TaxTMI 
TaxTMI 
2006 (3) TMI 87
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....r, the balance of Rs. 51,531 had not been paid within one month of filing of the return of income as required under section 140A of the Act. The Assessing Officer issued a show-cause notice on March 27, 1986, and on December 29, 1987, to which there was no response. Therefore, the Assessing Officer held that the assessee had no explanation to offer and proceeded to levy penalty of Rs. 12,360 under section 140A(3) of the Act. In appeal, the Commissioner of Income-tax (Appeals) confirmed the levy of penalty. The assessee preferred a second appeal to the Tribunal. Before the Tribunal, a copy of the explanation offered in response to the penalty under section 140A(3) and a copy of the petition for waiver of penalty under section 220(2A) before the Central Board of Direct Taxes were filed on behalf of the assessee. In the waiver petition, it was contended that the assessee delayed the payment due to financial crisis that was existing at that time on account of cyclone in Andhra Pradesh and drought situation in certain areas of Karnataka where the business of the assessee was concentrated. The tax on self-assessment has been paid. However, it was noticed that a sum of Rs. 1,02,500 had to....
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....nd the return shall be accompanied by proof of payment of such tax. (2) After a regular assessment under section 143 or section 144 has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment. (3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), the Income-tax Officer may direct that a sum equal to two per cent, of such tax or part thereof, as the case may be, shall be recovered from him by way of penalty for every month during which the default continues: Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard." The aforesaid provision has been the subject-matter of interpretation by various High Courts. The Andhra Pradesh High Court in the case of Addl. CIT v. Sarvaraya Textiles Ltd. reported in [1982] 137 ITR 369, interpreting the aforesaid section held has under: "The failure to pay the tax or any part thereof makes an assessee liable to pay penalty. This liability of the assessee to pay penalty, on account of his failure to pay the tax either in its entirety or in part, would empowe....
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....his provision has been introduced for the first time in the year 1964. This provision must be construed fairly, reasonably and harmoniously. If so construed, we have no doubt in our mind that the Income-tax Officer is invested with this power of discretion to be used judiciously and equitably depending upon the facts and circumstances of each case." The Delhi High Court in the case of Addl. CIT v. Free Wheels India Limited reported in [1982] 137 ITR 378 has held as under: ".... the language of section 140A itself clearly shows that a penalty is not an automatic consequence of a default and that before a penalty is imposed a reasonable opportunity must be provided to the assessee to show cause why the penalty should not be imposed. This clearly implies that it is open to the assessee to show that the default in the payment was in such circumstances as do not invite the penalty and that there was a reasonable cause for the non-payment of the tax as required by the section. We have no doubt that the view taken by the Tribunal on this aspect of the matter is clearly correct and we may point out that this is also the consensus of judicial opinion." The Madras High Court in the ....
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....d to officers that wherever it is justifiable, no penalty should be imposed." In the light of the language employed in section 140A and the aforesaid judgments, it is clear that though section 140A uses the word "shall", the entire provision must be read harmoniously and reasonably. This being a taxing provision and a penal provision, the court has to give effect to a plausible interpretation which is in favour of the citizen, where two plausible views are permissible. Otherwise, it will lead to anomaly and hardship to the assessee. So construed, sub-section (3) of section 140A provides a reasonable opportunity of being heard to the assessee which is mandatory. Once the law mandates that opportunity is to be given to the assessee to explain the default, if the explanation offered by the assessee is found to be satisfactory, then the question of imposing penalty would not arise. In other words, an amount of discretion is vested with the authority to impose or not to impose the penalty based on the explanation offered by the assessee. He is empowered in his discretion in appropriate cases to exonerate the assessee from the liability to pay any amount towards penalty if he is satis....