2007 (10) TMI 323 - AT - Income Tax

Tribunal affirms deletion of penalty for tax default, emphasizing willful intent

The Tribunal upheld the CIT(A)'s decision to delete the penalty imposed by the AO under section 221(1). It was found that the AO's actions were arbitrary ... Reasonable Cause Issues Involved:1. Deletion of penalty u/s 221(1) by CIT(A).2. Justification of penalty imposition by AO.3. Financial constraints and installment requests by the assessee.4. Legal precedents and interpretations regarding penalty imposition.Summary:1. Deletion of Penalty u/s 221(1) by CIT(A):The Revenue appealed against the CIT(A)'s order which deleted the penalty of Rs. 11,82,242 imposed by the AO u/s 221(1). The CIT(A) concluded that the assessee did not willfully avoid paying taxes and faced financial difficulties due to a dispute with Jaipur Municipal Corporation, pending in the Rajasthan High Court. The CIT(A) observed that the assessee had requested installment payments and had made substantial payments from September 2004 to March 2005.2. Justification of Penalty Imposition by AO:The AO issued notices to the assessee on 5th Nov., 2004 and 3rd Dec., 2004, demanding payment of the outstanding tax and threatening penalty u/s 221(1). Despite the assessee's request for installment payments and waiver of interest, the AO imposed the penalty on 17th Dec., 2004, before the deadline he had set for payment (20th Dec., 2004). The AO's actions were deemed arbitrary and hasty by the CIT(A).3. Financial Constraints and Installment Requests by the Assessee:The assessee argued that financial constraints due to unpaid dues from Jaipur Municipal Corporation prevented lump-sum payment of the outstanding demand. The assessee had proposed a payment schedule in installments from December 2004 to March 2005, which the AO rejected. The CIT(A) found the assessee's request reasonable and noted that the assessee had made significant payments during the period.4. Legal Precedents and Interpretations Regarding Penalty Imposition:The Tribunal examined the provisions of s. 221 and relevant case law, emphasizing that penalty imposition should consider whether the default was willful. The Tribunal cited several judgments, including CIT vs. P.S. Hathiramani and Shreeniwas & Sons vs. ITO, which held that penalties for non-payment of interest or penalties under other sections cannot be imposed u/s 221. The Tribunal concluded that the AO did not provide sufficient time for payment and ignored the assessee's financial constraints and installment requests. The penalty was deemed unjustified, and the CIT(A)'s decision to delete it was upheld.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the penalty imposed by the AO u/s 221(1). The Tribunal found that the AO acted arbitrarily and did not consider the assessee's financial difficulties and genuine efforts to pay the outstanding demand in installments.