TaxTMI 
TaxTMI 
2011 (9) TMI 111
X X X X Extracts X X X X
X X X X Extracts X X X X
....t time / opportunity to deposit the demand raised under section 201(1); (2) Holding that the assessing officer should wait for finalization of quantum appeal under section 201(1) up to ITAT state and then impose penalty if any arises. There is no provision in the IT Act, 1961 that penalty under section 221(1) can be imposed after the order of ITAT, hence the observation of the CIT (Appeals) is contrary of the law." 3. The first issue for consideration relates to deleting the penalty of Rs. 5,17,712/- imposed by the assessing officer under section 221(1) holding that no proper opportunity has been given to the assessee before imposing the penalty. The facts of the case stated in brief are that during the relevant period the assessee was engaged in the manufacturing and retail sale of kids' ready- made garments and sale of fabric on whole-sale basis. In the course of its business the assessee was required to incur various expenses under different heads. Many such payments or expenses were liable for deduction of tax at source under various sections of Chapter XVII-B of the Income Tax Act. A survey operation under section 133A was carried out at the assessee's corporate office o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ose penalty under section 221(1) of the Act at the rate of 2 per cent of the outstanding demand. 5.1 Before the ld. CIT (Appeals) it was submitted by the assessee that as per notice dated 29/12/2009 received by the assessee on 30/12/2009 the assessing officer asked the assessee to deposit the balance demand of Rs. 2,00,20,530/- and in case of failure penalty proceedings would be initiated. The assessing officer initiated the proceedings on the same day and the order was also passed. Therefore, no proper show cause notice was served on the assessee before passing of the penalty order u/s 221(1) of the Act. Hence, the order passed by the AO levying penalty u/s 221(1) was bad in law. It was also submitted that the AO had imposed penalty on Rs. 2,58,85,648/- whereas as per notice dated 29/12/2009 the demand outstanding was Rs. 2,00,20,530/- which included interest and on interest penalty was not leviable. It was also submitted that the assessing officer had not issued demand notice under section 156 of the Act for outstanding demand of Rs. 2,58,85,648/- in consequence to order passed under section 201(1) of the Income Tax Act and hence no time limit was provided by assessing officer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e u/s 156 and hence time limit for payment demand was not given. Consequently, the assessee cannot be treated an assessee in default within the meaning of section 220(4) of the Act. 7.1 We have heard both the parties and gone through the material available on record. There is no dispute about the fact that the assessee had deducted tax at source in financial years 2008-09 and 2009-10 and had not deposited the same within the time prescribed under law. It is also a fact that the assessee had been utilizing the said amount for its business. Under section 200(1) any person deducting any sum in accordance with provisions of section 192 to 199 in Chapter XVII-B shall pay within the prescribed time the sum so deducted to the credit of Central Government or as the Board directs. 7.2 Rule 30 of Income Tax Rules, 1962 prescribes time limit under various circumstances for payment of tax deducted at source to the credit of Central Government. In case of a person deducting tax at source on behalf of the Government, the tax deducted at source is to be deposited/ credited to the credit of Central Government on the same date. In case of deduction by or on behalf of persons other than Govern....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or the company, as the case may be, referred to in sub-section (1)." 7.3 From plain reading of provisions of section 201 it is clear that section 201enacts a three-fold punishment for a person, including a company bound to deduct tax at source and pay to the credit of the Central Government and defaulting to do so deduct tax or, after having deducted, defaulting in making payment thereof to the credit of the Central Government. Firstly, the defaulter is treated as an assessee in default and is liable to pay a penalty under section 221. Secondly, he is liable to pay interest on the amount of such tax from the date on which such tax is deductible to the date when such tax is actually paid. The third consequence is that it creates a statutory charge upon all assets of the defaulter for the amount of tax deducted and not paid, plus the amount of interest leviable under section 201(1A). 