SHRI. PANKAJ S. SETH, MUMBAI v. ASST. C.I.T. RANGE-14(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: MUMBAI BEFORE SHRI P M JAGTAP ACCOUNTANT MEMBER AND SHRI R S PADVEKAR JUDICIAL MEMBER ITA NO 1152/MUM/2009 (ASSESSMENT YEAR: 2004-05) SHRI PANKAJ S SETH PROP OF M/S PANKAJ TEXTILES 11 MEHTA CHAMBERS KALYAN STREET MASJID BUNDER (E) MUMBAI -400 009 PAN: AABPS 3481 Q VS ACIT RANGE 14(1) EARNEST HOUSE NARIMAN POINT MUMBAI -400 009 APPELLANT RESPONDENT APPELLANT BY: SHRI SATISH R MODY RESPONDENT BY: SHRI VIRENDRA OJHA ORDER PER P M JAGTAP ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LEARNED CIT (A)- XIV MUMBAI DATED 30.1.2009 WHEREBY HE CONFIRMED THE PENALTY OF RS 5 01 732/- IMPOSED BY THE ASSESSING OFFICER U/S 221(1). 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION I.E. FOR ASSESSMEN T YEAR 2004-05 ON 31.10.2004 DECLARING TOTAL INCOME OF RS 55 46 460/-. IN THE C OMPUTATION OF TOTAL INCOME THE TAX PAYABLE ON THE SAID INCOME WAS CALCULATED BY THE AS SESSEE AT RS 18 01 732/- AND AFTER CLAIMING CREDIT FOR THE ADVANCE TAX OF RS 13 LAKHS ALREADY PAID NET TAX PAYABLE OF SELF-ASSESSMENT U/S 140A WAS SHOWN AT RS 5 01 73 2/-. THE SAID AMOUNT HOWEVER WAS NOT PAID BY THE ASSESSEE ON OR BEFORE THE DATE OF FILING OF HIS RETURN. A NOTICE U/S 221(1) THEREFORE WAS ISSUED BY THE ASSES SING OFFICER ON 1.8.2006 REQUIRING THE ASSESSEE TO SHOW CAUSE WHY A PENALTY UNDER THE SAID PROVISION SHOULD NOT BE LEVIED FOR DEFAULT IN PAYMENT OF SELF-ASSESS MENT TAX AMOUNTING TO RS 5 01 732/- U/S 140A. IN REPLY A LETTER DATED 17.8 .2006 WAS FILED BY THE ASSESSEE ON 21.8.2006 ENCLOSING THE PROOF OF SELF-ASSESSMENT TA X PAID ON 17.8.2006. NO EXPLANATION HOWEVER WAS OFFERED BY THE ASSESSEE I N THE SAID LETTER FOR THE DELAY IN ITA 1152/M/2009 SHRI PANKAJ S SETH 2 PAYMENT OF SELF-ASSESSMENT TAX. THE ASSESSING OFFI CER THEREFORE PRESUMED THAT THE ASSESSEE IN REPLY TO SHOW CAUSE NOTICE AND PROCEEDE D TO IMPOSE PENALTY OF RS 5 01 732/- U/S 221(1). 3. THE PENALTY IMPOSED BY THE ASSESSING OFFICER U/S 221(1) WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL BEFORE THE LEARNED CIT (A ) AND IT WAS SUBMITTED ON HIS BEHALF BEFORE THE LEARNED CIT (A) THAT HE IS A MANA GING DIRECTOR OF A COMPANY NAMELY M/S ORBIT EXPORT LTD. IT WAS SUBMITTED THAT THE SAID COMPANY HAD TAKEN A LOAN FROM BANK OF INDIA IN RESPECT OF WHICH A TOTAL AMOUNT OF RS 5 CRORES WAS PAYABLE. IT WAS SUBMITTED THAT A SETTLEMENT HOWEV ER WAS REACHED BETWEEN THE SAID COMPANY AND BANK OF INDIA BY WHICH BANK OF IND IA HAD AGREED TO ACCEPT A FULL AND FINAL PAYMENT OF