2021 (7) TMI 805

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.... for AY 2007-08. Since the issue urged in these appeals and the underlying facts are identical in nature, both the appeals were heard together and are being disposed of by this common order for the sake of convenience. 2. The Ld. A.R. appearing for the assessees submitted that the A.O. had reopened the assessment of both the assessees for AY 2007-08 and passed the assessment order in their respective hands u/s 144 r.w.s. 147 of the Act by making disallowances u/s 40(a)(ia) of the Act and also disallowing marketing expenditure. Accordingly, the A.O. raised a demand of Rs. 3.39 crores in the hands of M/s. Star Electricals and Rs. 5.09 crores in the hands of M/s. Yeshoda Electricals. Both the assessees did not pay the tax demanded by the AO. ....

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....een levied u/s 221(1) of the Act for non-payment of tax demanded in the assessment order and since the assessment order itself has been quashed in the hands of both the assessees, there will be no pending tax demand and consequently, the impugned penalty cannot stand on its own. Accordingly, the Ld A.R prayed for quashing of impugned penalty orders. 5. We heard Ld D.R and perused the record. In these two cases, the AO has levied penalty u/s 221(1) of the Act. The provisions of sec.221 read as under:- "221. Penalty payable when tax in default.-(1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall in addition to the amount of the arrears and the amount of interest payable under sub-section (2....

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....d hence they have become "assessee in default". However, the provisions of sub. Sec. (2) further state that the penalty levied shall be cancelled, where as a result of final order the amount of tax, with respect to the default in payment of which the penalty was levied, has been wholly reduced. 6. In the instant cases, as on today, the assessment orders have been quashed by the Tribunal, vide its order dated 03-02-2021 (referred above) in the hands of both the assessees by holding that reopening of assessment is invalid. Hence, as on today, the demand has become Nil. Accordingly, as per the provisions of sub. Sec. (2) of sec. 221, the penalty levied u/s 221(1) is liable to be cancelled, if the orders passed by the Tribunal becomes final or....