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Facts
The assessee's appeal concerns a penalty of Rs. 1 Lac confirmed by the CIT(A) under section 221 of the Income Tax Act, 1961, related to a demand raised during assessment proceedings for A.Y. 2011-12. The assessee contended the penalty was unjustified due to arbitrary additions and an earlier ITAT order restoring the assessment to the AO.
Held
The Tribunal held that since the quantum appeal was restored to the Assessing Officer (AO) and the earlier demand was vacated following an ITAT order, the penalty for non-payment of that demand was not maintainable. Therefore, the penalty sustained by the CIT(A) was deleted.
Key Issues
Whether a penalty under section 221(1) is maintainable for non-payment of a demand when the underlying assessment order, which created the demand, has been restored to the Assessing Officer.
Sections Cited
221, 143(3), 153D, 220(2), 220(1), 220(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ALLAHABAD BENCH, ALLAHABAD
O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A)- 3, Lucknow dated 29.10.2018 wherein the ld. CIT(A) has confirmed a penalty of Rs. 1 Lac levied by the Assessing Officer under section 221 of the Act against the total levy of Rs. 27,26,200/- made by the Assessing Officer. The grounds of appeal
1. 1. 1. 1. 1. 1. are as under:- “1. That in any view of the matter order passed u/s 221(1) of the IT Act imposing huge penalty and his action as partly confirmed by the Commissioner of Income Tax (Appeal) by maintaining penalty of Rs. 1,00,000/- is unjustified and incorrect in the facts and circumstances of the case.
2. That in any view of the matter tax liability on the basis of assessment order as created is not correct at all therefore the question of maintaining penalty of Rs. 1,00,000/- is unwarranted in the facts and circumstances of the case.
3. That in any view of the matter in the facts and circumstances of the case penalty order passed by the assessing officer and his action as partly confirmed by the Commissioner of income Tax (Appeal) is totally incorrect and illegal and hence the question of maintaining penalty does not arise and therefore so maintained penalty is liable to be deleted in all fairness and in interest of justice.
During the course of appeal, the assessee filed various submissions that requested for the matter to be kept in abeyance on account of the fact that the issue regarding the application of gross / net rate was pending before the Third Member and therefore, the appeal should be kept pending till the decision of the Third Member. Subsequently, the assessee also moved an application to admit an additional ground of appeal
that the approval granted by the JCIT, Central Range, Lucknow under section 153D of the Act without examination of records and seized materials, was a mechanical approval which vitiated the appeal and made it a nullity in the eyes of law. On closure examination of the file, it is found that neither of the two issues is related to the penalty under this particular section and therefore, there was no basis for admitting this additional ground of appeal in this particular matter. Furthermore, the penalty levied was with regard to demand already created and therefore, it was felt that there was no need to await the decision of the Third Member before hearing the matter relating to the validity of the penalty.
3. The facts of the case are that an assessment order was passed under section 153D(1)(B) of the Act r.w.s. 143(3) on 29.03.2013. While passing the assessment order, the AO had made some additions and assessed the income of the assessee at Rs. 7,30,92,180/- instead of the declared income of Rs. 4,80,230/-. After assessment, a demand of Rs. 02,72,62,103/- had been raised which became due for payment after 30.04.2013. On 30.04.2013, a notice under section 221(1) had been issued to the assessee and subsequently the ld. AO had also allowed installments, vide an order dated 30.06.2013, but records that the assessee had not made any payment. The ld. AO records that three more notices under section 221(1) were issued on 29.10.2013, 21.01.2014 and 28.02.2014 followed by a show cause notice under section 276C(2) on 3.11.2017. However, the assessee expressed its inability to make the payment. Subsequently, further notices under section 221(1) were issued on 12.03.20218 but the assessee did not make any Vijay Stone Product A.Y.-2011-12 payment within the allowed time limit. Therefore, the ld. AO after examining the ITR of assessment year 2016-17, which showed that the assessee had sundry debtors of Rs. 1,68,10,760/-, held that the assessee had sufficient funds but was willfully avoiding the payment of tax. Accordingly, he decided to impose a penalty of Rs. 27,26,200/- (being the average 10% of balance demand) by treating the assessee in default under section 220(2) of the Income Tax Act.
4. The assessee went in appeal before the ld. CIT(A). Before the ld. CIT(A), it was submitted that the ACIT, Central Circle, Allahabad had created a demand in an arbitrary manner and the Department was pressuring the assessee to deposit the demand by any means ignoring the financial background of the assessee. Hence, the imposition of the penalty was unjustified. It was submitted that the arbitrary demand had only been created because some irrelevant documents had been found from the Vaish Group, on the basis of which proceedings under section 153C of the Income Tax Act had been initiated against the assessee. It was submitted that since wrong additions had been made by the AO and maintained by the ld. First Appellate Authority, that did not mean that the assessee was bound to pay an incorrect/artificial demand by whatsoever means. The assessee also prayed that in other group concerns, on identical facts, the penalty had been reduced. Accordingly, it was prayed that the penalty may kindly be deleted. The ld. CIT(A) considered the prayers of the assessee and after quoting from the provisions of section 220(1), 220(6) and section 221(1) of the Income Tax Act, she held that the AO had allowed substantial opportunity to the assessee to pay the demand raised vide notice dated 23.03.2013 and had, after careful consideration of all factors, come to a conclusion to treat the assessee as an assessee in default. However, she pointed out that it was also incumbent upon the AO to look into the quality of additions made during the assessment and levy a token penalty to encourage the assessee to begin making payment of the demand. Since she felt that the assessee had, without adequate reason, failed to deposit the demand raised by the AO, she confirmed the penalty to the extent of Rs. 1 Lac and allowed relief for the remaining amount. 3