TaxTMI 
TaxTMI 
2021 (10) TMI 1103
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....s: "1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the penalty of Rs. 3,92,70,237/-, levied u/s 221 r.w.s. 140A(3) of the I.T. Act." 2. Briefly stated, the assessee company had e-filed its return of income for A.Y 2011-12 on 12.03.2012, declaring an income of Rs. 6,86,61,138/-. Thereafter, the assessee on 19.04.2012 filed a revised return of income, declaring an income of Rs. 9,64,16,230/-. The return of income filed by the assessee company was initially processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. Assessment was thereafter framed by the A.O, vide his order passed u/s 143(3), dated 28.02.2014, and the income of the assessee was determined at Rs. 9,66,11,510/-. 4. On a perusal of the records, it was observed by the A.O that the assessee had failed to pay its admitted self-assessment tax liability of Rs. 3,92,70,237/-. On being confronted, the assessee vide its reply dated 11.03.2015 submitted that the failure to discharge its self-assessment tax liability was due to financial constraints that were primarily triggered by delay....
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....D.R") that as the assessee had failed to deposit its admitted tax liability, therefore, the A.O had rightly imposed penalty under Sec. 221(1) r.w Sec. 140A(3) of the Act. In order to buttress his aforesaid claim the ld. D.R took us through the relevant statutory provisions. It was submitted by the ld. D.R that as per sub-section (3) of Sec. 140A of the Act, the assessee having failed to pay its admitted self-assessment tax liability was deemed to be an "assessee in default", and thus, rightly subjected to penalty by the A.O under sub-section (1) to Sec. 221 of the Act. Further, rebutting the observations of the CIT(A) that the assessee had failed to pay its admitted tax liability due to financial constraints, it was submitted by the ld. D.R that the said observation was factually incorrect as the assessee had sufficient funds parked as deposits with the bank. It was, thus, submitted by the ld. D.R that the CIT(A) had gravely erred in law and the facts of the case in setting-aside the penalty imposed by the A.O under Sec. 221(1) r.w Sec. 140A(3) of the Act. 7. Per contra, the ld. Authorized Representative (for short "A.R") for the assessee relied on the order of the CIT(A). It wa....
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....al, had been held by the Tribunal vide its consolidated order passed in ITA NO. 2472, 2473 & 5752/Mum/2018, dated 20.03.2019 as an incorrect declaration of income as the same was in the nature of a capital receipt. In its return of income for the year under consideration, the assessee company is stated to have offered the aforesaid interest income under a misconception of law as part of its taxable income instead of declaring it as a capital receipt. It is further stated that as the aforesaid return of income was belatedly filed, therefore, a revised return of income to rectify the aforesaid mistake could not be filed. Assessment was thereafter framed by the A.O vide his order passed u/s 143(3), dated 28.03.2014, wherein after making a miniscule addition of depreciation the income of the assessee was assessed at Rs. 9,66,11,510/-. It is the claim of the assessee that not a single rupee from the interest receivable was received by it. As per the return of income filed by the assessee company the self-assessment tax had remained payable and was not paid at the time of filing the return of income. However, the assessee company had eventually made the payment of the self-assessment tax....
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....the assessee for its failure to discharge its admitted self-assessment tax liability. Admittedly, the provisions of Sec. 140A(3) had been amended vide the Direct Tax Laws (Amendment) Act, 1987 w.e.f 01.04.1989. Sec. 140A(3) of the Act, as it stands for the year under consideration, reads as under : "140A(3) If any assessee fails to pay the whole or any part of such tax [or interest or both] in accordance with the provisions of sub-section (1), he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax [or interest or both] remaining unpaid, and all the provisions of this Act shall apply accordingly." On the other hand, the pre-amended Sec. 140A(3) of the Act which was operative upto 31.03.1989 and was amended by the Direct Tax Laws (Amendment) Act, 1987, read as under :- "(3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), the Assessing 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 con....
