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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-39, Mumbai and arises out of the order u/s 221(1) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal
filed by the assessee read as under: -
1. The learned CIT(A) erred in law in sustaining the action of the learned AO for imposing penalty under S. 221(1) towards non-payment of self-assessment tax. 1.1 She ought to have appreciated the past conduct of consistent payment as well as mitigating circumstances existing which prevented the Assessee from making self-assessment tax Viz; (i) The Assessee is plunged into simmering liquidity crunch and is saddled with huge bank overdraft outstanding throughout the period till date. (ii) The money flow is squeezed and drowned into vortex of hugely piled up debtor and inventory overhang coupled with colossal creditors liability (iii) The Assessee company has made every effort to resurrect the financial health by approaching Corporate debt restructuring (CDR) cell of banking institutions validating its claim of failure to make SA payment owing to financial anarchy. (iv) The Assessee managed to discharge a part of statutory liability subsequently funded by fresh borrowals. 1.2 The learned CIT(A) ought to have appreciated that non-payment of remaining taxes by way of self-assessment tax was due to genuine business constraints and for good and sufficient reasons and not willful. 1.3 The learned CIT(A) further failed to appreciate that Assessee did not stand to benefit for non-payment of tax self-determined by the Assessee and failure to make SA payment has led to substantial additional liability on account of penal interest and other jeopardy in the form of coercive actions of attachment and prosecution proceedings etc. 1.4 The learned CIT(A) misdirected herself in law and on facts in upholding the action of the AO on extraneous considerations and grossly misconstruing financial data without appreciating the overriding fact that profit accrued was locked up and not realized. She also ought to have appreciated that release of payments towards 1.5 impugned purchases and expenses has only enabled taxable profits and gave rise to tax incidence and non-payment of business expenses would have been fatal to the hilt.
2. Without prejudice, the learned CIT(A) further erred in law and on facts in permitting imposition of penalty on interest component also being Rs. 2.12 crores comprised in total outstanding SA Tax Rs.16,19,00,630/- at the time of imposing penalty.
The Appellant submits that the above grounds and sub-grounds of appeal are alternative, independent and without prejudice to one another.
3. Briefly stated, the facts of the case are that the assessee –company filed its return of income for the impugned assessment year on 29.09.2012 declaring income at Rs.97,83,98,610/-. It had shown outstanding self-assessment tax payable of Rs.20,99,00,630/- on the date of filing of its return of income. The Assessing Officer (AO) noted that till 29.01.2013, assessee –company had paid only Rs.4,80,00,000/-. The amount of self-assessment tax still outstanding was Rs.16,19,00,630/-. The assessee failed to file any reply to the show cause notice u/s 221 given by the AO. The AO then referred to provisions of section 221 and imposed a penalty of Rs.81,00,000/- for non-payment of self-assessment tax u/s 140A(1) for the first default.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) in the appellate order dated 10.03.2014 has mentioned the following facts: “5. I have perused the submissions of the appellant and the order under s. 221(l). It is undisputed that the appellant had unpaid self-assessment tax liability of Rs.16.99 crores at the time of filing return of income. During the year, the appellant had shown taxable income of Rs.97.84 crores, on which net tax (after TDS) was payable at Rs.28.49 crores. The appellant paid advance tax only of Rs.7.50 crores (2.00 crores in first instalment as on 15.06.2011, 2.00 crores in second instalment as on 15.09.2011, & 3.50 crores as on 31.03.2012), leaving the balance of Rs.20.99 crores unpaid at the time of filing return of income. A statutory liability is cast upon the appellant to pay the Advance Tax in four instalments simultaneously as it earned income during the year, and balance of the unpaid tax is to be paid as Self- Assessment Tax. Instead, the appellant not only defaulted in payment of applicable advance tax on respective due dates, but also conveniently has shown the Self-Assessment Tax of the whopping sum of Rs.20.99 crores as payable. It is not a case that the appellant had any onetime income or windfall during the year. The appellant has earned Revenue from Operations at Rs.1493.91 crores and Other Income of Rs.25.22 crores, aggregating to Rs.1519.13 crores, which is even more than the previous financial year's revenue of Rs.1286.70 crores. The appellant has also made payment of total expenditure of Rs.1380.63 crores. Looking at these figures, it is hard to understand how the appellant took the statutory payment of taxes rather lightly. If the appellant had any genuine financial crunch in paying the tax liability of Rs.20.99 crores, then how could it make the payments of expenses of the magnitude of Rs.1380.63 crores? The appellant's submissions that its money was locked up in debtors/ inventory is not acceptable, since in any running business, there is bound to be debtors/creditors & inventory. The figures of Debtors at Rs.591.51 crores (prev. year Rs.534.88 crores), & Inventory Rs.577.10 crores (previous year Rs.449.74 crores) are not alarmingly high compared to the previous financial year, and certainly not considering the revenue from operations of Rs.1493.92 crores. On the contrary, the appellant's Creditors (Trade Payables) have also increased from Rs.317.69 crores in previous financial year to Rs.413.54 crores in current financial year. It shows that this magnitude of debtors/ creditors/ inventory are a regular phenomenon in the business of the appellant. In these circumstances, the payment of liability for taxes of Rs.20.99 crores was not beyond the control of appellant to pay by any standards, rather it was a result of deliberate attempt to withhold the payment of taxes for reasons best known to the appellant.”
4.1 The Ld. CIT(A) has observed that Explanation to section 221(1) is clear that an assessee shall not cease to be liable to any penalty under that sub-section merely by reason of the fact that before the levy of such penalty, he had paid the tax. In the instant appeal the AO has calculated penalty not on a percentage basis, but only at a lump sum amount for the first default. Considering the above the Ld. CIT(A) confirmed the penalty of Rs.81,00,000/- levied by the AO u/s 221(1) of the Act.
