M/S SHRI SHIVJOT DEVELOPERS & BUILDERS LTD.,KHARAR vs. DCIT, MOHALI

PER DIVA SINGH

The present appeal has been filed by the assessee assailing the correctness of the order dated 29.09.2016 of CIT(A)-2 Gurgaon pertaining to 2011-12 assessment year on the following grounds : “1. That the Learned CIT(A)-2,Gurgaon has failed to appreciate the facts and circumstances of the case and has thereby erred in confirming penalty u/s 221(l)(c) of the Income Tax Act, 1961. 2. That the order of the CIT(A)-2, Gurgaon is against the principle of law and natural justice as the appellant company was prevented by sufficient and reasonable cause in not depositing the taxes as per Income Tax Return. 2. The ld. AR inviting attention to the penalty order submitted that in the facts of the present case, survey operation u/s 133A of the Act was conducted at the business premises of the assessee on 25.10.2010. Admittedly, the assessee voluntarily surrendered a sum of Rs. 4,05,00,000/- in the year of the survey. It was submitted that without getting into the aspect as to the circumstances which led to the surrender, the fact is that the assessee abided by the surrender in its return of income on 30.09.2011. The assessee, however in the facts of the present case, it was submitted, could only deposit a sum of Rs. 1 lac before the due date of filing of the return and the assessee having failed to deposit the assessment tax of Rs. 92,64,756/- was required to make good the

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shortfall in terms of the provisions of Section 140A. Referring to the penalty order, it was his submission that by 26.10.2012, the assessee could deposit Rs. 8,49,000/- only and on the very same date, the assessee was confronted and required to deposit the due taxes as declared by the assessee itself as in the absence of the same, it was indicated the assessee would be deemed to be an assessee in default. 2.1 In response to the same, it was submitted that a sum of Rs. 10 lacs was deposited on 27.12.2012. However, penalty proceedings u/s 221(1) were initiated. Inviting Attention to the record, it was submitted that the assessee in response to the notice vide reply dated 27.03.2013 submitted that by this time an amount of Rs. 57,99,000/- had been deposited and on account of slump in the property business, the assessee may be permitted to pay the balance tax in six monthly instalments starting from August,2013 and the penalty proceedings be dropped. The AO, it was submitted, has included an extract from the assessee's submission which was heavily relied upon, the same is reproduced hereunder : “……………It is clear from above facts that out of total demand of Rs. 83.29 Lacs, Rs. 57.99 lacs has been deposited and Rs. 25.30 lacs is outstanding. Now as you know that there is slump in real estate market the assessee is facing difficulties to meet its liabilities. Keeping in view the above facts, you are requested to allow assessee to pay balance tax of Rs. 25.30 lacs in 6 monthly installments starting from August, 2013 and not to initiate penalty u/s 221(1).” 2.2 The said request, it was submitted, was not accepted by the AO on the reasoning that the assessee had voluntarily surrendered an income of Rs. 4 Crore 5 lacs ( Rs.4,05,00,000/-), thus the aggregate tax liability of Rs. 93,64,756/- for which the last date for deposit was 30.09.2011 and the assessee having deposited by that time only an amount of Rs. 1 lac., rejected the request Thus, considering that almost 22 months had elapsed by which date the assessee was found to have deposited only Rs. 57,99,000/-, the assessee was treated as an assessee in default ignoring the arguments that despite all attempts that is the maximum amount the assessee could deposit. The bonafide of the assessee it was submitted have not been doubted or assailed. The order, it was submitted, had been passed mechanically.In appeal, the CIT(A) it was submitted, dismissed the appeal ignoring the decisions cited wherein it had been categorically held that in circumstances where there were good and sufficient reason for the default, penalty u/s 221(1) cannot be imposed. Reading from the order it was submitted that the CIT-A dismissed the appeal ignoring the facts

