2001 (4) TMI 212 - AT - Income Tax

Tribunal cancels penalty for delayed tax payment, citing financial constraints. Decision emphasizes fair treatment and legitimate expectations.

The Tribunal canceled the penalty imposed under section 221 for delayed tax payment, citing the appellant's financial constraints due to investments, ... - Issues:Confirmation of penalty under section 221 for delayed tax payment.Analysis:The appellant, a private limited company, declared income including capital gains from property sale. Due to investing in another company, it lacked funds to pay taxes, resulting in a tax liability of Rs. 1,20,40,939. The Assessing Officer (AO) initiated penalty proceedings under section 221 as only a partial amount was paid. The appellant explained the financial constraints due to investments, but the AO imposed a penalty of Rs. 20 lakhs, alleging diversion of funds. The Commissioner of Income Tax (Appeals) upheld the penalty but reduced it to Rs. 10 lakhs, considering subsequent tax payments. The appellant argued financial hardship, citing loans raised to clear the dues. The Departmental Representative supported the penalty, emphasizing tax priority and deliberate non-payment. The Tribunal noted the appellant's cooperation, citing the CIT's installment arrangement approval. It deemed the financial decisions valid, reducing the penalty amount. Citing the doctrine of legitimate expectation, the Tribunal canceled the penalty, finding the lower authorities' decisions arbitrary.This judgment revolves around the confirmation of a penalty under section 221 for delayed tax payment. The appellant's financial constraints due to investments, subsequent tax payments, and loans raised to clear dues were crucial factors. The Tribunal emphasized the importance of legitimate expectations in decision-making processes, leading to the cancellation of the penalty. The case highlights the discretionary nature of penalty imposition, focusing on the appellant's genuine financial challenges and cooperation with tax authorities. The judgment underscores the need for fair treatment and non-arbitrary exercise of power in public law matters, ultimately resulting in the cancellation of the sustained penalty.