidity crunch. The assessee also referred to provision of section 221 of the Act, which says that if there is sufficient reason for non-payment of tax under section 140A, no penalty should be levied. But, the assessee also referred the relevant section of penalty as under section 140A(3) of the Act. 3.2 The Assessing Officer considered the submission of the assessee, however, in absence of any supporting documentary evidence of liquidity crunch, he was not satisfied with the reasons cited by the assessee for non-payment of admitted tax. The Assessing Officer held the assessee in default for not making payment of admitted tax liability of Rs.1,09,71,691/-and levied a penalty of an amount equal to admitted tax liability quoting section 140A(3) of the Act. 3.3 Before the Ld. Commissioner of Income-tax (Appeals), the assessee raised the ground that the order passed by the Assessing Officer was illegal and liable to be quashed as the penalty has been levied under section 140A(3) of the Act, whereas it should have been levied under section 221 of the Act. The Ld. CIT(A), however, held that the provisions of section 292B of the Act would cover such inadvertent mistake in quoting the correct section as the appellant had participated in the proceedings without rendering any objection. 3.4 Regarding the good and sufficient reason for non-payment of admitted tax liability, no submissions were filed by the assessee before the Ld. CIT(A). The Ld. CIT(A) observed that admitted tax liability was not paid even till the passing of the appellate order and therefore, he questioned the bonafides of the assessee in honouring his own commitment of tax payment on the returned income. Accordingly, he dismissed the appeal of the assessee. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.

4. In ground No. 2, the assessee has raised the issue that Assessing Officer was not permitted to levy penalty for non-payment of admitted tax liability under section140A(3) of the Act. In ground No. 1, the assessee has challenged the finding of the Ld. CIT(A) that quoting wrong section was an inadvertent mistake and could be ignored in view of section 292B of the Act. 4.1 Supporting the above grounds, the Ld. counsel submitted that quoting wrong section was fatal to levy of penalty and the assessee could not get opportunity to defend the penalty levied. In support of his contention, he relied on the decision of the coordinate bench in the case of Sh. Rakesh Kumar Garg in and decision of the Tribunal in the case of DD Resorts Private Limited in 1103 and 1104/Del/2014, wherein the Tribunal has followed the finding in the case of Sh. Rakesh Kumar Garg (supra). 4.2 On the other hand, Ld. Senior DR submitted that in the show cause notice issued, the Assessing Officer has clearly asked as to why the assessee might not be treated as assessee in default for non-payment of admitted tax liability under section 140A(3) of the Act and penalty equivalent to the admitted tax the ability might not be levied. He further submitted that section 221(1) of the Act reads that when an assessee is in default in making payment of tax, he shall in addition to the amount of arrears and interest payable, would be liable to pay by way of penalty not exceeding the tax in arrears and before levy of such penalty the assessee should be given a reasonable opportunity of being heard. The Ld. Senior DR, accordingly submitted that the exact nature of contravention for which the assessee was liable was duly referred in the show cause notice and there was a only wrong mention of section 140A(3) instead of section 221 of the Act. He submitted that the assessee was duly provided the opportunity and was heard. He further submitted that assessee also duly complied and submitted the reasons as why the admitted tax liability could not be paid, to satisfy the Assessing Officer that the default was for good and sufficient reasons. 4.3 The Ld. Senior DR further relied on the decision of the Hon’ble High Court of Gujarat in the case of Principal Commissioner of Income Tax-2, Vadodara Vs. Sugar Developers, reported in (2016) 72 taxmann.com 321(Guj), wherein it is held that whenever administrative action is found to be suffering from breach of principal of natural Justice, the decision-making process should be placed at a stage where defect is detected rather than to permanently annul action of the authority. He further relied on the judgment of the Hon’ble Supreme Court of India in Civil Appeal No. 2099, arising out of SLP (Civil) No. 2308 of 2009 in the case of P.K. Palanisamy Vs. N Arumugham and another, wherein the Hon’ble Supreme Court observed that it is a well settled principle of law that mentioning of wrong provision or non-mentioning of provision does not invalidate an order if the court and/or statutory authority had the requisites jurisdiction therefore. 4.4 Ld. DR submitted that in view of the above the penalty levied should be sustained. 4.5 We have heard the rival submissions and perused the relevant material on record. It is relevant to reproduce the section 140A and section 221 of the Act as under:

“Section140A 140A(1) :Where any tax is payable on the basis of any return required to be furnished under section 115WD or section 115WH or section 139 or section 142 or section 148 or section 153A or, as the case may be, section 158BC, after taking into account,— (i) the amount of tax, if any, already paid under any provision of this Act; (ii) any tax deducted or collected at source; (iii) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India; (iv) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and (v) any tax credit claimed to be set off in accordance with the provisions of section 115JAA or section 115JD, the assessee shall be liable to pay such tax together with interest [and fee] payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax [and interest].” 140A(1A) ……………………………………………………………………….. 140A(2) …………………………………………………………………………. 140A(3) : (3) If any assessee fails to pay the whole or any part of such tax 68[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 68[or interest or both] remaining unpaid, and all the provisions of this Act shall apply accordingly. 140A(4)…………………………………………………………………………… section 221 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.”

