2014 (11) TMI 6 - AT - Income Tax

Tribunal upholds penalty for tax non-payment, rejects financial difficulties defense.

The Tribunal upheld the penalty imposed under section 221 read with section 140A(3) of the Income Tax Act on the assessee for failure to pay advance tax ... Penalty under section 221 for default in payment of self-assessment tax - Deemed assessee in default under section 140A(3) - Distinction between penal interest under sections 234A/234B/234C and penalty - No requirement of notice under section 156 for demand of self-assessment tax - Proviso to section 221 - proof of reasonable causePenalty under section 221 for default in payment of self-assessment tax - Deemed assessee in default under section 140A(3) - Distinction between penal interest under sections 234A/234B/234C and penalty - Validity of levy of penalty under section 221 read with section 140A(3) for non-payment of self-assessment tax despite insertion of sections 234A, 234B and 234C and amendment of section 140A(3). - HELD THAT: - The Tribunal found that the assessee admitted liability to pay self-assessment tax for AY 2012-13 but failed to remit the admitted amount in accordance with section 140A(1). Section 140A(3) deems such failure to render the assessee in default and makes 'all the provisions of this Act' applicable; that expression includes section 221 which empowers levy of penalty when an assessee is in default. The court distinguished the compensatory nature of interest under sections 234A/234B/234C from the penal nature of section 221, and held that the insertion of provisions for interest did not oust the power to impose penalty for default under section 221. The Assessing Officer's conclusion that no satisfactory explanation was offered for non-payment was accepted and, on that factual foundation, imposition of penalty was held to be lawful. [Paras 18, 21]Penalty under section 221 read with section 140A(3) was validly imposed for failure to pay self-assessment tax; the levy is upheld.No requirement of notice under section 156 for demand of self-assessment tax - Deemed assessee in default under section 140A(3) - Whether a separate notice of demand under section 156 is a prerequisite before treating an assessee as deemed to be in default for non-payment of self-assessment tax and before levying penalty under section 221. - HELD THAT: - The Tribunal analysed section 156 and observed that it applies where sums are payable 'in consequence of any order passed under this Act'. Self-assessment tax arises from the return filed by the assessee under section 140A(1) and does not require an assessment order; hence service of a separate notice under section 156 is not mandated before treating the assessee as 'deemed to be in default' under section 140A(3) or before invoking the provisions of section 221. The scheme of the Act treats assessed tax and self-assessed tax differently; penalty under section 221 applies in both situations of default or deemed default without a prerequisite demand notice under section 156 in cases of self-assessment tax. [Paras 19, 20]No separate notice under section 156 is required prior to treating an assessee as deemed to be in default for self-assessment tax or before levying penalty under section 221.Final Conclusion: The Tribunal dismissed the appeal: the penalty under section 221 read with section 140A(3) for non-payment of admitted self-assessment tax for AY 2012-13 was lawfully imposed and no separate demand notice under section 156 was required before treating the assessee as deemed to be in default. Issues Involved:1. Levy of penalty under section 221 read with section 140A(3) of the Income Tax Act.2. Interpretation of section 140A(3) post-amendment.3. Applicability of sections 234A, 234B, and 234C in lieu of penalty under section 140A(3).4. Requirement of demand notice under section 156.5. Financial difficulties as a reasonable cause for non-payment of tax.Issue-wise Detailed Analysis:1. Levy of Penalty under Section 221 read with Section 140A(3):The assessee failed to pay advance tax of Rs. 92,01,650/- by the due date of 15-03-2012 and also did not pay self-assessment tax when filing the return. The Assessing Officer (AO) deemed the assessee in default under section 140A(3) and issued a notice under section 221(1) to show cause why a penalty should not be levied. Despite the assessee's representative attending the hearing and citing financial difficulties, no written submissions or evidence were provided. Consequently, the AO imposed a penalty of Rs. 18,40,330/- (20% of the unpaid tax). The CIT(A) confirmed this order, leading to the current appeal.2. Interpretation of Section 140A(3) Post-Amendment:The assessee argued that the amendment to section 140A(3) by the Direct Tax Laws (Amendment) Act, 1987, effective from 01-04-1989, removed the specific provision for penalty, implying that penal interest under sections 234A, 234B, and 234C should suffice. The amended section states that an assessee failing to pay tax or interest shall be deemed in default, and all provisions of the Act shall apply accordingly. The assessee contended that the amendment intended to withdraw the penalty provision, as indicated by the notes on clauses and Circular No. 549 dated 31/10/1989.3. Applicability of Sections 234A, 234B, and 234C:The assessee argued that the insertion of sections 234A, 234B, and 234C, which provide for penal interest, made the penalty under section 140A(3) redundant. They contended that imposing both penalty and interest would be confiscatory and arbitrary, violating Article 14 of the Constitution. The circular issued by the Central Board of Direct Taxes (CBDT) was cited, stating that the penalty for non-payment of self-assessment tax was omitted due to the mandatory interest provisions.4. Requirement of Demand Notice under Section 156:The assessee claimed that no demand notice under section 156 was served, which is necessary before treating an assessee as in default. Section 156 requires a notice of demand specifying the sum payable when any tax, interest, penalty, or fine is due. The assessee argued that the absence of such a notice invalidated the penalty.5. Financial Difficulties as a Reasonable Cause:The assessee cited financial difficulties, the death of the Managing Director, and the crisis in the microfinance industry as reasons for the delay in tax payment. They argued that these constituted 'good and sufficient reasons' under the proviso to section 221(1), which should exempt them from penalty.Judgment Analysis:The Tribunal held that the assessee was indeed in default for not paying the self-assessment tax despite being given notice. The provisions of section 140A(3) and section 221 were deemed applicable, and the penalty was upheld. The Tribunal found no merit in the argument that the amendment to section 140A(3) removed the penalty provision, stating that sections 234A, 234B, and 234C were compensatory, while section 221 was penal. The requirement of a demand notice under section 156 was dismissed, as the tax was payable based on the assessee's own return, not an order by the AO. The financial difficulties cited were not considered sufficient to exempt the assessee from penalty, as no substantial evidence was provided.Conclusion:The appeal was dismissed, and the penalty under section 221 read with section 140A(3) was confirmed. The Tribunal emphasized the mandatory nature of the provisions and the lack of reasonable cause for non-payment of the self-assessment tax.