LIFETIME REALTY P.LTD,MUMBAI vs. DCIT 8(2), MUMBAI

आदेश / O R D E R PER RAVISH SOOD,JM: The present appeal arises from the order of the CIT(A)- 17, dated. 28.08.2012, which in itself arises from the order passed by the A.O u/s 221(1) r.w Sec. 140A(3) of the Income-tax act, 1961 (for

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short ‘Act’), dated. 13.07.2011. The assessee assailing the order of the CIT(A) had carried the matter in appeal before us, therein raising the following grounds of appeal:- “Being aggrieved by the order dated 28.08.2012 passed by the learned Commissioner of Income Tax (Appeals)-17, Mumbai. ["CIT (A)"] u/s. 250 of the Income-Tax Act, 1961(“Act"), your appellant prefers this appeal, among others, on the following grounds of appeal, each of which is without prejudice to, and independent of, the other; 1. On the facts and in the circumstances of the case and also in law, the learned CIT(A) erred in confirming the penalty of Rs.5,96,547/- imposed u/s. 221(1) read with section 140A(3) of the Act by the learned Assessing Officer. Your appellant, therefore, prays that the penalty imposed be cancelled. 2. Your appellant craves leave to alter, modify, amend or delete the above ground of appeal, or to add one or more new ground(s), as may be necessary.”

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Date of deposit Amount deposited 09.02.2011 Rs. 20,00,000/- 17.02.2011 Rs. 50,00,000/- 23.02.2011 Rs. 49,31,000/- 22.03.2011 Rs. 4,23,131/- Total Rs.1,23,54,131/-

The A.O on observing that the assessee had defaulted as regards payment of the self-assessment tax of Rs. 1,19,30,943/-(supra), therefore called upon it to show cause as to why it should not be treated as an assessee in default u/s.140A(3) and therein be subjected to penalty u/s. 221(1). The explanation of the assessee before the A.O that the failure to deposit the balance self assessment tax was prompted by serious financial crunch being faced by it, coupled with an assurance that the outstanding liability of Rs. 1,19,30,943/- (supra) would be deposited within a period of 15 days, for which necessary arrangements to borrow the funds to clear the said dues were being taken on priority basis, however did not find favor with the A.O who treating the assessee as being in default therein imposed a penalty of Rs. 5,96,547/- u/s 221(1). The assessee assailed the order of the A.O imposing penalty u/s 221(1) r.w.s 140A(3) before the CIT(A) who upheld the order of the A.O by observing as under:- “3.3 Now one of the objection of the assessee is that levy of penalty is not justified as it had paid its taxes on issue of demand by the AO. Sub section (3), of section 140A clearly states that the assessee shall be deemed to be in default if it fails to pay taxes or interest as per the provision of sub-section (1). Sub

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section (1), of 140A clearly stipulates that the assessee shall be liable to pay balance taxes, as per its return before furnishing the return. Further, the explanation to section 221 stipulates that the assessee would not cease to be liable to any penalty merely because it has paid the taxes before the levy of the penalty. A harmonious reading of all these provisions, cited supra, would mean that the liability for penalty u/s. 221 arises the movement the assessee fails to pay taxes u/s. 140A before the furnishing of the return. Subsequent payment of taxes, by itself, would not exonerate its liability u/s. 221. Now in the assessee's case the facts are undisputed that there is a delay of 146 days between the filing of return and the payment of taxes. Therefore, the provisions of section 221(1) are apparently attracted in spite of the fact that taxes have been paid with interest, subsequently. 3.4 The other objection of the appellant to the levy of penalty is that, it was not having sufficient liquid funds. I am afraid 1 am unable to agree with the appellant's contention. The AO has rightly pointed out that the appellant had pre-tax profits of Rs.2.52 crores and cash and bank balance of Rs.26.35 crores as on 31.3.2010. The appellant on the other hand has contended that the FDRs were hypothecated with the banks and during the period 1.4.2010 to 31.12.2010, it had a cash flow of only Rs.35 lacs from regular business operations and Rs.8.61 crores by way of borrowings. I fail to understand why the borrowings could not be utilized for paying the SA taxes. The appellant's explanation itself shows that it had sufficient liquid funds even if they were from borrowed sources. This coupled with the fact that the

