2017 (2) TMI 1429 - AT - Income Tax

Tribunal deletes penalty under Income-tax Act finding Assessing Officer failed to consider financial difficulties

The Tribunal allowed the appellant's appeal, deleting the penalty of Rs. 5,96,547 imposed under Section 221(1) read with Section 140A(3) of the Income-tax ... Penalty u/s 221(1) - default in payment of tax / advance tax u/s 140A - HELD THAT:- Assessee 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 ₹ 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). Thus we herein set aside the order of the CIT(A) and delete the penalty which had been imposed by the A.O u/s 221(1) and thereafter sustained by the CIT(A). - Decided in favour of assessee. Issues Involved:1. Confirmation of penalty imposed under Section 221(1) read with Section 140A(3) of the Income-tax Act, 1961.2. Justification for non-payment of self-assessment tax due to financial constraints.3. Validity of the reasons provided by the appellant for the delay in tax payment.Detailed Analysis:Issue 1: Confirmation of Penalty Imposed under Section 221(1) read with Section 140A(3)The appellant contested the penalty of Rs. 5,96,547/- imposed by the Assessing Officer (A.O) under Section 221(1) read with Section 140A(3) of the Income-tax Act, 1961. The CIT(A) upheld the A.O's decision, stating that the appellant was deemed to be in default for failing to pay the self-assessment tax before filing the return. The CIT(A) emphasized that subsequent payment of taxes does not absolve the liability under Section 221(1). The appellant argued that the penalty should be canceled due to financial constraints and other extenuating circumstances.Issue 2: Justification for Non-Payment of Self-Assessment Tax Due to Financial ConstraintsThe appellant claimed severe financial constraints at the time of filing the return, which prevented the payment of the self-assessment tax. The A.O rejected this explanation, noting that the appellant had significant pre-tax profits and a substantial cash and bank balance. The CIT(A) supported the A.O's view, stating that the appellant had sufficient liquid funds, including borrowings, to pay the self-assessment tax. The appellant provided evidence of an overdrawn bank account and a cash flow statement to substantiate the claim of financial difficulties.Issue 3: Validity of the Reasons Provided by the Appellant for the Delay in Tax PaymentThe appellant also cited the illness of the Chief Financial Officer (CFO) as a reason for the delay in tax payment. The CIT(A) dismissed this reason, considering it a weak excuse that did not justify the delay. The appellant argued that despite financial struggles, they prioritized filing the return on time and subsequently paid the outstanding tax and interest within 15 days after borrowing funds. The Tribunal considered the appellant's financial situation, including an overdrawn bank facility and delayed payments of salaries and expenses, as valid reasons for the delay.Conclusion:The Tribunal reviewed the statutory provisions of Sections 140A(3) and 221(1) and noted that while the appellant was deemed to be in default, the A.O had the discretion to waive the penalty if there were good and sufficient reasons for the default. The Tribunal found that the A.O did not exercise this discretion judiciously. Given the appellant's financial difficulties, the Tribunal concluded that the penalty under Section 221(1) was not warranted. The Tribunal set aside the CIT(A)'s order and deleted the penalty of Rs. 5,96,547/- imposed by the A.O.Order:The appeal of the assessee was allowed, and the penalty was deleted. The order was pronounced in the open court on 17/02/2017.