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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI G.S. PANNU & SHRI SAKTIJIT DEY
Date of Hearing – 09.10.2017 Date of Order – 03.11.2017
O R D E R PER SAKTIJIT DEY, J.M.
Captioned appeal at the instance of the assessee is against the order dated 12th July 2011, passed by the learned Commissioner (Appeals)–17, Mumbai, sustaining penalty imposed under section 221(1) of the Income-tax Act, 1961 (for short "the Act") for an amount of ` 23,82,515, for the assessment year 2009–10.
Brief facts are, the assessee a company filed its return of income 2. for the impugned assessment year on 25th September 2009, declaring
2 Lok Housing And Constructions Ltd. nil income under the normal provisions of the Act. However, the assessee computed tax liability at ` 26,45,782 on the book profit declared under section 115JB of the Act. While verifying the return of income filed by the assessee, the Assessing Officer found that the assessee has not paid the self–assessment tax liability of ` 26,45,782 as per its own computation. He further observed, though, the said tax liability was required to be discharged before filing of return of income, the assessee has not done so. Accordingly, the Assessing Officer vide letter dated 12th January 2010, called upon the assessee to explain the reason for non payment of self–assessment tax and also to explain why penalty under section 221(1) of the Act should not be levied for such default in paying self–assessment tax. In response to the letter issued by the Assessing Officer, the assessee vide letter dated 21st January 2010, stated that self–assessment tax could not be paid because of non–availability of funds. The Assessing Officer rejected the aforesaid explanation of the assessee in the absence of supporting and corroborative evidences. He also observed, the assessee has not satisfied the nature of financial difficulties which prevented him from discharging the tax liability. Accordingly, he passed an order on 5th March 2010, imposing penalty of ` 26,45,782, being 100% of the tax liability. The assessee challenged the imposition of penalty by filing an appeal before the first appellate authority.
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The learned Commissioner (Appeals) after considering the submissions of the assessee held that the assessee having failed to satisfactorily explain the financial hardship preventing it from paying the self–assessment tax there is no sufficient cause for committing the default. Accordingly, he held that imposition of penalty under section 221(1) of the Act is valid. However, he held that such penalty can be levied only on the tax component and not the interest charged under section 234B and 234C of the Act. Accordingly, he reduced the quantum of penalty to ` 23,82,515.
Learned Authorised Representative submitted, the penalty imposed being in violation of the statutory provision, penalty order has to be quashed. Referring to the penalty order passed under section 221(1) of the Act, the learned Authorised Representative submitted, the Assessing Officer has not mentioned or discussed anything about the starting point of the penalty. He submitted, while initiating proceedings under section 221 of the Act, the Assessing Officer is required to state the starting point of the default which forms the basis for imposition of penalty. The next contention of the learned Authorised Representative is, the Assessing Officer has imposed penalty under section 221(1) of the Act both on the tax as well as interest whereas as per the provisions of section 221(1) of the Act,
4 Lok Housing And Constructions Ltd. penalty has to be levied only on the tax component. Therefore, he submitted, the quantum of penalty imposed by the Assessing Officer being more than the amount prescribed under the statute, penalty order passed is invalid. In support of such contentions, the learned Authorised Representative relied upon the decision of Hon'ble Guwahati High Court in CIT v/s Golaprai Hoonlal & Co., 110 ITR 896. Further, the learned Authorised Representative submitted, the Assessing Officer has failed to prove that there was a deliberate attempt on the part of the assessee in not paying the self–assessment tax. Learned Authorised Representative submitted, in case of one of the group concern under identical facts and circumstances, the Tribunal has deleted the penalty imposed under section 221(1) of the Act. In this context, he relied upon the decision of the Tribunal, Mumbai Bench, in Seagreen Marketing Pvt. Ltd. v/s ITO, and 863/Mum./2010 dated 30th November 2010. He submitted, in case of other group concerns also, the Tribunal has reduced the quantum of penalty under section 221(1) of the Act in the range of 2.5% to 5% of the defaulted tax liability. Thus, he made a without prejudice submission that penalty under section 221(1) of the Act may be reduced to 1% of the unpaid tax liability.
Learned Departmental Representative supported the finding of the learned Commissioner (Appeals).
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We have heard rival contentions and perused the material available on record in the light of the decisions relied upon. Undisputedly, the assessee had filed its return of income for the impugned assessment year on 25th September 2009, without discharging the tax and interest liability of ` 26,45,782, as computed under section 140A(3) of the Act. The Assessing Officer while verifying the return of income having noticed the aforesaid fact has confronted the same to the assessee and asked him to explain why penalty under section 221(1) of the Act levied for default in discharging the self– assessment tax liability. In the penalty order passed under section 221(1) of the Act, the Assessing Officer has clearly stated the facts relating to the default committed by the assessee. Thus, the starting point of initiation of penalty proceedings is the filing of return of income by the assessee without discharging the self–assessment tax liability computed under section 140A(3) of the Act. Therefore, the contention of the learned Authorised Representative that the Assessing Officer has not mentioned the starting point of the penalty proceeding is devoid of merit, hence, rejected. As far as the other contention of the learned Authorised Representative that the penalty order is invalid since, the quantum of penalty imposed by the Assessing Officer is more than the amount prescribed under section 221(1) of the Act. A plain reading of section 221(1) of the Act would reveal that the 6 Lok Housing And Constructions Ltd.