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appellant has consistently being showing profits clearly means that it was having sufficient discretion to pay the SA taxes at the time of filing the return itself. 3.5 Lastly, the appellant had sought to argue that the CFO was not keeping well after filing the return of income and therefore the taxes could not be paid. It is that the illness of the CFO is a bottle neck only while paying the taxes and not conducting the regular affairs of the company. The excuse, if any, is a lame one and does not deserve any consideration. In the circumstances the penalty u/s.221(1) is upheld and the appeal is dismissed.” 3. The assessee being aggrieved with the order of the CIT(A) had therein carried the matter in appeal before us. That the Ld. Authorized representative (for short ‘A.R’) for the assessee averred that because of serious financial constraints which were being faced by the assessee at the time of filing of the return of income, the assessee though having no financial means to deposit the said amount though failed to deposit the same, it however did not keep the very filing of the return of income in abeyance and as the last date for filing of the same was fast approaching, thus being left with no other alternative had filed the return of income therein duly admitting its outstanding tax liability, which remained payable as such. The Ld. A.R in order to fortify his contention that his aforesaid claim was substantiated from the facts available on record and was not an eye wash to wriggle out of the penal provisions, therein took us through his OD A/c No. 003431909 with Bank of India, Yari Road branch, Mumbai (Page 62 of ‘APB’) which revealed the outstanding bank liability of Rs.

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25,73,33,811.66. That a perusal of the bank account of the assessee, company reveals that on the relevant date on which the assessee had filed its return of income, viz. 14.10.2010, it had already overdrawn its said bank facility. The Ld. A.R in order to drive home his aforesaid contention that the assessee company was facing a financial crunch on the relevant date, viz. 14.10.2010, therein referred to the ‘Cash flow’ statement prepared for the period 01.04.2010 to 31.12.2010 (Page 14 of ‘APB’). Thus in the backdrop of the aforesaid facts it was submitted by the Ld. A.R that though the assessee was in no financial means to deposit the self-assessment tax at the time of filing of its return of income, but then being well aware of its said statutory obligation and treating the same on priority basis, came true to his commitment with the A.O and after borrowing funds had cleared the outstanding dues of Rs. 1,23,54,131/- (i.e Tax : Rs. 1,19,31,000/- + Interest : Rs. 4,23,131/-) within a period of 15 days. The Ld. A.R further submitted that during the relevant period even the Chief Finance Officer of the company was taken unwell and remained hospitalized for a period of 1½ month. Thus in the backdrop of the aforesaid facts it was averred by the Ld. A.R that though all the said facts were duly brought to the notice of the lower authorities, however the latter bypassing the same had subjected it to penalty u/s 221(1). It was thus submitted by the Ld. A.R that the order of the CIT(A) sustaining the penalty of Rs. 5,96,547/- imposed by the A.O u/s 221(1), in totality of the facts leading to the delay in depositing of the self assessment tax was thus liable to be vacated. That on the other hand the Ld. D.R heavily relied on the orders of the lower authorities and therein submitted that in light of the failure of the assessee to

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deposit the self-assessment tax at the time of filing of the return of income, the A.O had rightly held the assessee as being in default and imposed penalty u/s 221(1), which thereafter had rightly been upheld by the CIT(A). 4. We have heard the Ld. Representatives of both the parties, perused the orders of the lower authorities and the material placed before us. That before adverting further, we reproduce herein below the relevant statutory provisions around which the very adjudication of the present case revolves, viz. Sec. 140A(3) and Sec. 221(1), as under:- “140A.(3). If any assessee fails to pay the whole or any part of such tax or interest or both in accordance with the provisions of sub section (1). He shall be without prejudice to any other consequence which he may incur, be deemed to be an assessee in default respect of the tax or interest or both remaining unpaid, and all the provisions of this Act shall apply accordingly].”

“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 fax in arrears. Provided that before levying any such 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

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and sufficient reasons no penalty shall be levied under this section] [Explanation- For the removal of doubt. It is hereby declared that an assessee shall not cease to be liable to any penalty under this sub section merely by reason for the fact that before the levy of such penalty he has paid the tax]. (2) Where as a result of any final order the amount of tax, with respect to the default in the Payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shaIl be refunded”.

