M/S. DD RESORTS PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

The only ground of appeal of the assessee is that the ld CIT(A) has confirmed the penalty u/s 140A(3) of the Income Tax Act, 1961 of Rs. 18 lakhs for nonpayment of self-assessment tax. 5. The brief facts of the case is that the appellant has filed its return of income for Assessment Year 2008-09 on 30.08.2010 where self assessment tax of Rs. 11341820/- was payable. This tax was paid along with interest. Further as the same was not paid at the time of filing of return of income then the Assessing Officer issued show cause notice for levy of the penalty. Before the ld AO, it was submitted that the assessee has already paid the tax on 11.11.2011 along with interest. Reasonable cause was explained that the assessee is suffering from liquidity crunch and all the banking account of the assessee were seized by the Income Tax Department and due to which the assessee was left with no means to pay the tax. It was further submitted that admission for tax has arisen due to surrender made at the time of search. Therefore, there is some delay in payment of the tax. The ld AO rejected the explanation of the assessee and levied a penalty of Rs. 11341820/- vide order dated 31.05.2012. 6. Aggrieved by the order of the ld AO the assessee has challenged the same before the ld CIT(A) who confirmed the penalty to the extent of 100% of tax liability and restricted the original penalty levied of Rs. 11341820/- to Rs. 18 lakhs only. Aggrieved by the order of the ld CIT(A) the assessee in appeal before us. Further, the revenue aggrieved by the order of the ld CIT(A) in restricting the penalty from Rs. 11341820/- to Rs. 18 lakhs is also in appeal before us. Therefore, there are cross appeal. 7. The ld AR submitted that these appeals are covered in favour of the assessee by the assessee’s own case for Assessment Year 2009-10, where identical issue has been adjudicated u/s 140A(3) was deleted. He submitted that in that order of the tribunal in case of the assessee for Assessment Year 2009-10 in ITA No 965/Del/2014 & 1103 & 1104/Del/2014 for AY 2009-10 dated 11-4-2016 the penalty was deleted by relying on the order of the coordinate bench in case of Rakesh Kr Garg. His main contention was that this issue is covered in favour of the assessee.

In view of above noted facts, we observe that the section 140A of the Act is placed in chapter XIV titled as “procedure for assessment”, whereas section 221 of the Act has been placed in chapter XVII “collection and recovery of tax” part “D-collection and recovery”. From vigilant reading of provision of section 140A & 221 of the Act, we note that section 140A(3) stipulates that if any assessee fails to pay the whole or any part of such tax or interest or both in accordance with provisions of sub section (1), he shall, without prejudice to any other consequence which he may incur, be deemed to be an assessee in default in respect of the tax or interest or both remained unpaid, and all the provisions of this Act shall apply accordingly. Meaning thereby the provisions of section 140A(3) of the Act provides a situation where if any assessee fails to pay whole or any part of such tax or interest or both as per provisions of section 140A(1)

“(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 AO may direct and in the case of a continuing default, such further amount or amounts as the AO may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears:

As we have already noted that there is no provision or procedure in section 140A of the Act for imposing penalty for default in payment of due tax and from the language of provision of section 221 of the Act, it is exfacie that sub section (1) provides that when the assessee is in default or is deemed to be in default in making a payment of tax then he shall be liable to pay such amount as the AO may direct by way of penalty and the total amount of penalty does not exceed the amount of tax in arrears. First proviso to section 221(1) of the Act provides that before levying any such penalty the assessee shall be given a reasonable opportunity of being heard and second proviso provides that where the assessee proves to the satisfaction of the AO that the default was due to “good for sufficient reasons” no penalty shall be levied under this section. The legislation has also provides an explanation removing doubt that an assessee was not ceased 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. Sub section (2) of sec. 221 of the Act further provides that

Turning to the legal issue before us as we have already noted that the AO issued show cause notice to the assessee u/s 140A(3) of the Act and the penalty order was also passed by imposing penalty u/s 140A(3) of the Act and there is no mention of section 221 of the Act either in the notice dated 23.11.2011 nor in the penalty order dated 31.05.2011 as reproduced hereinabove. The CIT(A) in para 3.6 of the impugned order has held that the provisions of section 292B of the Act would cover such inadvertent mistakes in quoting the correct section of the Act. As we have already noted that as per first proviso to section 221(1) of the Act it is mandatory that before levying such penalty the assessee shall be given a reasonable opportunity of being heard and second proviso to the said sub section further provides that where the assessee proves to the satisfaction of the AO that the default was for “good and sufficient reason” then no penalty shall be levied under this proviso.