7.4 The proviso to section 201(1) states that no penalty shall be charged under section 221 from a defaulting person, unless the assessing officer is satisfied that such person, without good and sufficient reasons has failed to deduct and pay such tax. The words "has without good and sufficient re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....order passed under this Act. Now question arises as to whether the tax deducted at source becomes payable by virtue of any order passed under Income Tax Act, 1961 or under operation of statutory provisions of law. Section 200(1) casts responsibility upon the person deducting tax at source in accordance with provisions of section 192 to 196D in Chapter XVII-B to pay within the time prescribed under rule 30 the sum so deducted to the credit of Central Government. Thus the amount of tax deducted at source cannot be treated to have become payable in consequence of any order passed under the Act for which notice u/s 156 of the Act was required to be issued. The contention of the assessee that in the absence demand notice u/s 156 it cannot be treated an assessee in default u/s 201(1) is not in accordance with the provisions of law. In other words, for sake of arguments if the contention of the assessee is accepted it would mean that unless demand notice u/s 156 is issued in consequence order passed u/s 201(1) the assessee would not be liable to pay the tax deducted at source. This proposition of the assessee runs contrary to the provisions of section 200 of the Act according to which the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ght to be imposed." 10.2 From the decision of Hon'ble Kerala High Court it is clear that liability to pay tax deducted at source is incurred by operation of provisions of sections 192 to 196D read with section 200 and not by an order passed u/s 201(1) of the Act. The liability is attracted immediately upon the happening of an event, namely, failure to deduct and pay under section 192 to 196D or failure to credit the sum deducted as required by section 200. As soon as such failure occurs, the liability arises once and for all, and there is no further requirement of computation of demand under any section. On the contrary the notice of demand u/s 156 is issued in the cases where liability to pay demand is ambulatory and gets crystallized in consequence of any order passed under the Act. Order u/s 201(1) is to be passed in the cases where the assessing officer intends to impose penalty u/s 221(1) of the Act. The tax deducted at source was lying with the assessee and was required to be paid to the Central Government within the prescribed time. The demand on account of TDS was no longer ambulatory. Provisions of section 220(4) will not be applicable in the cases where demand becomes ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onable opportunity of being heard: Provided further that where the Income-tax Officer is satisfied that the default was for good and sufficient reasons, no penalty shall be levied under this section. Explanation.-For the removal of doubt, it is hereby declared that an assessee shall not cease to be liable to any penalty under this sub-section merely by reason of the fact that before the levy of such penalty he has paid the tax. (2) Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded." 13.1 Though the main part of section 221(1) enables an assessing officer to levy penalty subject to a reasonable opportunity of being heard given to the assessee, still, under the second proviso, he need not levy such penalty or cannot levy any such penalty if he is satisfied that the default was for "good and sufficient reasons". Therefore, we have to examine whether the default in the present case was for "good and sufficient reasons". Hon'ble Madras High Court in the case of Nachimuthu Industrial A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owever, that the total amount of penalty does not exceed the amount of tax in arrears. Thus it has to be concluded that the assessing officer had issued another notice u/s 221(1) dated 29th December, 2009 for balance of outstanding tax payable by the assessee as on that date amounting to Rs. 2,00,20,530/- as the assessee continued to be an assessee in default. The assessee had confused the facts by referring to notice dated 29.12.2009 and keeping silence conveniently in respect of notice dated 30.11.2009 which was responded to by the assessee. Since the assessee had responded to notice dated 30.11.2009 by filing reply vide letter dated 11.12.2009(received by AO on 16.12.2009), it cannot be said that the Assessing Officer had not given opportunity of being heard before levy of penalty u/s 221(1) of the Act. This fact recorded by the assessing officer in impugned order u/s 221(1) had escaped the attention of the ld. CIT(A). Therefore, in our considered opinion, it is incorrect on the part of the ld. CIT (Appeals) to say that opportunity of being heard was not given by the assessing officer before imposition of penalty under section 221(1) of the Act. 15. In fact the tax deducted a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp;3. On the facts and circumstances of the case the CIT (A) has rightly observed that as per notice dated 29/12/2009 (copy enclosed) received by the assessee on 30/12/2009 the assessing officer is stating to deposit the balance demand of Rs. 2,00,20,530/- and if the same is not deposited immediately penalty proceedings will be initiated. So on 30/12/2009 the assessing officer says the penalty proceedings will be initiated and on the same day penalty order was passed, so both are bad in law and unjustified; 4. On the facts and circumstances of the case the departmental appeal is bad in law stating that there is no provision in law to wait for finalization of quantum appeal before levying penalty but the CIT (A) has not stated about any such provision of law. Also as per the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) it was held that no penalty should be imposed unless the party obliged either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation; 5. That on the facts and circumstances of the case the assessing officer....