4.6 On perusal of the above provisions of the Act, we find that wherever the assessee fails to pay the admitted tax liability, the assessee is deemed to be in default in terms of section 140A(3) of the Act in respect of the tax remaining unpaid and when the assessee is found to be in default or deemed to be in default, a penalty may be levied on such assessee up to the tax liability in arrear in terms of section 221 of the Act. 4.7 The contention of the Ld. Sr. DR are that in show cause notice, the Assessing Officer has properly informed the charges to the assessee, however, committed mistake of quoting wrong section and which could be ignored in view of section 292B of the Act. The relevant section 292B is reproduced as under: “Return of income, etc., not to be invalid on certain grounds. 292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”

4.8 The Ld. counsel has contended that above mistake could not be ignored invoking section 292B of the Act. The Ld. counsel has relied on the decisions of the Tribunal in the case of Sh. Rakesh Kumar Garg (supra) and DD Resorts Private Limited (supra). In the case of DD Resorts Private Limited (supra), the Tribunal has followed the finding in the case of Sh. Rakesh Kumar Garg (supra), therefore, we find it relevant to produce the finding of the Tribunal in the case of Sh. Rakesh Kumar Garg as under: “28. Sum up, we are inclined to hold that the no penalty notice was issued to the assessee u/s 221 of the Act and the penalty order was also not passed u/s 221 of the Act and there is no penalty provision u/s 140A of the Act and the AO misunderstood the relevant provision of the Act while issuing notice and imposing penalty against the assessee. Consequently, the assessee was also not provided due opportunity of hearing prior to imposing penalty u/s 221 of the Act as required by first proviso to section 221(1) of the Act and at the same time the assessee was also denied opportunity of hearing to discharge its onus and to show “good and sufficient cause” for non-payment of tax at the time of filing of return as required second provisio to section 221(1) of the Act to avoid penalty, which is also a clear violation of the mandatory provisions of the Act by the AO and thus, penalty order cannot be held as in accordance with law and sustainable and the first appellate authority i.e. CIT(A) was quite justified and correct in demolishing the same.”

4.9 Thus, we find that in the aforesaid case, the assessee was not provided due opportunity of hearing prior to imposing penalty and also the assessee was denied opportunity of hearing to discharge its onus to show “good and sufficient cause” for non-payment of tax at the time of filing of the return. 4.10 Now, we may like to examine, whether the facts on the basis of which, the Tribunal has deleted penalty in the case of sale Rakesh Kumar Garg, existed in the instant case are not. For this purpose, it is relevant to examine the show cause notice issued by the assessee, though the relevant section quoted was 140A(3), but whether it meets the requirement of section 221 of the Act . We find that, the Assessing Officer has issued show cause notice as to why the proceedings u/s 140A(3) for imposing penalty should be considered. The relevant paragraph of the show cause notice are reproduced as under:

“In the above subject reference your attention is drawn towards return of income submitted in this office on 30th September, 2011. From the documents and details filed, it has been perused that as per computation chart annexed with the return of income filed for the AY 2010-11, tax payable has been shown at Rs. 1,09,71,691/-. As per provisions of Section 140A/1) of the Income Tax Act, 1961, the assessee is liable to pay such tax together with interest payable under any provision of this Act before furnishing the return of income and such return of income shall be accompanied by proof of payment of such tax and interest. Whereas in the your return this amount of tax amounting to Rs. 1,09,71,691/- has been shown as payable.

5. For filing the reply to the above show cause, your case stands fixed in the O/o of the undersigned on 1st December’ 2011 at 1:00 PM. You may furnish evidence of the tax paid as computed in the return of income. In case no such evidence is submitted or no compliance is made, proceedings u/s 140A(3) for imposing penalty will be considered and decided on merits.