Before us, the Ld. counsel of assessee –company submits that (i) the assessee has been diligent in payment of taxes well in time in the past, (ii) the failure to pay the remaining tax liability is attributable to ongoing serious shortage of working capital/liquidity constraint and not on account of any deliberate delay, (iii) the available bank balance is not even sufficient for one week working capital requirement and to meet the nearest of near current liabilities, (iv) the assessee-company is a heavily debt ridden one, (v) the current assets are not capable of meeting current liabilities, (vi) the so called fixed deposits and time deposits were lien marked and pledged as securities against bank credit facilities and are not accessible or unencumbered, (vii) the assessee- company has approached the CDR cell for CDR (Corporate Debts Restructuring) financing. 5.1 The Ld. counsel further files a paper book containing inter alia the accounts of the assessee-company. He thus submits that the default in payment of self-assessment tax is a not a wilful default and therefore, the penalty of Rs.81,00,000/- levied by the AO u/s 221(1) be cancelled. In the written submission filed for hearing on 06.06.2017, the Ld. counsel of the assessee has relied on certain case laws. He has not filed the copy of the case laws relied on by him. However, we tried to locate those case laws and could find Nachimuthu Industrial Association vs. CIT [1980] 123 ITR 611 (Mad) affirmed in 235 ITR 190, CIT vs. Raunaq & Co. (P) Ltd. [1983] 140 ITR 407 (Del), CIT vs. Dadu Wala and Co. [1988] 170 ITR 491 (Raj) , CIT vs. Chembara Peak Estates Ltd. [1990] 183 ITR 471 (Ker) , CIT vs. Bhikaji Ramchandra [1983] ITR 478 (Bom).
Per contra the Ld. DR submits that (i) even after filing the return of income for the impugned assessment year on 29.09.2012, the assessee- company made payment of just Rs.4,80,00,000/- in instalments till the time of passing the penalty order by the AO, which was passed four months after the date of filing of return of income, (ii) section 221(1)
empowers the AO to levy penalty equal to the tax in arrears, however, the AO has levied such penalty at Rs.81,00,000/- as against the unpaid taxes of Rs.16.19 crores which is a modest amount, (iii) the Ld. CIT(A) in the appellate order dated 10.03.2014 has rightly held that the payment of self-assessment tax was not beyond the control of the assessee- company rather it was a deliberate attempt to withhold the same for reasons best known to the assessee-company. Thus the Ld. DR supports the order passed by the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. We deal with the grounds of appeal together as the address a common issue. The reasons for our decision are given succeeding paragraphs. We find that the AO had issued and served a notice u/s 221(1) dated 21.01.2013 to the assessee fixing the case for hearing on 28.01.2013 requesting to explain why penalty u/s 221(1) shall not be imposed for non-payment of outstanding self-assessment tax. There was no compliance by the assessee to the above show cause notice issued by the AO. 7.1 We begin with the case laws relied on by the Ld. counsel of the assessee. In the case of Nachimuthu Industrial Association (supra), the assessee’s plea was that the amount in question was not liable to be taxed. The matter was pending on appeal. Assessee was also pleading paucity of funds. Large amount was due from an educational institution, whose capacity to pay was not good. In these circumstances, the Hon’ble High Court held that the Tribunal cannot be taken to have committed any error in cancelling the penalty u/s 221(1) of the Act. In the case of Raunaq & Co. (P) Ltd. (supra), the assessee’s financial position was unsound. There was settlement between the assessee and Tax Recovery Officer (TRO). Assessee was allowed to pay the demand in monthly instalments with provision of security. The Tribunal observed that since the matter had been entrusted to TRO and who on having satisfied himself about the financial position of the assessee granted instalments cancelled the penalty u/s 221. This action of the Tribunal was upheld by the Hon’ble High Court. In the case of Dadu Wala and Co. (supra), the Hon’ble High Court held that a question not decided by the Tribunal nor mentioned in its order does not arise out of the order of the Tribunal and need not be decided. In the case of Chembara Peak Estates Ltd. (supra), the assessee established before the Tribunal that it was in a tight position financially. It has been held therein that when default was for good and sufficient cause, no penalty u/s 221 is levied. In the case of Bhikaji Ramchandra (supra), the Tribunal found that the assessee was prevented from paying the advance tax because of financial inability. That being a finding of fact by the Tribunal, the penalty deleted was justified by the Hon’ble High Court.
Having narrated the case laws relied on by the Ld. counsel of the assessee, we find that those are distinguishable from the facts of the instant appeal as per our finding given at para 7.4, 7.5 and 7.6 infra. 7.2 What is self-assessment? We begin with section 140A. As per it, an assessee is required to submit its return of income u/s 139 or 142 or 148 or 153A or 158BC. Before submitting the aforesaid return, it is supposed to find out whether any tax and/or interest is payable. For this purpose tax and/or interest shall be calculated as under:
Find out income tax, surcharge and education cess as per return of income xxx Add: Interest – xxx u/s 234A for late submission of return of income xxx u/s 234B for non-payment or short payment of advance tax xxx u/s 234C for non-payment or short payment of different instalments of advance tax xxx Total tax and interest xxx Less: Advance tax, tax deducted at source, tax collected xxx at source, MAT credit, alternate minimum tax credit Self-assessment tax payable under section 140A xxx
Self-assessment tax shall be deposited by the assessee before submitting the return of income. If an assessee fails to pay whole or any part of such tax or interest or both in accordance with the provisions of section 140A, he shall (without prejudice to any other consequences which he may incur) be deemed to be an assessee in