RS 3 CRORES THEREBY WAVING THE LIABILITY TO THE EXTENT OF RS 2 CRORES. IT WAS SUBMITTED THAT ASSESSEE BEING MANAG ING DIRECTOR AND MAJOR SHAREHOLDER ADVANCED A LOAN OF RS 1 15 00 000/- TO THE SAID COMPANY TO ENABLE IT TO MAKE THE FULL AND FINAL PAYMENT OF RS 3 CRORES TO B ANK OF INDIA. HE ALSO ARRANGED A FURTHER SUM OF RS 1 85 00 000/- FROM M/S SWEET SOLU TIONS LTD FOR THE SAID COMPANY IN ORDER TO SETTLE THE LIABILITY PAYABLE TO BANK OF INDIA. IT WAS CONTENDED THAT AS A RESULT OF THE SAID PAYMENTS MADE BY THE ASSESSEE TO M/S ORBIT EXPORTS LTD HIS LIQUIDITY POSITION BECAME VERY TIGHT AND HE COULD N OT MAKE THE PAYMENT OF SELF- ASSESSMENT TAX AMOUNTING TO RS 5 LAKHS. IT WAS SUB MITTED THAT THE SAID AMOUNT HOWEVER WAS PAID BY THE ASSESSEE ALONG WITH INTERE ST U/S 220 IMMEDIATELY AFTER RECEIPT OF NOTICE FROM THE ASSESSING OFFICER AND A REQUEST WAS MADE TO THE LEARNED CIT (A) FOR CONSIDERING THIS FACT WHILE DECIDING MA TTER OF LEVY OF PENALTY U/S 221(1). 4. THE LEARNED CIT (A) DID NOT FIND FORCE IN THE SU BMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE HIM AND PROCEEDED TO CONFIRM TH E PENALTY IMPOSED BY THE ASSESSING OFFICER U/S 221(1) FOR THE FOLLOWING REAS ONS GIVEN IN PARAGRAPH NO.6.2 OF HIS IMPUGNED ORDER. 6.2 HOWEVER IN THESE ABOVE SUBMISSIONS I DO NOT FIND ANY FORCE WHATSOEVER IN VIEW OF THE ADMITTED FACTS THAT SELF ASSESSMENT TAX WHICH WAS DUE FOR PAYMENT ON OR BEFORE 31.10.2004 WAS NOT PAI D BY THE APPELLANT. THE PAYMENT SUBSEQUENTLY MADE WAS NOT VOLUNTARY BUT WAS ONLY ON RECEIPT OF SHOW CAUSE NOTICE U/S 221 OF IT ACT. MOREOVER THE APPELLANT NEITHER IN THE ITA 1152/M/2009 SHRI PANKAJ S SETH 3 RETURN OF INCOME FLED NOR IN ANY SEPARATE LETTER BR OUGHT TO THE NOTICE OF THE AO THE REASON FOR ITS INABILITY IN MAKING PAYMENT OF SELF ASSESSMENT TAX DUE TO FINANCIAL CONSTRAINTS NOT TO SPEAK OF BRINGING THE REASONS TO THE NOTICE OF THE AO ON OR BEFORE FILING OF RETURN BUT THE APPE LLANT IS FOUND HAVING NOT BOTHERED TO OFFER ITS EXPLANATION IN RESPONSE TO TH E SHOW CAUSE NOTICE U/S 221(1) OF THE I.T. ACT BY THE AO. ADMITTEDLY AND E VIDENTLY THE AO THEREFORE WAS IN THE ABSENCE OF ANY EXPLANATION AND REASONS OFFERED BY THE APPELLANT FOR NON MAKING OF PAYMENT OF SELF ASSESSMENT TAX J USTIFIED AND HAVING NO OTHER ALTERNATIVE BUT TO LEVY PENALTY U/S 221(1) OF THE I.T. ACT. THE REASONS EXPLAINED NOW DURING THE APPELLATE PROCEEDINGS ARE ALSO NOT FOUND TO BE REASONABLE IN VIEW OF THE FACT THAT THE APPELLANT W HEN COULD HAVE GIVEN A LOAN OF RS 1 18 00 000/- TO A COMPANY COULD NOT HAVE AR RANGED FOR MARKING PAYMENT OF MERE RS 5 LAKHS IS JUST UNBELIEVABLE. I F THERE HAD BEEN THESE REASONS WHICH DISABLED THE APPELLANT TO MAKE PAYMEN T OF SELF ASSESSMENT TAX IT COLD HAVE BEEN EXPLAINED BEFORE THE AO EITHER BY FILING A NOTE ALONGWITH RETURN OF INCOME OR IN REPLY TO SHOW CAUSE NOTICE U /S 221(1). THE APPELLANT HAVING NOT DONE SO THUS GOES TO PROVE THAT IT HAD CONSCIOUSLY AND DELIBERATELY COMMITTED A DEFAULT IN NON PAYMENT OF SELF ASSESSMENT TAX AND THIS ACT ON THE PART OF THE APPELLANT WAS NOT MEREL Y ACCIDENTAL. THUS THE PENALTY U/S 221(1) IS CERTAINLY ATTRACTED AS THE AP PELLANT HAS COMMITTED A DEFAULT. THE RELIANCE PLACED BY THE APPELLANT ON V ARIOUS DECISIONS ARE DISTINGUISHABLE ON FACTS AS THE APPELLANT HAD ADMIT TEDLY FAILED IN NOT FURNISHING ANY EXPLANATION AND REASONABLE CAUSE AND JUSTIFICAT ION FOR NON PAYMENT OF SELF ASSESSMENT TAX BEFORE THE AO. FURTHER THE EXPLANA TION OFFERED NOW ARE ALSO NOT FOUND TO BE REASONABLE AND ACCEPTABLE AS THE LO AN ADVANCED BY THE APPELLANT IS TO M/S ORBIT EXPORTS LTD WHICH IS A P RIVATE LIMITED COMPANY AND THE SAME IS FOUND HAVING BEEN ADVANCED AT THE COST OF GOVERNMENT DUE. MOREOVER IT HAS NOT BEEN ESTABLISHED WITH ANY CORR OBORATIVE EVIDENCES THAT WITH THE ADVANCE OF LOAN TO THIS COMPANY THE APPEL LANTS FINANCIAL CONDITION WAS SHAKEN OR DETERIORATED AND IT WAS NOT IN A POSI TION TO MAKE THE PAYMENT OF SELF ASSESSMENT TAX. NO BALANCE SHEET OR COPY O F BANK STATEMENT WHATSOEVER COULD BE FURNISHED BY THE APPELLANT. IN THE ABSENCE OF THE SAME THE CLAIM OF THE APPELLANT REMAINS UNVERIFIED AND A LSO LIABLE TO BE REJECTED. CONVERSELY ON SUCH CIRCUMSTANCES THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS SMT VYJANTIMALA 108 ITR 882 IS APPLICABLE WHEREIN IT WAS HELD THAT AN ASSESSEE INCURS A LIABILITY TO PENALTY THE MOMENT DEFAULT HAS OCCURRED NOTWITHSTANDING THE FACT THE DEFAULT HAS CEASED TO EXIST BY THE TIME THE AUTHORITIES CONCERNED TAKE ACTION TO PENA LIZE THE ASSESSEE FOR THE SAID DEFAULT. WHETHER PENALTY SHOULD BE LEVIED OR NOT AND IF SO WHAT SHOULD BE THE QUANTUM OF PENALTY WILL DEPEND UPON THE PARTICU LAR FACTS AND CIRCUMSTANCES OF EACH CASE WHICH WILL PRIMARILY CO NCERN WHETHER THE DEFAULT WAS WILFUL OR MERELY ACCIDENTAL. THE DEFAULT IN T HE CASE OF THE APPELLANT HAVING BEEN HELD TO BE WILFUL THE AO IS JUSTIFIED IN LEVYING PENALTY U/S 221(1) OF THE I.T. ACT. ACCORDINGLY HIS ACTION IS UPHELD . ITA 1152/M/2009 SHRI PANKAJ S SETH 4 AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) CONFI RMING THE PENALTY IMPOSED BY THE ASSESSING OFFICER U/S 221(1) THE ASSESSEE HAS PREF ERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFO RE THE LEARNED CIT (A) TO MAKE OUT THE CASE THAT THERE WAS PAUCITY OF FUNDS AT THE RELEVANT TIME DUE TO WHICH THE ASSESSEE COULD NOT PAY THE SELF-ASSESSMENT TAX BEFO RE THE DUE DATE. HOWEVER AS HELD BY LEARNED CIT (A) IN THIS CONTEXT THERE WAS NO EVIDENCE WHATSOEVER FILED BY THE ASSESSEE IN THE FORM OF BALANCE-SHEET OR HIS BA NK STATEMENT TO SUPPORT AND SUBSTANTIATE HIS CASE OF ADVERSE LIQUIDITY POSITION OR PAUCITY OF FUNDS. EVEN BEFORE US NO SUCH EVIDENCE HAS BEEN FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE. MOREOVER IT IS DIFFICULT TO ACCEPT THAT THE ASSESS EE WHO ADVANCED A SUM OF RS 1 15 00 000/- TO THE COMPANY AND ALSO ARRANGED A FU RTHER SUM OF RS 1 85 00 000/- FOR THE SAID COMPANY TO REPAY THE BANK LIABILITY WA S NOT IN A POSITION TO ARRANGE FOR THE PAYMENT OF RS 5 LAKHS TOWARDS SELF-ASSESSMENT T AX. WE THEREFORE AGREE WITH THE LEARNED CIT (A) THAT THE DEFAULT IN MAKING THE PAYMENT OF SELF-ASSESSMENT TAX BY THE ASSESSEE WAS NOT FOR GOOD AND SUFFICIENT REA SONS AND IT WAS A FIT CASE TO IMPOSE PENALTY U/S 221(1). HAVING HELD SO WE HOW EVER ARE OF THE OPINION THAT THE ASSESSEE HAVING PAID THE ENTIRE AMOUNT OF SELF-ASSE SSMENT TAX ALONG WITH INTEREST THEREON U/S 220 IMMEDIATELY AFTER RECEIPT OF NOTICE FROM THE ASSESSING OFFICER U/S 221(1) THERE WAS NO JUSTIFICATION IN IMPOSING MAXI MUM AMOUNT OF PENALTY U/S 221(1) TO THE EXTENT OF TAX IN ARREARS. IN OUR OPI NION IT IS CERTAINLY NOT A CASE OF A CONTINUING DEFAULT ON THE PART OF THE ASSESSEE IN M AKING PAYMENT OF SELF-ASSESSMENT TAX SO AS TO LEVY OF MAXIMUM AMOUNT OF PENALTY AND IT WOULD BE FAIR AND REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE TO IMPOS E SUCH PENALTY TO THE EXTENT OF 50% OF THE TAX IN ARREARS. ACCORDINGLY WE MODIFY THE ORDER OF LEARNED CIT (A) AND SUSTAIN THE PENALTY IMPOSED BY THE ASSESSING OFFICE R U/S 221(1) TO THE EXTENT OF RS 2 56 000/-. ITA 1152/M/2009 SHRI PANKAJ S SETH 5 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON THE 6T H DAY OF JANUARY 2010. SD/- (R S PADVEKAR) JUDICIAL MEMBER SD/- (P M JAGTAP) ACCOUNTANT MEMBER MUMBAI DATE: 6TH JANUARY 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-XIV MUMBAI. 4) THE CIT -14 MUMBAI. 5) THE D.R. C BENCH ITAT MUMBAI BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T. MUMBAI ITA 1152/M/2009 SHRI PANKAJ S SETH 6 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 18.12.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 22.12.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER