2014 (5) TMI 1 - AT - Income Tax

Tribunal upholds cancellation of penalty under Income Tax Act citing financial difficulties and reasonable cause.

ACIT, Circle-6, Ahmedabad Versus Shri Ravi Hansraj Gouthi (HUF)

The Tribunal affirmed the CIT(A)'s decision to delete the penalty under section 140A(3) of the Income Tax Act. The assessee's financial difficulties, ... Deletion of penalty u/s 140A(3) of the Act – Self assessment tax not paid – Assessee took a contention that due to losses, no funds was available to make the payment - Held that:- As per the order/intimation made u/s 143(1) the due date of filing of return for A.Y. 2006-07 was 31.12.2006 - the return was filed on 29th of March, 2007 - assessee has furnished a balance sheet drawn as on 31st of December, 2006 and demonstrated that there was heavy losses incurred in share trading - There was heavy current liabilities against the investment in shares – Relying upon Safari Mercantile (P) Ltd. Vs. ACIT [2008 (3) TMI 510 - ITAT MUMBAI] - the assessee has satisfied that there was a good and sufficient reason for the default – thus, no penalty should be levied especially, when the assessee has later on deposited the entire amount – thus, the order of the CIT(A) upheld – Decided against Revenue. Issues involved:Appeal against the deletion of penalty under section 140A(3) of the Income Tax Act.Analysis:1. Issue of Penalty Deletion: The appeal arose from the Revenue challenging the deletion of a penalty of Rs.43,99,051/- imposed under section 140A(3) of the Income Tax Act. The assessee, a firm, had filed its income tax return for the assessment year 2006-07 declaring an income of Rs.1,44,99,740/- but failed to pay the self-assessment tax of the same amount. Consequently, a demand was raised against the assessee, leading to the imposition of the penalty. The assessee explained the default by citing losses in stock market trading, which left them with insufficient funds to make the payment on time. However, the assessee later paid the entire amount in installments granted by the Revenue Department.2. First Appellate Authority's Decision: The CIT(A) held that the installment facility granted to the assessee indicated acceptance of the financial difficulties faced by the assessee due to significant losses. Citing relevant case law, the CIT(A) concluded that there was a reasonable cause for the non-payment of tax on time, thereby canceling the penalty levied. The CIT(A) considered the financial circumstances of the assessee, the losses incurred, and the subsequent payment of the tax amount in installments as justifying the deletion of the penalty.3. Legal Provisions and Analysis: Section 140A(3) of the Income Tax Act deems an assessee in default if they fail to pay the tax as required. Section 221 outlines the penalty provisions for default in tax payment, with the second proviso stating that no penalty shall be levied if the assessee proves a good and sufficient reason for the default. In this case, the assessee demonstrated heavy losses in share trading before the due date of filing the return, leaving them with minimal liquid funds. The assessee provided evidence of financial constraints and reliance on relevant legal precedents to support their claim of a reasonable cause for the default.4. Judgment and Conclusion: The Tribunal, after considering the facts and circumstances, affirmed the CIT(A)'s decision to delete the penalty. The Tribunal found that the assessee had provided sufficient evidence of financial difficulties and losses incurred, justifying the delay in tax payment. As the assessee later paid the entire tax amount in installments, the Tribunal concluded that no penalty should be levied in such circumstances. Consequently, the Revenue's appeal against the deletion of the penalty was dismissed.In summary, the Tribunal upheld the deletion of the penalty under section 140A(3) of the Income Tax Act based on the assessee's financial constraints, losses incurred, and subsequent payment of the tax amount in installments, as well as the legal provisions and precedents cited in support of the assessee's case.