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which demonstrated that there was a financial constant stringency and lack of funds with the assessee. The CIT(A) in para 4.2 addressing the facts in sub-para (a), (b) and addressing the outstanding tax which was required to be paid which amounted by them to only Rs. 2,65,286/- proceeded to confirm the order vide para 4.4 and 4.5 without addressing the facts on record. As on date it was submitted that full tax has been paid and there is nothing outstanding. The said position was not disputed by the Ld. Sr.DR who was required to address the aspect. 2.3 The ld. AR relying upon the decision cited before the Tax Authorities in the facts of the present case submitted that penalty order deserves to be quashed. Inviting attention to page 56 of the Paper Book specific attention was invited to the copy of return for the year under consideration available at page No. 2 submitted that copies of the 26AS Form alongwith challans has been filed at pages 3-25 and when considered with the Balance Sheets of the assessee as on 31.02.2012 and 31.03.2013, alongwith copies of the returns of the assessee right from 2008-09 to 2013-14 assessment year at pages 57 to 62 of the Paper Book, it would be seen that in 2009-10 assessment year, the assessee had a gross income of Rs. 35,32,446/- wherein the due taxes had been paid. It was submitted that when the income for the year under consideration is considered alongwith this fact and the returned income in 2010-11 and 2012-13 assessment years i.e. the pre-survey and post-survey, is seen, it would show that the assessee's income was Rs. 40,61,836/- in 2010-11 assessment year and Rs. 20,04,792/- in 2012-13 assessment year and only in the year under consideration on account of the voluntary surrender, it had risen phenomenally to Rs. 4,08,57,000/- odd. Accordingly, in the face of the quantum jump in the year under consideration wherein the assessee necessarily paid due taxes in the other years is considered, it would be seen that the assessee has never defaulted. It was submitted that when these facts are ready alongwith Paper Book page 26 which is the copy of assessee's balance sheet on 31.03.2012, it was submitted, that it would be seen that in the liabilities, the assessee has not obtained any loan and accordingly, necessarily the business is driven by cash generated by the assessee itself by way of sale of plots etc. Addressing the current liabilities, it was submitted, that it would be seen that the assessee's current trade payables were Rs. 2,43,00,000/- odd and other liabilities Rs. 9,59,00,000/- odd and when

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the assets are seen , it would show that the assessee has no current investments. There are no trade receivables and only inventories of Rs. 10,33,00,000/- odd. Thus, as and when the assessee sold plot/property, funds were available. In the circumstances, the assessee during this period of crash in the property prices, had also to keep its business running and paid taxes as and when the funds were available. When these facts are considered and are seen alongwith Paper Book pages 3 and 4 which is Form 26AS, it would be seen that the assessee under the head “400” had to pay and has paid interest of Rs. 2,85,294/- on 02.11.2016; and again on 14.10.2016 an amount of Rs. 11 lacs; on 22.09.2016 paid and amount of Rs. 5,50,000/- and yet again on 07.04.2016 paid Rs. 4,95,516/-. On the basis of the same, it was his submission that it would show that the assessee on account of the lack of funds etc has been filing its return late and had despite all odds, ensured and made attempts to pay all taxes and interests. In these circumstances, it was his argument that the attempt of the assessee to ensure that taxes and interests are paid for the returns of earlier years and subsequent years are paid on time, otherwise the assessee would have fallen in the trap of being an assessee in default for all the years demonstrates that, as and when the assessee was in a position to sell any inventory then it immediately deposited and paid the outstanding tax dues, keeping in mind the fact that for running of the business itself, the assessee also did not have any available funds. In these circumstances, relying upon the consistent explanation of the assessee when read alongwith the facts on record, it was his submission that the penalty has been imposed and confirmed in mechanical manner ignoring the fact that the assessee was suffering from financial stringency. Inviting attention to the order of the Chandigarh Bench in the case of Orbit Resorts (P) Ltd. Vs ACIT (2017) 77 Taxman.com 206 reliance was placed upon the proposition of law that the penalty proceedings are not automatic and the Statute has carved out an exception for a taxpayer who can demonstrate good and sufficient reasons as a defense relying on the second proviso to Section 221(1) so as to argue that the penalty was not attracted. In the facts of the said case, the issue, it was submitted, had been set aside to the file of the AO for want of facts. Reliance on the said decision was placed not only for the proposition that statutory defence is provided to the assessee in deserving circumstances but also for the proposition of law as therein the ITA T had taken note of the fact that during this period instead of unexpected boom in the Real