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....n the backdrop of the aforesaid position of law, that, we shall deal with the claim of the revenue that as the assessee had failed to pay the self-assessment tax that it was obligated to do as per sub-section (1) of Sec. 140A of the Act, therefore, it was to be "deemed to be an assessee in default" in respect of the said amount, and all the provisions of the Act shall apply accordingly. Backed by its aforesaid conviction, it is the claim of the revenue, that as the assessee was "deemed to be in default" for having failed to deposit the self-assessment tax, it, thus, satisfied the conditions for bringing it within the realm of the penal provisions contemplated in Sec. 221(1) of the Act. 13. Admittedly, the aforesaid claim of the revenue on the very face of it appeared to be very convincing, however, we are afraid that the same does not merit acceptance. Notably, the penalty envisaged in pre-amended Sec. 140A(3) i.e upto 31.03.1989 was available on the statute a/w the penalty envisaged u/s 221(1) of the Act. Although, Sec. 140A(3) had been amended vide the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01.14.1989, however, Sec. 221 (1) had remained the same. Now, if the aforesaid cl....
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.... the judicial precedents supra, it is held that the assessee could not pay the SA tax on time due to financial stringency and the delay was not intentional. The Id. Counsel has also submitted before me two interesting decisions of the jurisdictional Hon'ble Mumbai ITAT Decision in the cases of Meddle Knowledge Pvt. Ltd. [169 ITD 304] order dated 19.01.2018 and Balraj Prakashchand Bansal in ITA No. 1058/Mum/2013 order dated 19.03.2018. The Hon'ble Mumbai ITAT in the case of Heddle Knowledge Pvt. Ltd. [169 ITD 304] held as under; "In terms of the provisions of section 140A(3) as existing till 31-3-1989, the Assessing Officer was empowered to levy penalty in cases where assessee had failed to pay the self-assessment tax, and such penalty was leviable for every month during which the default continued of a sum equal to 2 per cent of such tax or part thereof. At the time of introduction of the new section by the Direct Tax Laws (Amendment] Act, 1987 with effect from 1-4-1989, the Explanatory notes issued by CBDT vide Circular No. 549 of 31-10-1989 seeks to explain the import of the substitution of new section. Quite clearly, if one is to read the earli....
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.... for levy of penalty for non-payment of self-assessment tax was no longer found necessary because the said default would henceforth invite mandatory charging of interest. Ostensibly, the legislature did not envisage that consequent to the amendment, the default in payment of self-assessment tax would hitherto be covered by the scope of section 221(1) of the Act. The emphasis of the revenue is to point out that the non-payment of self-assessment tax renders the "assessee-in-default' in the amended provision which further prescribes that "all the provisions of this Act shall apply accordingly" and, therefore, the default is hitherto (from 01-04-1989) covered by section 221(1) of the Act. The consequence of the aforesaid two expressions contained in section 140A(3) are also not of the type sought to be understood by the revenue, and rather the assessee is to be treated as an "assessee-in-default" for the limited purpose of enabling the Assessing Officer to make recovery of the amount of tax and interest due and not for levy of penalty, an aspect which has been specifically done away in the new provision. Therefore, considered in the aforesaid light, the fact that....
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....longwith the interest thereon. In response, assessee vide letter dated 08.02.2010 sought more time to clear the liability of payment of self- assessment tax. Subsequently, on 11.02.2010, the Assessing Officer show-caused the assessee as to why the penalty u/s 221 r.w.s. 140A(3) of the Act should not be imposed for the failure of the assessee to pay the self-assessment .fax within the stipulated time. The orders of the authorities below reveal that the defence of the assessee was primarily the plea of financial stringency and also the fact that the tax was ultimately deposited on 02.03.2010 before the penalty was imposed by the Assessing Officer vide order dated 08.03.2010. The Assessing Officer as well as the CIT(A) did not find the reasons advanced, by the assessee fo be satisfactory to mitigate the levy of penalty. As per the Assessing Officer, the provisions of Sec. 140A(3) r.w.s 221 of the Act did not provide any discretion to the Assessing Officer not to levy the penalty. Considering that the assessee had defaulted in payment of self-assessment tax within the stipulated period and was thus liable to be treated as "assessee in default " as per the provisions of Sec.140A(3) r.w.....
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....he following, which seeks to explain the import of the substitution of new section. The relevant paragraphs of the Circular dated 31.10.1989 (supra) are reproduced as under :- "Para 4.17 : The old provisions of subsection (3) of the section provided for levy of penalty for non-payment of self-assessment, tax, since the rate' of mandatory interest for failure to pay the tax has now been increased, it is not necessary to retain this provision any more. The amending Act has accordingly omitted the said sub section (3). 4.18 : In order to vest the power of recovery of tax and interest due under this section on the basis of the return, amending Act 1987, has inserted a new sub section (3) in the section to provide that if any assessee has not paid self assessment tax and interest in full before filing the return, he shall be deemed to be an assessee in default in respect of such tax and interest." Quite clearly, if one is to read the earlier Sec. 140A(3) of the Act and the amended section w.e.f 1.4.1989 alngwith the explanatory notes to the amendment conjointly, it is clear that the earlier provision' prescribing for levy of penalty for default outline....