Thus a conjoint perusal of the aforesaid statutory provisions therein reveals that though the assessee on failing to deposit the admitted tax liability by way of self-assessment tax is therein to be deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid, which inter alia exposes him to the rigors of the penal provisions u/s 221(1) of the ‘Act’, however the 1st proviso and the 2nd proviso contemplated therein relaxes the rigors by providing that if the assessee proves that there were good and sufficient reasons that had led to the default in depositing the tax, then no penalty shall be levied by the A.O u/s 221(1) in the hands of the assessee. We though are not oblivious of the fact that the discretion for exonerating an assessee from levy of penalty u/s 221(1) despite the default in paying the taxes remains within the exclusive domain of the A.O, however such exercise of discretion has to pass the litmus test of having been exercised in a judicious manner, which we are of the considered view has not been exercised in the present case. We have given a thoughtful consideration to the facts of the case and are unable to persuade ourselves to subscribe to the findings of the lower

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authorities, which we would not hesitate to observe had arrived at self suiting observations on the basis of perverse facts. We find that the lower authorities had restricted themselves to the fact that the assessee during the period relevant to the year under consideration had done well in its business, and had absolutely given a go by to the duly fortified contention of the assessee that the failure to deposit the self-assessment taxes was prompted due to severe financial crunch being faced by it at the relevant point of time, i.e as on 14.10.2010. That a perusal of the overdrawn bank facility of the assessee company, therein showing an outstanding liability of Rs. 25,73,33,811.66 as on 14.10.2010, speaks for itself beyond any scope of doubt the state of financial affairs of the assessee company. The submission of the assessee before the lower authorities that its FDR’s were hypothecated with the banks however had not been appreciated by the authorities below in the right spirit. That a perusal of the facts of the case reveals that the assesee had suffered drawing of self suiting adverse inferences on the basis of picking up of bits and pieces and resorting to cherry picking by the A.O from the facts pertaining to the poor financial state of health of the assessee company. We find great force in the claim of the assessee that though being in serious financial trouble it was in no position to deposit the outstanding tax liability, but in due compliance of its statutory obligation to file the return of income within the stipulated time period, it did not defer the filing of the same, though the same was witnessed by non deposit of the self assessment tax of Rs. 1,19,30,943/-. We find ourselves to be in agreement with the assessee that though the year under consideration, i.e financial year ending 31.03.2010 was a good year for

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its marketing efforts, but in the ensuing months its inflows were adversely hit, and the same resulted in serious cash crunch, which in itself stands established from the fact that as averred by the assessee before the A.O, the payment of the salaries and operating expenses got delayed, budgeted capital expenditure got deferred etc. We further find that the assessee thereafter, despite being in financial doldrums and drained of funds, however made good its commitment with the A.O of depositing the outstanding dues alongwith interest within a period of 15 days, and after arranging borrowed funds with great difficulty, which we can realize by having a glance at its over availed OD A/c No. 003431909 with Bank of India, Yari Road branch, Mumbai, and other documents produced by him, which reveals beyond any scope of doubt his poor state of financial health on the relevant date, i.e 14.10.2010, had deposited the amount aggregating to Rs.1,23,54,131/- (supra). We thus keeping in view the aforesaid facts as well as not loosing sight of the fact that the assessee had never defaulted as regards depositing of the taxes in the past, are thus of the considered view that no penalty u/s 221(1) was liable to be levied on the assessee under Sec. 221(1) of the ‘Act’. Thus we herein set aside the order of the CIT(A) and delete the penalty of Rs. 5,96,547/- which had been imposed by the A.O u/s 221(1) and thereafter sustained by the CIT(A). 5. The appeal of the assessee is allowed. Order pronounced in the open court on 17/02/ 2017. Sd/- Sd/- (R.C Sharma) (Ravish Sood) लेखा सदस्य / Accountant Member न्याययक सदस्य/Judicial Member

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मुंबई Mumbai; यदनांक Dated : 17.02.2017 आदेश की प्रनिनिनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent 3. आयकर आयुक्त(अपील) / The CIT(A) 4. आयकर आयुक्त / CIT – concerned 5. यवभागीय प्रयतयनयि, आयकर अपीलीय अयिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard File आदेशधिुसधर/ BY ORDER,

उि/सहधयक िंजीकधर (Dy./Asstt. Registrar) आयकर अिीिीय अनर्करण, मुंबई / ITAT, Mumbai

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