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Estate business, there was in fact a heavy recession in the market. Thus financial stringency in the facts of the said case had not been demonstrated by the said assessee for which purposes the ITA T had remanded the issue back to the AO. However in the facts of the present case it was his submission that the assessee has consistently argued and lead evidence to show that there was a financial stringency. Thus it was his submission that in the facts of the present case, the consistent evidences on record glaringly demonstrated that there was a paucity of funds with the assessee at the relevant point of time which had been consistently argued before the tax authorities, and these facts had not been rebutted by the revenue. 2.4. Reliance was also placed upon decision of Mumbai Bench of the ITAT in the case of Lifetime Reality Vs DCIT (2017) 79 Taxman.com 230 wherein considering the provision of law and the facts of the said case, penalty had been quashed. Considering the fact that there was an adverse hit on the inflows on account of which there was a cash crunch. 2.5 Apart from these submissions on facts and law on the merits of the deletion of the penalty, it was his submission that the assessee would like to cite another decision of the Mumbai Bench of the ITAT in the case of Heddle Knowledge Pvt. Ltd. Vs ITO 90 Taxman.com 376 (Mumbai) wherein although the assessee had unsuccessfully pleaded financial stringency, the ITAT considering the circular and notifications, specific circular 549 of 1989 considering the erstwhile Section 140A(3) which was in operation upto 31.03.1989 which had been amended by the Direct Tax Laws (Amendment) Act, 1987 considered and held that the amended Section 140A(3) dated 01.04.1989 does not envisage any penalty for non payment of self assessment tax and in these circumstances, it was held that AO has erred in levying the impugned penalty. 3. The ld. Sr. DR on the other hand, inviting attention to the orders of the authorities below, submitted that in the peculiar facts of the present case, assessee has failed to demonstrate financial stringency. 4. We have heard the rival submissions and perused the material on record. We find that in the facts of the present case, the assessee has consistently argued financial stringency as a ground for not having paid due taxes despite the voluntary surrender on time. We have taken into consideration the past returns filed by the assessee pertaining to the assessment years prior to the survey and the returns filed post the survey

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and note that only in the survey year, the taxable income of the assessee on account of the voluntary surrender has been many times more. We have also taken into consideration the Form 26AS copy available at pages 3 and 4 of the Paper Book supported by copies of challans from pages 5 to 25, copy of the audited Balance Sheet as on 31.03.2012 and 31.03.2013 and on consideration thereof, we are of the view that admittedly the assessee's business being run was dependent on the sales of its inventory. Thus being self driven we note that the cash was generated only on account of sale of the property, in these circumstances we find that the statutory defence of good and sufficient reasons which is set out in the second proviso to Section 221(1) of the Act operates in favour of the assessee. Accordingly the penalty in the peculiar facts and circumstances of the present case has wrongly been levied and confirmed. Satisfied with the consistent explanation offered before the Tax Authorities, which we note has not been assailed or rebutted, we hold that the penalty deserves to be quashed. Ordered accordingly. 4.1 it may be appropriate to note before parting that the decisions relied upon by the parties have been taken into consideration before arriving at a conclusion even though specific references to the decisions has not been made. The principles of law applicable have been taken into consideration however we note that the issue in the peculiar facts and circumstances of the present case is fact specific. Accordingly, for the detailed reasons herein above, the penalty imposed by the AO and confirmed by the CIT(A) is directed to be quashed. 5. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 04.04.2018. Sd/- Sd/-

(Dr. B.R.R.KUMAR) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

‘Poonam’ Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR Asstt. Registrar ITAT,Chandigarh.