Assessing Officer if is of the view that the assessee has defaulted in making payment of his admitted tax liability he may direct the assessee to pay penalty under section 221(1) of the Act an amount which in no case will exceed the amount of tax in arrear. It is the contention of the assessee that the tax in arrear as mentioned in section 221(1) of the Act means the tax component alone and not the interest. While imposing penalty under section 221(1) of the Act, the Assessing Officer has also included the interest component, thereby, exceeding the upper limit prescribed under section 221(1) of the Act. In our view, the mistake committed by the Assessing Officer is not that fatal so as to invalidate the penalty proceeding. It is quite possible, the Assessing Officer has quantified the penalty being of the view that the tax in arrear would also include the interest component. Be that as it may, the learned Commissioner (Appeals) has reduced the penalty imposed by the Assessing Officer to the tax component only. Therefore, in our view, for this reason alone, the penalty order passed under section 221(1) of the Act cannot be quashed. At this stage, we may refer to the decision in Golaprai Hoonlal & Co. (supra) relied upon by the learned Authorised Representative. The said case dealt with the issue of penalty under section 271(1)(a) of the Act. In the facts of the said case, there was a fundamental issue relating to starting point of the default whether should be reckoned from the due
7 Lok Housing And Constructions Ltd. date of return under section 139(1) of the Act or the date of service of notice under section 139 of the Act. Since, the Assessing Officer had not specified the starting point of default with reference to the aforesaid two dates, the Court held that imposition of penalty is invalid. As far as the second issue relating to quantum of penalty not being in compliance to the statutory provisions, in the case before the Hon'ble Gauwahati High Court there was difference between the computation of penalty by the Assessing Officer and the computation submitted by the learned Departmental Representative. As per computation of the Assessing Officer the penalty was levied for 18 months @ 2% of the tax for each month during which the default continued, whereas, as per the computation of learned Departmental Representative, the penalty was computed for a period of 14 months which was lesser than the penalty computed by the Assessing Officer. In the aforesaid factual context the Court held that penalty imposed at lesser than the amount prescribed in the statutory provision is invalid. However, no such facts either relating to starting point of penalty proceeding or the quantum of penalty are involved in the appeal before us. As discussed earlier, the Assessing Officer has categorically mentioned the starting point of the penalty proceeding as the date of filing of return of income without discharging the tax liability. Even, as far as the quantification of penalty is concerned, we find the facts in 8 Lok Housing And Constructions Ltd. the instant case are totally different from the facts involved in the decision of Hon'ble Gauwahati High Court in Golaprai Hoonlal & Co. (supra). Therefore, the ratio laid down in the said decision is not applicable to the facts of the present case.
Further, the learned Authorised Representative has submitted that the Assessing Officer has not proved any deliberate attempt on the part of the assessee in committing the default. In our view, the statutory provision does not require the Assessing Officer to prove so. It only mandates that if the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons, no penalty shall be levied. In the facts of the present case, the Assessing Officer having not found any sufficient reason made out by the assessee has levied penalty. After examining the facts on record, we are also convinced that the assessee has failed to fully establish the fact that it did not had sufficient funds to discharge the audited tax liability. That being the case, the assessee was liable to be visited with penalty under section 221(1) of the Act.
Having held so, it is now necessary to examine what should be the reasonable amount of penalty imposable on the assessee keeping in view the facts of the present case. A reading of section 221(1) of the Act suggests that a discretion has been vested with the Assessing
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Officer to impose penalty of an amount not exceeding the tax in arrear. Thus, though, an upper limit has been fixed as far as the quantum of penalty is concerned, there is no lower limit. Therefore, imposition of penalty at the maximum rate is not automatic. The Assessing Officer has to fix the quantum of penalty judiciously and not arbitrarily. Notably, in case of some of the group concerns under identical facts and circumstances, the Tribunal has upheld imposition of penalty under section 221(1) of the Act ranging between 2.5% to 5% of the defaulted tax liability. In this context, we may refer to the following orders. i) Seagreen Marketing Pvt. Ltd., ITA no.3785/Mum./2011, dated 11.07.2012; ii) Oryx Finance and Investment Pvt. Ltd., ITA no.3815/Mum./ 2011 dated 28.03.2012 iii) Midas Foot Wares Pvt. Ltd., ITA no.5789/Mum./2009, dated 19.11.2010; and iv) Ozon Finance and Investment Pvt. Ltd., ITA no.5790/Mum./ 2009, dated 09.09.2010.
Keeping in view the aforesaid decisions of the Co–ordinate Bench, we are of the considered opinion that in the facts of the present case, penalty under section 221(1) of the Act, should be imposed @ 5% of the defaulted tax liability of ` 23,82,515. The Assessing Officer is directed to compute the penalty under section 221(1) of the Act accordingly.
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In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 03.11.2017