4.11 The perusal of the above show cause notice, makes it evident that the assessee was first informed the relevant provisions of section 140A(3) of the Act and then it was show caused as why it may not be deemed to be an assessee in default for non-payment of self- assessment tax. Thereafter, the Assessing Officer show caused as why the penalty might not be levied for non-compliance of section 140A of the Act. This shows sufficient compliance of first proviso to the section 221 of the Act. 4.12 Further, in response to the show cause notice, the submission of the assessee before the Assessing Officer, is reproduced as under: “The assessee was not able to deposit the tax of Rs.1,09,71,691/- u/s 140A due to the following reasons: a) The assessee is suffering the liquidity crunch and find it difficult to pay the self assessment tax. b) The cash generation source of the business has been closed. c) All the bank account has been seized by the Income tax department due to which the assessee was left with no means to pay the tax. d) That the demand has emanated due to the surrender made at the time of the search, in addition to the discrepancies if any, those were found at the time of the search and after the search to cover up those discrepancies, but the assessee was made to pay for the surrendered amount unlinked with the incriminatory? documents found but also for the commitment made for the surrender and as such the assessee was made to pay taxes for the discrepancies as well as for the discrepancies which were not in the books but which were made to pay as per the surrender thereby making it difficult to comply with the both as such the amount remained unpaid but because the assessee has committed to pay, the amount committed to pay and will honor all the commitment made with the department for the unpaid amount once the liquidity position is eased up and accounts are de-sealed. The assessee is in genuine hardship due to which not able to pay the tax u/s 140A. Moreover, as per proviso of section 221 of the Income Tax Act, 1961 if there are sufficient reason for the non-payment of tax u/s 140A then no penalty u/s 140A (3) shall be levied on the Assessee. “Provided further that where the assesses 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 "

Our view is supported by the following case laws: Section 140A-Held, that the proviso then S. 140A (3) enjoined upon the TTO to afford a reasonable opportunity to the assessee of being heard before the decided to impose a penalty. That clearly implied that it was open to the assessee to show that the default in payment of tax was due to a reasonable cause and no penalty could be levied in the circumstances of the case. Addl.CIT vs. Free Wheels India Ltd. (1982) 9 Taxman 18: (1992) 28 CTR 85:(1982) 137ITR 378, 385 (Del).

Illustrations: Whether a reasonable cause Where the failure to pay self-assessment tax was due to financial difficulties penalty’ under the above section was held to be unjustified CIT vs. Mysore Fertiliser Co., (1984) 39 CTR 292: (1985) 22 Taxman 133 : (1984) 145 ITR 91 (Mad); CIT vs. Indo American Electricals Ltd., (1985) 21 Taxman 433 : (1985) 45 CTR 146 : (1985) 155 ITR 63 (Cal) In the facts of the following cases, paucity of funds was held to be a good and sufficient reason for the non-payment of taxes. CIT vs. Chembara Peak Estates Ltd. (1989) 47 Taxman 166: (1989) 80 CTR 69: (1990) 183 ITR 471 (Ker); CIT vs. jaipur Electro P. Ltd. (1990) 183 ITR 476 (Raj) CIT vs. Bhikaji Ramchandra (1990) 183 ITR 478 (Bom). Because the assessee is perturbed and is in distressful situation, as well as there are sufficient reasons for the non-payment of tax, therefore, it is requested before your good-self to kindly not to levy any penalty u/s 140A(3).”

4.13 On perusal of the above submission of the assessee, also it is evident that the assessee has duly replied the reasons for non-payment of self-assessment tax amounting to Rs.1,09,71,691/- in order to discharge its onus to show “good and sufficient cause” for non-payment of tax at the time of filing of return, as required under proviso to section 221 of the Act. 4.14 In our opinion, in substance, the assessee was duly provided opportunity of hearing and to discharge its onus to show “good and sufficient reasons”, which being requirements for levy of penalty under section 221 of the Act. 4.15 In the circumstances, we are of opinion that the ratio in the case of Sh. Rakesh Kumar Garg (supra) is not applied over the facts of the instant case. 4.16 In the judgment of PK Palanisamy (supra), the Hon’ble Supreme Court observed as under:

“It is a well settled principle of law that mentioning of a wrong provision or non- mentioning of a provision does not invalidate an order if the court and/or statutory authority had the requisite jurisdiction therefor. In Ram Sunder Ram v. Union of India & Ors. [2007 (9) SCALE 197], it was held: ".....It appears that the competent authority has wrongly quoted Section 20 in the order of discharge whereas, in fact, the order of discharge has to be read having been passed under Section 22 of the Army Act. It is well settled that if an authority has a power under the law merely because while exercising that power the source of power is not specifically referred to or a reference is made to a wrong provision of law, that by itself does not vitiate the exercise of power so long as the power does exist and can be traced to a source available in law [see N. Mani v. Sangeetha Theatre and Ors. (2004) 12 SCC 278]. Thus, quoting of wrong provision of Section 20 in the order of discharge of the appellant by the competent authority does not take away the jurisdiction of the authority under Section 22 of the Army Act. Therefore, the order of discharge of the appellant from the army service cannot be vitiated on this sole ground as contended by the Learned Counsel for the appellant." In N. Mani v. Sangeetha Theatres & Ors. [(2004) 12 SCC 278], it is stated: "9. It is well settled that if an authority has a power under the law merely because while exercising that power the source of power is not specifically referred to or a reference is made to a wrong provision of law, that by itself does not vitiate the exercise of power so long as the power does exist and can be traced to a source available in law."

4.17 In the instant case also, before levy of the penalty, the assessee has been communicated exact nature of contravention, for which the assessee was liable, for penalty under section 221 of the Act. We find that the Assessing Officer has mentioned all the allegations and charges against the assessee in clear terms in the show cause notice and the assessee has also duly responded to those charges. The assessee in its submission also referred to the relevant section for levy of penalty as 140A(3) of the Act. In the circumstances, respectfully following the judgment of the Hon’ble Supreme Court in the case of Sh. PK Palanisamy (supra), we find that the proceeding of the Assessing Officer in the impugned order, in substance and effect in conformity with provisions of section 221 of the Act and thus, proceedings in question of the Assessing Officer cannot be held as invalid. Accordingly, we uphold the order of the Ld. CIT-A and grounds No. 1 and 2 of the appeal are accordingly dismissed.

was factually incorrect. 5.1. We have heard the rival submission on the issue in dispute. In our considered opinion limitation for levy of penalty falling under the chapter XXI “penalties imposable” under the Income Tax Act has been specified in section 275 of the Act. As far as penalty under section 221 of the Act is concerned, the limitation has not been provided, however it should be levied within a reasonable period of time. We find that the penalty has been levied even before the completion of the assessment and thus in our opinion it has been levied well within a reasonable period. Accordingly, ground No. 3 of appeal is dismissed.

6. In ground No. 4 the assessee has challenged the finding of the Ld. CIT-A that the assessee was not having any liquidity problem for making payment of tax under section 140A of the Act. 6.1 In support of the ground, the Ld. counsel submitted that the assessee already submitted reasons for liquidity crunch before the Assessing Officer. The Ld. counsel submitted that demand emanated due to the surrender of income made at the time of search and subsequent closure of cash generation source of the assessee. He submitted that assessee was well intended and, therefore, the income which was surrendered in the search, was offered in the return of income, however, due to non-availability of funds the admitted tax liability could not be paid and which has been paid by the assessee on 20/10/2014. The Ld. counsel submitted that there were genuine hardship and difficulty in making payment due to liquidity crunch and the assessee can justify with documentary evidence including books of account “ the good and sufficient cause” for not making payment of admitted tax liability till 20/10/2014 before the Assessing Officer, if matter is restored to the file of the Assessing Officer. 6.2 On the other hand, the Ld. Senior DR relied on the finding of the Assessing Officer that no documentary evidence was filed by the assessee in support of the liquidity crunch. He further submitted that the admitted tax liability was even not paid till the penalty levied was sustained by the Ld. CIT(A). 6.3 We have heard the rival submissions and perused the relevant material on record. The Ld. counsel submitted that the admitted tax liability has been ultimately deposited on 20/10/2014 and expressed willingness in justifying the “good and sufficient cause” for delay of more than three years in paying the admitted tax liability. From the order of the lower authorities, we find that the assessee did not file the documentary evidence in support of contention of liquidity crunch, however, before us, the assessee has sought one more opportunity for discharging its onus of showing “good and sufficient cause” for not making the payment of admitted tax liability. We are of the opinion that in the interest of natural justice, the assessee should be allowed one more opportunity to discharge his onus in terms of second proviso to section 221 of the Act, which read as under:

“221………………………………………………………..

Provided that …………………………………………… 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.”

6.4 Accordingly, we restore the issue of levy of penalty for non- payment of admitted taxability to the file of the Assessing Officer for deciding afresh after allowing a reasonable opportunity of hearing to the assessee. The assessee is directed to submit all its submissions alongwith documentary evidence, books of account etc. before the Assessing Officer on or before 31/08/2017 and then the Assessing Officer shall decide the issue accordingly. The ground of the appeal is allowed for statistical purpose.