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..../- is deleted." We, thus, in terms of our aforesaid deliberations, and respectfully following the view taken by the coordinate benches of the Tribunal in the aforementioned orders, uphold the view taken by the CIT(A) that no penalty under the post-amended sub-section (3) to Sec. 221(1) r.w. Sec. 140A(3) could have been imposed on the assessee for non-payment of its self-assessment tax liability. 14. We shall now take up the claim of the revenue that the CIT(A) had erred, in concluding, that considering the serious financial constraints due to which the assesseee had failed to pay its self-assessment tax at the time of filing of its return of income, and for a period thereafter, no penalty under sub-section (3) to Sec. 221(1) r.w.s 140A of the Act could even otherwise have been imposed. As observed by us hereinabove, it is a matter of fact borne from the record that the assessee"s returned income comprised only of interest income that had accrued on the funds that were invested by it in NBFC"s by placing ICD"s. As noticed by us hereinabove, the source of the aforesaid deposits was the subscription of share capital of Rs. 450 crores (approx) that was received by the assessee fr....
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....ame was delayed due to various regulatory issues. 9.5 In support of the contention of the appellant company of acute financial stringency, it has been pointed out that the company does not have any other source of income and although income declared is on accrual basis, till date not a single rupee from the interest so receivable has actually been received out of total interest receivable from NBFC to the tune of Rs,9,04,92,507/-. The appellant company has also relied on the following case laws: CIT vs. Bikaji Ramchandra 183 ITR 478 BOM CIT vs. Chembara Peak Estates Ltd 183 ITR 471 Kerala Jaipur Electro Pvt Ltd 183 ITR 476 Rajasthan CIT vs. Dadu Vala & Co. (1998) 170 ITR 491 (Raj) CIT vs. Smt. Vijayanthimala (1977) 108 ITR 882 (Mad.) CIT. VS Munni lal & Co. (2006) 157 taxman 466 (Raj) CIT vs. Raunaq & Co Pr. LTd (1983) 140 ITR 407, 411 (Del) CIT V. Chembara Peak Estates Ltd.( 1990) 183 ITR 471 474 (ker) CIT Vs. Dadu Wala & Co. (1988) 179 ITr 491 494 (Raj) Mahadev Ram s. RTA (1973) Tax LR 2227 (Ori) Brajalal Bank v. State of Tripura (1990) 79 STC 217, 226 (Gauh) 9.6 T....
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....se the penalty based on 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 satisfied, on consideration of the fact and circumstances, that there was sufficient or reasonable cause for the assessee for his inability to pay the entire amount or a part thereof within the time stipulated under law. To hold it otherwise, would render the proviso to section 140A{3) redundant. Therefore, the penalty is not an automatic consequence of a default and the penalty' will follow only in the event of the assessee's failing to show a reasonable cause for nonpayment of the tax as required by section J40A. [Para 9] A reading of section 140A(3) makes it clear that if any assessee fails to pay the tax, the UO 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. Therefore, a power is conferred on the ITO to impose penalty for delayed payment of tax. However, proviso to the said sub-section makes it clear 'that before levying suc....
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....cial crunch. However he restricted the penalty to 10% instead of deleting the whole of the amount. We are of the opinion that assessee had made out a good case in its support and the facts do indicate that there are good and sufficient reasons for assessee's delay in payment of taxes. Relying on the various case law which are extracted by the Ld. CIT(A) in para-7 of the order, it can be concluded that penalty under section 221 (1) is not a mode of recovery of taxes and this punitive action can be taken in case of willful default. Assessee is not a willful defaulter and it has sufficient reasons to not to discharge the tax liability at the time of filing return, but within period of 7 months discharged entire admitted tax. In fact the cheques issued in the month of March, 2011 were encashed by the A.O. in the months of March and June,2011. In-these circumstances, we are of the opinion that assessee cannot be considered as willful defaulter. Since it has bonafide reasons, we are of the opinion that penalty under section 221(1) is not attracted on the facts of the case, Therefore, we delete the penalty partly confirmed by the Ld. CIT(A). Accordingly, assessee's appeal is allow....