TaxTMI 
TaxTMI 
2007 (10) TMI 323
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....orked out to Rs. 1,16,17,005 out of which the appellant deposited a sum of Rs. 25,00,000 on23rd Sept., 2004. The AO issued and served notice under s. 221(1) on 5th Nov., 2004 on the appellant with directions to produce challan(s) for tax payments and also to show cause as to why penalty should not be levied under s. 221 (1) of the Act in case the payment of outstanding tax demand had not been made and the hearing was fixed on 9th Nov., 2004. The AO further stated that on9th Nov., 2004nobody from appellant's side attended his office. Another notice was issued on3rd Dec., 2004on which date appellant deposited Rs. 6,00,000. The AO levied the penalty as no evidence was produced before him regarding payment of the balance demand. The penalty was levied on Rs. 1, 18,24,225. 3. Aggrieved with the order of AO the assessee filed an appeal before the CIT(A) and submitted before him that the AO levied penalty under s. 221(1) on an amount of Rs. 1,18,24,225 which was worked out as follows: Income-tax Rs. 33,07,221 Interest under s. 234B Rs. 23....
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....eet the outstanding demand constituted good and sufficient reason for non-payment thereof and, in that view, no penalty under s. 221 was warranted. 5. Thereafter the CIT(A) on considering the submissions of assessee and perusing his letter dt.13th Dec., 2004addressed to the AO, the reply of AO dt.17th Dec., 2004given to the assessee the application of the assessee dt. 19th Dec., 2004 moved before the CIT(A) for waiver of interest, and payments made by the assessee from the period 18th Sept., 2004 to 18th March, 2005 deleted the impugned penalty amount imposed by the AO under s. 221(1) observing that he was of the considered opinion that the assessee has not willfully avoided the payment of outstanding taxes. Assessee's financial position seemed to be quite bad due to dispute with Jaipur Municipal Corporation and which is pending with Rajasthan High Court at Jaipur. Despite this fact, the assessee requested for instalments to be granted which is evident from the letter dt.13th Dec., 2004written to the AO and thereafter he issued the directions to the AO to delete the penalty levied under s. 221(1) of the IT Act, 1961. 6. We have considered the rival submissions of both the par....
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....n the discretion of the AO because the expression used is 'may direct' in s. 221 of the Act indicating that imposition of penalty is discretionary and not mandatory. This further means that the AO must use discretion after taking into consideration all the facts and circumstances of the case and should not impose the penalty in an arbitrary manner. Whereas, in the existing facts and circumstances of the instant case, it appears that the AO has imposed the impugned penalty in a most arbitrary manner because vide letter dt.17th Dec., 2004, he had allowed the assessee only three days time to deposit the entire outstanding demand of Rs. 11,82,242 ignoring the quantum of demand and the short time for deposit granted by him. The AO was also not justified in ignoring the offer of the assessee vide letter dt.13th Dec., 2004for making the payment of the entire outstanding demand in instalments from the month of December, 2004 to March, 2005. The AO seems to be in a great hurry to impose penalty under s. 221 upon the assessee as he levied it on 17th Dec., 2004 that is the date on which he had allowed a period of three days i.e. upto 20th Dec., 2004 for the payment of the outstanding demand w....
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....ate of penalty the only balance tax of Rs. 2,07,221 was required to be paid by the assessee. 15. In a clarification issued by the Board Circular F. No. 16/87/67-ITB dt.10th July, 1967, the Board has clarified that no penalty under s. 221 of the Act can be legally imposed for default in payment of penalty imposed under the provisions of Chapter XIX of the Act of 1961. In this very circular the Board clarified that the word 'tax' which was not defined under the IT Act, 1922, has been expressly defined in exhaustive definition under s. 2(43) of IT Act, 1961 and does not include within its connotation concepts of penalty and interest leviable under the other payment of penalty imposed under s. 28, was not free from doubt, the position under the new Act is quite clear. 16. In CIT vs. P.S. Hathiramani (1993) 115 CTR (Bom) 1 : (1994) 207 ITR 483 (Bom), relevant p. 486 (Bom), their Lordships have held that for any demand raised by way of penalty under s. 271(1)(c) of the Act no penalty under s. 221 of the Act can be levied for default of payment of the penalty amount levied under s. 271(1)(c) of the Act. 17. In Shreeniwas & Sons vs. ITO (1974) 96 ITR 562 (Cal) and Ashaben Jayendra....