In view of language used by the legislature in first and second proviso to sub section (1) of section 221 of the Act, it is ample clear that no penalty can be levied without affording a reasonable opportunity of being heard to the assessee and if assessee succeeds to prove to the satisfaction of the AO that the default was for “good and sufficient reason” then no penalty shall be levied on the assessee u/s 221 of the Act. In the light of legal provision if assessee has not been show caused u/s 221 of the Act then it is a clear violation of mandatory provision of first proviso to section 221(1) of the Act and when assessee has not been show caused u/s 221 of the Act then it cannot be presumed that the assessee was given an opportunity to discharge the required onus incumbent upon him to prove to the satisfaction of the AO that the default was for “good and sufficient reason” as required per second proviso of the Act. Thus, in our humble opinion if the notice for initiation of penalty proceedings to the assessee has not been issued u/s 221 of the Act and that too the penalty order has also not been passed u/s 221 of the Act then this mistake is not covered under the umbrella of provisions of section 292B of the Act.

Coming to the merits of the case from the penalty order, we note that the AO has rejected the cause of shortage of funds, liquidity crunch and shortage of cash available at the time of filing return by observing that no supporting documents in this regard have been filed. The AO has also rejected the plea of the assessee that the assessee’s bank accounts were attached by the Department for recovery of outstanding demand by observing that the bank accounts of the assessee were attached in the month of March, 2011 as the assessee was not making payment of demand raised after completion of assessment proceedings. The AO has also turned down the another plea of the assessee that the huge undisclosed income was admitted by the assessee and he voluntarily admitted and surrendered big amounts to cover up the

From vigilant perusal from the operative part of the impugned order of the CIT(A), we note that undisputedly all due taxes were paid by the assessee before passing and levying penalty order and there was no arrear of tax against the assessee as on 31.05.2012 when the penalty order was passed. The ld. DR has not controverted this fact that the assessee paid entire amount of tax upto 16.02.2012 in 24 instalments, wherein on 02.12.2011 there was a payment of Rs. 5,000/- which shows that the appellant was really facing liquidity crunch. From the copies of the bank statements of the relevant period April, 2010 to March, 2011, placed before authorities below, we note that the assessee was operating 5 bank accounts with RBS Bank, Dena Bank, Federal Bank, Indian Overseas Bank & Union Bank, wherein the total balance as on the date of filing of return shown was less than Rs. 2.5 lacs and this fact has not been considered and controverted by the AO. This fact also supports good and reasonable cause of the assessee for non payment of tax at the time of filing of return.

At this juncture, we respectfully take cognizance of the order of the Hon’ble High Court of Delhi dated 12.08.2013 in assessee’s own case i.e. ITA No. 384/Del/2013 (supra), wherein the Hon’ble High Court upheld the conclusion of the Tribunal which directed the CIT(A) to hear the first appeal of the assessee on merits. The relevant operative part of the order of Hon’ble High Court reads as under:

On a specific query from the bench the ld. DR could not assist us whether any defect notice as per Explanation (aa) of section 139(9) of the Act was issued to the assessee pointing out defects in the return by the Department. In absence of any detail, we may observe that the Department has not issued any notice under said provision of the Act pointing out defect in the return filed by the assessee. At the cost of repetition, we may again point out that the AO neither issued any notice u/s 221 of the Act nor levied penalty u/s 221 of the Act which resulted a great prejudice against the assessee because the assessee was not provided due opportunity of hearing as to why penalty u/s 221 of the Act should not be imposed upon him and at the same time assessee was also prevented to establish, prove and to discharge its onus to show that there was a good and sufficient reason for non payment of tax as required as per second proviso to sec. 221(1) of the Act.

In view of above, we respectfully follow the ratio of the decision of ITAT Mumbai ‘A’ Bench in the case of AGO Pharmaceuticals Ltd. Vs. ACIT (supra), wherein it was held that where the assessee has filed the return of income on 28.09.2009 and paid self assessment tax u/s 140A of the Act on 19.01.2010 then since assessee had paid self assessment tax immediately when fact regarding non payment of tax came to its notice then the assessee was not liable for penalty u/s 221 of the Act. In the present case undisputedly the assessee had paid entire demand of tax by way of last instalment paid on 16.02.2012 and this fact was also noticed by the AO while passing the impugned penalty order. However, we also hold in view of Explanation to sub section (1) of section 221 of the Act the assessee does not secure any immunity from levy of penalty only on the ground that he had paid entire amount of tax arrears before levy of penalty meaning thereby there was no amount of tax remained unpaid against the assessee when the penalty order was passed by the AO.

To 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 proviso 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.

In the result, appeal of the assessee is allowed and appeal of revenue is dismissed. Order pronounced in the open court on 05/01/2017. -Sd/- -Sd/- (I.C.SUDHIR) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 05/01/2017 A K Keot Copy forwarded to

Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi