ACIT, New Delhi v. M/s Catmoss Retail Ltd., New Delhi

ITA 3412/DEL/2011 | misc
Pronouncement Date: 16-09-2011 | Result: Allowed

Appeal Details

RSA Number 341220114 RSA 2011
Assessee PAN AADCA7200Q
Bench Delhi
Appeal Number ITA 3412/DEL/2011
Duration Of Justice 2 month(s) 12 day(s)
Appellant ACIT, New Delhi
Respondent M/s Catmoss Retail Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 16-09-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted B
Tribunal Order Date 16-09-2011
Date Of Final Hearing 01-09-2011
Next Hearing Date 01-09-2011
Assessment Year misc
Appeal Filed On 04-07-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH B DELHI ] BEFORE SHRI R. P. TOLANI JM AND SHRI K. D. RA NJAN AM I. T. APPEAL NOS. 3413 & 3412 (DEL) OF 2011. ASSESSMENT YEARS : 200809 & 2009-10. ASSTT. COMMISSIONER OF INCOME-TAX M/S. C ATMOSS RETAIL LTD. C I R C L E : 49 (1) VS. 329 PATPARGANJ INDUSTRIAL AREA N E W D E L H I. D E L H I 92. P A N / G I R NO. AAD CA 7200 Q. A N D C. O. NO. 301 (DEL) OF 2011. [ IN I. T. APPEAL NO. 3412 (DEL) OF 2011 ]. ASSESSMENT YEAR : 200910. M/S. CATMOSS RETAIL LTD. ASSTT. COMMISSIONE R OF INCOME-TAX 329 PATPARGANJ INDUSTRIAL AREA VS. C I R C L E : 49 (1) D E L H I 92. N E W D E L H I. P A N / G I R NO. AADCA 7200Q. ( APPELLANTS ) ( RESPONDENTS ) ASSESSEE BY : SHRI B. L. GUPTA C. A.; & MS. MANJU GOEL C. A.; DEPARTMENT BY : SHRI SALIL MISHRA SR. D. R .; O R D E R. PER K. D. RANJAN AM : THESE APPEALS BY THE REVENUE AND THE CROSS OBJECTIO N BY THE ASSESSEE FOR ASSESSMENT YEARS 2008-09 AND 2009-10 ARISE OUT OF COMMON ORDER OF THE LD. CIT (APPEALS)-XXX 2 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. NEW DELHI. THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF FOR THE SAKE OF CONVENIENCE BY THIS CONSOLIDATED ORDER. FIRST WE TAKE UP THE A PPEALS FILED BY THE REVENUE. 2. THE COMMON GROUNDS OF APPEAL RAISED BY THE REVEN UE IN BOTH THE YEARS ARE AS FOLLOWS:- 1. QUASHING / DELETING THE PENALTY OF RS.5 1 7 712/- 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 OBSE RVATION OF CIT (APPEALS) IS WRONG INCORRECT AND UNACCEPTABLE BECAUSE AS PER TH E RECORD ASSESSEE WAS GIVEN SUFFICIENT TIME / OPPORTUNITY TO DEPOSIT THE DEMAND RAISED UNDER SECTION 201(1); 2. HOLDING THAT THE ASSESSING OFFICER SHOUL D WAIT FOR FINALIZATION OF QUANTUM APPEAL UNDER SECTION 201(1) UP TO ITAT STATE AND TH EN 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 O BSERVATION OF THE CIT (APPEALS) IS CONTRARY OF THE LAW. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE PENALTY OF RS.5 17 712/- IMPOSED BY THE ASSESSING OFFICER UNDER SECTION 221(1) HOLDI NG THAT NO PROPER OPPORTUNITY HAS BEEN GIVEN TO THE ASSESSEE BEFORE IMPOSING THE PENALTY. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT DUR ING 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 BASI S. IN THE COURSE OF ITS BUSINESS THE ASSESSEE WAS REQUIRED TO INCUR VARIOUS EXPENSES UNDER DIFFER ENT HEADS. MANY SUCH PAYMENTS OR EXPENSES WERE LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER VA RIOUS SECTIONS OF CHAPTER XVII-B OF THE INCOME TAX ACT. A SURVEY OPERATION UNDER SECTION 1 33A WAS CARRIED OUT AT THE ASSESSEES CORPORATE OFFICE ON 20/11/2009. DURING THE COURSE OF SURVEY IT WAS FOUND THAT DURING FINANCIAL YEARS 2008-09 AND 2009-10 THE ASSESSEE DEDUCTED TAX AT SOURCE UNDER SECTIONS 192 194C 194H 194I AND 194J OF THE ACT. THE ASSESSEE DEDUCTED TAX AT SOURCE IN FINANCIAL YEAR 2008-09 WAS AT RS.96 89 402/- AND RS.1 61 96 246/- IN FINANCIAL YE AR 2009-10. THE ASSESSEE DID NOT DEPOSIT THE TAX SO DEDUCTED AT SOURCE WITHIN THE TIME STIPULATE D IN THE ACT AND CONTINUED TO USE THE SAME IN ITS BUSINESS. TO A QUERY RAISED BY THE ASSESSING OFFICER IT WAS SUBMITTED BY THE ASSESSEE THAT THE COMPANY WAS IN DEEPLY FINANCIAL CRUNCH BECAUSE OF W HICH THE AMOUNT DEDUCTED AT SOURCE REMAINED OUTSTANDING. NOT SATISFIED WITH THE REPLY THE ASSESSING OFFICER OBSERVED THAT SINCE THE 3 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. ASSESSEE AFTER HAVING DEDUCTED TAX AT SOURCE HAD FA ILED TO PAY THE SAME AS PER PROVISIONS OF THE INCOME TAX ACT THE COMPANY HAD COMMITTED A DEFAULT OF NON-PAYMENT OF TAX SO DEDUCTED. THE ASSESSING OFFICER TREATED THE ASSESSEE IN DEFAULT U NDER SECTION 201(1) OF THE INCOME TAX ACT VIDE ORDER DATED 25 TH NOVEMBER 2009 AND ACCORDINGLY DIRECTED THE ASSES SEE TO PAY THE AMOUNT OF RS 2 58 85 648/- . 4. SUBSEQUENTLY THE ASSESSING OFFICER PASSED ORDE R UNDER SECTION 221(1) OF THE INCOME TAX ACT 1961 ON 30.12.2009 IMPOSING PENALTY U/S 221(1) OF RS 5 17 712/- BEING 2% 0F OUTSTANDING DEMAND OF RS 2 58 85 648/-. IN THIS ORDER THE ASSES SING OFFICER HAD OBSERVED THAT NOTICE UNDER SECTION 221(1) OF THE ACT ISSUED ON 30 TH NOVEMBER 2009 WAS SENT THROUGH SPEED POST ASKING THE ASSESSEE TO DEPOSIT THE DEMAND BY 7 TH DECEMBER 2009. IN RESPONSE THERETO THE ASSESSEE V IDE LETTER DATED 11/12/2009 (RECEIVED ON 16/12/2009) SU BMITTED THAT THE ASSESSEE WAS UNDER HEAVY FINANCIAL CRUNCH AND THEREFORE WAS UNABLE TO DEPO SIT THE DEMAND IN LUMP SUM AND THEREFORE THEY WERE DEPOSITING THE DEMAND IN PARTS. THE ASSE SSING OFFICER REJECTED THE REPLY OF THE ASSESSEE AS NOT ACCEPTABLE ON THE GROUND OF FINANCIAL CRISES . SINCE THE ASSESSEE COMPANY HAD DEDUCTED TAX OF RS.96 89 402/- IN FINANCIAL YEAR 2008-09 AND RS. 1 61 96 246/- IN FINANCIAL YEAR 2009-10 UP TO 20 TH NOVEMBER 2009 BUT HAD FAILED TO DEPOSIT THE SAME TO THE ACCOUNT OF THE CENTRAL GOVERNMENT WITHIN THE STIPULATED TIME THE DEFAULT COMMITTED BY IT COULD NOT BE CONDONED. THE INSTALLMENT PLAN WAS NEITHER GIVEN BY THE AO NOR AP PROVED BY THE DEPARTMENT. THE ASSESSING OFFICER THEREFORE PROCEEDED TO IMPOSE PENALTY UND ER 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 B Y THE ASSESSEE THAT AS PER NOTICE DATED 29/12/2009 RECEIVED BY THE ASSESSEE ON 30/12/2009 T HE 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 NOTIC E 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 4 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. 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 INT EREST 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 CONS EQUENCE TO ORDER PASSED UNDER SECTION 201(1) OF THE INCOME TAX ACT AND HENCE NO TIME LIMI T WAS PROVIDED BY ASSESSING OFFICER TO PAY THE DEMAND. AS PER SECTION 220(4) AN ASSESSEE IS D EEMED TO BE IN DEFAULT IF HE DOES NOT PAY THE DEMAND IN TIME WHEREAS IN THE CASE OF ASSESSEE NO TIME LIMIT WAS PROVIDED AS THE DEMAND NOTICE FOR THE OUTSTANDING DEMAND OF RS.2 58 85 468/- WAS NOT SERVED AND HENCE THE ASSESSEE WAS NOT AN ASSESSEE IN DEFAULT AND NO PENALTY UNDER SECTION 221(1) OF THE ACT SHOULD HAVE BEEN IMPOSED. 5.2 THE LD. CIT (APPEALS) ON CONSIDERATION OF THE A BOVE FACTS OBSERVED THAT THE ASSESSMENT ORDER UNDER SECTION 201(1) OF THE I. T. ACT WAS PAS SED ON 25 TH NOVEMBER 2009 AND WAS SERVED ON THE ASSESSEE WITHOUT DEMAND NOTICE AND FOR RECOV ERY OF THE BALANCE DEMAND OF RS.2 00 20 530/- A NOTICE DATED 29/12/2009 WAS ISSU ED FOR 30 TH DECEMBER 2009 WHEREIN IT WAS MENTIONED THAT IN CASE THE BALANCE OUTSTANDING DEMA ND WAS NOT DEPOSITED PENALTY PROCEEDINGS WOULD BE INITIATED. ON THE SAME DAY PENALTY OF RS .5 17 712/- WAS IMPOSED BY PASSING PENALTY ORDER UNDER SECTION 221(1) OF THE INCOME TAX ACT WI THOUT GIVING PROPER OPPORTUNITY OF BEING HEARD. THE LD. CIT (A) THEREFORE QUASHED THE PEN ALTY. HE FURTHER NOTED THAT THE AO SHOULD HAVE WAITED FOR FINALIZATION OF THE QUANTUM APPEAL UNDER SECTION 201(1) UPTO THE STAGE OF THE ITAT AND THEN WOULD HAVE IMPOSED THE PENALTY IF AN Y. IN CASE OF RECOVERY OF THE DEMAND HE SHOULD ALSO HAVE GIVEN OPPORTUNITY TO THE ASSESSEE BEFORE IMPOSING PENALTY UNDER SECTION 220 & 221 OF THE ACT. THE LD. CIT (A) FURTHER NOTED THAT THE ASSESSEE WAS AWARE OF ITS DEFAULT FOR NOT PAYING TO THE GOVT. THE TDS MADE BY IT. THE AO SHOU LD HAVE ATTACHED THE BANK ACCOUNT OF THE ASSESSEE AND THEN IMPOSED THE PENALTY UNDER SECTION 221(1) AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE. 6. BEFORE US THE LD. SR. DR SUBMITTED THAT IT WAS NOT FRESH DEMAND CREATED BY THE ASSESSING OFFICER. THE TAX DEDUCTED AT SOURCE WAS STATUTORY LIABILITY AND SHOULD HAVE BEEN PAID WITHIN THE TIME PRESCRIBED. THEREFORE THE LD. CIT (APPEALS) WAS NOT JUSTIFIED IN CANCELLING THE PENALTY. ON 5 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. THE OTHER HAND THE LD. AR OF THE ASSESSEE SUBMITTE D THAT THE PENALTY U/S 221(1) HAS BEEN IMPOSED ON THE SAME DAY AS MENTIONED IN THE NOTICE DATED 29 TH DECEMBER 2009 WHICH WAS RECEIVED BY THE ASSESSEE ON 30 TH DECEMBER 2009. HENCE THE PENALTY UNDER SECTION 2 21(1) OF THE I. T. ACT HAS BEEN IMPOSED WITHOUT GIVING OPPORTUNITY OF BEING HE ARD. HE FURTHER SUBMITTED THAT ASSESSING OFFICER HAD NOT ISSUED NOTICE U/S 156 AND HENCE TIM E LIMIT FOR PAYMENT DEMAND WAS NOT GIVEN. CONSEQUENTLY THE ASSESSEE CANNOT BE TREATED AN ASS ESSEE 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 ASSESSE E 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 TH E SAID AMOUNT FOR ITS BUSINESS. UNDER SECTION 200(1) ANY PERSON DEDUCTING ANY SUM IN ACCORDANCE W ITH 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 T IME 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 GOVERN MENT ON THE SAME DATE. IN CASE OF DEDUCTION BY OR ON BEHALF OF PERSONS OTHER THAN GOVERNMENT IN R ESPECT OF SUMS DEDUCTED IN ACCORDANCE WITH THE PROVISION OF SECTIONS 193 194A 194C 194D 19 4E 194G 194H 194I 194J 195 196 196B 196C AND 196D AND WHERE SUCH SUMS ARE CREDIT ED BY A PERSON TO THE ACCOUNT OF PAYEE AS ON THE DATE UP TO WHICH ACCOUNTS OF SUCH PERSONS AR E MADE THE TAXES SO DEDUCTED SHALL BE DEPOSITED/CREDITED WITHIN TWO MONTHS AFTER EXPIRATI ON OF THE MONTH IN WHICH THAT DATE FALLS. IN ANY OTHER CASE THE TAX SO DEDUCTED SHALL BE DEPOSI TED / CREDITED TO THE CENTRAL GOVERNMENT WITHIN ONE WEEK FROM THE LAST DAY OF THE MONTH IN W HICH THE DEDUCTION IS MADE. IN CASE OF ANY 6 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. FAILURE EITHER TO DEDUCT AND PAY OR HAVING DEDUCTED FAILED TO PAY SUCH TAX PROVISIONS OF SECTION 201 WILL BE PRESSED INTO OPERATION. SECTION 201 FOR THE RELEVANT PERIOD READS AS UNDER: 201. (1) IF ANY SUCH PERSON REFERRED TO IN SECTIO N 200 AND IN THE CASES REFERRED TO IN SECTION 194 THE PRINCIPAL OFFICER AND THE COMPANY OF WHICH HE IS THE PRINCIPAL OFFICER DOES NOT DEDUCT THE WHOLE OR ANY PART OF THE TAX OR AFTE R DEDUCTING FAILS TO PAY THE TAX AS REQUIRED BY OR UNDER THIS ACT HE OR IT SHALL WITH OUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE OR IT MAY INCUR BE DEEMED TO BE AN ASSESS EE IN DEFAULT IN RESPECT OF THE TAX : PROVIDED THAT NO PENALTY SHALL BE CHARGED UNDER SECTION 221 FROM SUCH PERSON PRINCIPAL OFFICER OR COMPANY UNLESS THE ASSESSING OFFICER IS SATISFIED THAT SUCH PERSON OR PRINCIPAL OFFICER OR COMPANY AS THE CASE MAY BE HAS WITHOUT GOOD AND SUFFICIENT REASONS FAILED TO DEDUCT AND PAY THE TAX. (1A) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SE CTION (1) IF ANY SUCH PERSON PRINCIPAL OFFICER OR COMPANY AS IS REFERRED TO IN THAT SUB-SE CTION DOES NOT DEDUCT THE WHOLE OR ANY PART OF THE TAX OR AFTER DEDUCTING FAILS TO PAY THE TAX AS REQUIRED BY OR UNDER THIS ACT HE OR IT SHALL BE LIABLE TO PAY SIMPLE INTEREST AT TWELVE PER CENT PER ANNUM ON THE AMOUNT OF SUCH TAX FROM THE DATE ON WHICH SUCH TAX WAS DEDUCTIBLE TO THE DATE ON WHICH SUCH TAX IS ACTUALLY PAID AND SUCH INTEREST SHALL BE PAID BEFORE FURNISH ING THE QUARTERLY STATEMENT FOR EACH QUARTER IN ACCORDANCE WITH THE PROVISIONS OF SUB-SE CTION (3) OF SECTION 200. (2) WHERE THE TAX HAS NOT BEEN PAID AS AFORESAID AF TER IT IS DEDUCTED THE AMOUNT OF THE TAX TOGETHER WITH THE AMOUNT OF SIMPLE INTEREST THEREON REFERRED TO IN SUB-SECTION (1A) SHALL BE A CHARGE UPON ALL THE ASSETS OF THE PERSON 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 COM PANY BOUND TO DEDUCT TAX AT SOURCE AND PAY 7 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. TO THE CREDIT OF THE CENTRAL GOVERNMENT AND DEFAULT ING TO DO SO DEDUCT TAX OR AFTER HAVING DEDUCTED DEFAULTING IN MAKING PAYMENT THEREOF TO T HE 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 AMOUN T 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 F OR THE AMOUNT OF TAX DEDUCTED AND NOT PAID PLUS THE AMOUNT OF INTEREST LEVIABLE UNDER SECTION 201(1 A). 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 OFF ICER 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 REASONS FAILED TO DEDUCT AND PAY THE TAX HAVE BEEN EMPLOYED BY THE LEGISLATURE IN PROVISO TO SECTION 201. THEREFORE THE BENEFIT OF W ORDS GOOD AND SUFFICIENT REASON ENSHRINED IN PROVISO WILL BE AVAILABLE TO SUCH DEFAULTING PERSON S WHO FAILED TO DEDUCT AND PAY SUCH TAX AND NOT TO THE PERSONS WHO HAVING DEDUCTED TAXES FAILED TO PAY SUCH TAXES WITHIN THE TIME PRESCRIBED BY THE LAW. THEREFORE IN CASE OF PERSONS WHO HAVE DEDUCTED TAX AS PER PROVISIONS OF LAW BUT FAILED TO MAKE PAYMENTS WITHIN THE TIME PRESCRIBED THEY WILL BE VISITED BY ALL THE THREE CONSEQUENCES ENUMERATED IN PRECEDING PARAGRAPH. 8. PENALTY UNDER SECTION 221(1) IS LEVIABLE IN CASE OF AN ASSESSEE WHO IS IN DEFAULT OR IS DEEMED TO BE IN DEFAULT IN MAKING PAYMENT OF TAX. I N CASE OF ASSESSEE WHO IS IN DEFAULT THREE STAGES I.E. FIXATION OF LIABILITY COMPUTATION OF I NCOME AND TAX PAYABLE THEREON AND SERVICE OF DEMAND NOTICE U/S 156 ON THE ASSESSEE CALLING UPON HIM TO MAKE PAYMENT SHOULD HAVE BEEN OVER. HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT WES T BENGAL VS. BLACK WOOD HODGE INDIA P. LTD. 81 ITR 807(CAL) HAS HELD THAT IT HAS TO BE AS SUMED THAT THREE STAGES I.E. FIXATION OF LIABILITY COMPUTATION OF INCOME AND TAX PAYABLE THEREON AND S ERVICE OF DEMAND NOTICE ON THE ASSESSEE CALLING UPON HIM TO MAKE PAYMENT WERE OVER. IT IS ONLY WHEN ALL THESE THREE STAGES HAD PASSED AND THE ASSESSEE FAILS TO COMPLY WITH THE NOTICE OF DEMAND THAT HE CAN BECOME AN ASSESSEE IN DEFAULT. THEREFORE WHILE DEALING WITH THE LEGAL F ICTION INTRODUCED BY EXPRESSION DEEMED TO BE 8 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. AN ASSESSEE IN DEFAULT IT WOULD BE NECESSARY TO AS SUME ALL THOSE FACTS ON WHICH ALONE THE FICTION CAN OPERATE WERE OVER AND THERE HAD BEEN A FAILURE ON THE PART OF THE ASSESSEE TO COMPLY WITH THE NOTICE OF DEMAND. 9. NOW COMING TO THE CONTENTION OF THE ASSESSEE THA T NO DEMAND NOTICE WAS ISSUED UNDER SECTION 156 OF THE ACT AND HENCE NO TIME FOR PAYME NT OF DEMAND WAS GIVEN TO THE ASSESSEE WHEN HE PASSED ORDER UNDER SECTION 201(1) ON 25 TH NOVEMBER 2009. HENCE THE ASSESSEE CANNOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT. UNDER SEC TION 156 WHEN ANY TAX INTEREST PENALTY FINE OR ANY OTHER SUM PAYABLE IN CONSEQUENCE OF ANY ORDE R PASSED UNDER THIS ACT THE AO SHALL SERVE ON THE ASSESSEE A NOTICE OF DEMAND IN PRESCRIBED FO RM SPECIFYING THE SUM SO PAYABLE. THEREFORE A NOTICE OF DEMAND U/S 156 IS ISSUED WHEN ANY SUM B ECOMES PAYABLE IN CONSEQUENCE OF ANY ORDER PASSED UNDER THIS ACT. NOW QUESTION ARISES AS TO WHETHER THE TAX DEDUCTED AT SOURCE BECOMES PAYABLE BY VIRTUE OF ANY ORDER PASSED UNDE R INCOME TAX ACT 1961 OR UNDER OPERATION OF STATUTORY PROVISIONS OF LAW. SECTION 200(1) CAST S 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 DEDUCT ED TO THE CREDIT OF CENTRAL GOVERNMENT. THUS THE AMOUNT OF TAX DEDUCTED AT SOURCE CANNOT BE TREA TED 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 PASSE D 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 TA X DEDUCTOR IS DUTY BOUND TO CREDIT/ PAY THE TAX SO DEDUCTED TO THE CENTRAL GOVERNMENT WITHIN THE PR ESCRIBED TIME LIMIT UNDER RULE 30 OF I.T. RULES 1962. HENCE THIS CONTENTION OF ASSESSEE DES ERVES TO BE REJECTED. 9 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. 10.1 HONBLE KERALA HIGH COURT IN THE CASE OF TRACO CABLE CO. VS. CIT 166 ITR 278 EXPLAINING THE PROVISIONS OF SECTION 201(1) HELD AS UNDER (PAGE 282) :- THIS SECTION READ WITH SECTION 195 AND 200 WOUL D INDICATE THAT A PERSON RESPONSIBLE FOR DEDUCTION OF TAX AT SOURCE IN TERMS OF SECTION 195 IS DEEMED TO BE IN DEFAULT IF HE DOES NOT EITHER DEDUCT THE TAX AT SOURCE OR HAVING DEDU CTED IT DOES NOT PAY IT AS REQUIRED BY SECTION 200 WITHIN THE TIME PRESCRIBED UNDER RULE 3 0. SECTION 201 FURTHER SHOWS THAT THE FAILURE OF SUCH A PERSON MAKES HIM AN ASSESSEE IN D EFAULT ALTHOUGH HE WOULD NOT BUT FOR DEFAULT BE AN ASSESSEE IN RESPECT OF SUM REFERRED TO IN SECTION 195. IT IS HIS FAILURE TO DISCHARGE HIS STATUTORY OBLIGATION THAT VISITS HIM WITH THE LIABILITY OF AN ASSESSEE IN DEFAULT. THIS LIABILITY IS CAST UPON HIM UNDER TH E AFORESAID PROVISIONS NOT BECAUSE OF ANY ORDER OR NOTICE OF DEMAND BUT BECAUSE OF THE O PERATION OF THE STATUTE ITSELF. THIS IS QUITE UN-LIKE A REGULAR ASSESSMENT UNDER WHICH TAX BECOMES PAYABLE ONLY UPON SERVICE OF A NOTICE OF DEMAND UNDER SECTION 156. THE REASON I S THAT NO LIABILITY ARISES IN SUCH A CASE UNTIL SERVICE OF A NOTICE OF DEMAND BECAUSE T HE LIABILITY TO PAY TAX UNTIL DETERMINED BY MEANS OF A PROPER ASSESSMENT REMAINS MERELY AMB ULATORY AND BECOMES FIXED ONLY UPON THE COMPLETION OF ASSESSMENT AND DEMAND [SEE M . M. PARIKH ITO VS. NAVANAGAR TRANSPORT & INDUSTRIES LTD. (1967) 63 ITR 663 670 671 (SC)]. ON THE OTHER HAND SECTIONS 195 200 & 201 DEAL WITH A LIABILITY WHICH IS AT NO TIME AMBULATORY BUT WHICH IS ATTRACTED IMMEDIATELY UPON THE HAPPENING OF AN EVEN T NAMELY PAYMENT AND FAILURE TO DEDUCT UNDER SECTION 195 OR FAILURE TO CREDIT THE S UM 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 ASSESSMENT. ONCE THE LIABILITY IS INCURRED NO FURTHER DEMAND IS NECESSARY TO RECOVER THE TAX AND THE INTEREST DUE THEREON UNLESS THE REVENUE WERE TO INITIATE PROCEEDINGS FOR IMPOSITION OF PENALTY IN TERMS OF THE PROVISO TO SECTION 201(1) READ WITH SECTION 221. IN THE PRESE NT CASE NO PENALTY IS SOUGHT TO BE IMPOSED. 10 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. 10.2 FROM THE DECISION OF HONBLE KERALA HIGH COURT IT IS CLEAR THAT LIABILITY TO PAY TAX DEDUCTED AT SOURCE IS INCURRED BY OPERATION OF PROV ISIONS OF SECTIONS 192 TO 196D READ WITH SECTION 200 AND NOT BY AN ORDER PASSED U/S 201(1) O F 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 A S REQUIRED BY SECTION 200. AS SOON AS SUCH FAILURE OCCURS THE LIABILITY ARISES ONCE AND FOR A LL AND THERE IS NO FURTHER REQUIREMENT OF COMPUTATION OF DEMAND UNDER ANY SECTION. ON THE CON TRARY THE NOTICE OF DEMAND U/S 156 IS ISSUED IN THE CASES WHERE LIABILITY TO PAY DEMAND I S AMBULATORY AND GETS CRYSTALLIZED IN CONSEQUENCE OF ANY ORDER PASSED UNDER THE ACT. ORD ER U/S 201(1) IS TO BE PASSED IN THE CASES WHERE THE ASSESSING OFFICER INTENDS TO IMPOSE PENAL TY 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 W AS NO LONGER AMBULATORY. PROVISIONS OF SECTION 220(4) WILL NOT BE APPLICABLE IN THE CASES WHERE DEMAND BECOMES PAYABLE BY OPERATION OF PROVISIONS OF LAW. UNDER SECTION 201(1) THE MO MENT THE ASSESSEE IS TREATED AN ASSESSEE IN DEFAULT HE WILL BE LIABLE TO PENALTY U/S 221(1) IN ADDITION TO PAYMENT OF INTEREST U/S 201(1A) PROVIDED THAT THE ASSESSEE IS GIVEN OPPORTUNITY OF BEING HEARD AND THE ASSESSEE HAD NO REASONABLE AND SUFFICIENT CAUSE FOR NON-DEDUCTION AND PAYMENT OF SUCH TAX. 11. HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT WEST BENGAL VS. BLACK WOOD HODGE INDIA P. LTD. (SUPRA) HAS ALSO HELD THAT EVERY ORDE R WHICH CONTEMPLATES COMPUTATION OF INCOME FOR DETERMINATION OF THE AMOUNT OF TAX PAYABLE IS N OT AN ORDER OF ASSESSMENT WITHIN THE MEANING OF INCOME TAX ACT; NOR DOES PRESCRIBING OF PROCEDUR E FOR DETERMINING AND IMPOSING TAX LIABILITY MAKE IT AN ORDER OF ASSESSMENT. THE INCOME TAX ACT CONTEMPLATES MAKING OF DIVERSE ORDERS BY INCOME TAX OFFICERS DIRECTING PAYMENTS OF SUMS OF M ONEY BY TAX-PAYERS WHICH ARE OF THE NATURE OF ORDERS FOR PAYMENT OF TAX BUT WHICH ARE STILL N OT ORDERS OF ASSESSMENT. THE SALIENT FEATURES OF SUCH ORDER IS THAT LIABILITY TO PAY TAX ARISES NOT FROM THE CHARGE CREATED BY STATUTE BUT FROM THE ORDER OF THE INCOME TAX OFFICER TO CALL AN ORDER UN DER SECTION 18(7) [SECTION 201 OF 1961] AN ORDER OF ASSESSMENT WOULD NOT BE IN CONFORMITY IN THE CONTEXT OF SECTION 18(7). 11 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. 12. FROM THE DECISIONS OF HONBLE CALCUTTA HIGH COU RT IN THE CASE OF CIT WEST BENGAL VS. BLACK WOOD HODGE INDIA P. LTD (SUPRA) AND HONBLE KERALA HIGH COURT IN THE CASE OF TRACO CABLE CO. VS. CIT (SUPRA) IT HAS TO BE HELD THAT OR DER PASSED U/S 201(1) IS NOT AN ORDER IN RESPECT OF WHICH DEMAND NOTICE U/S 156 IS TO BE ISSUED BY THE ASSESSING OFFICER. ORDER U/S 201(1) IS TO BE MADE TO TREAT THE ASSESSEE DEEMED TO BE AN ASSE SSEE IN DEFAULT WHICH WILL ENABLE THE ASSESSING OFFICER TO IMPOSE PENALTY U/S 221(1) OF T HE ACT. 13. SECTION 221(1) OF THE I.T. ACT RUNS AS FOLLOWS : '221. (1) WHEN AN ASSESSEE IS IN DEFAULT OR IS DEEM ED TO BE IN DEFAULT IN MAKING A PAYMENT OF TAX HE SHALL IN ADDITION TO THE AMOUNT OF THE ARREARS ... BE LIABLE BY WAY OF PENALTY TO PAY SUCH AMOUNT AS THE ASSESSING OFFICE R MAY DIRECT AND IN THE CASE OF A CONTINUING DEFAULT SUCH FURTHER AMOUNT OR AMOUNTS AS THE ASSESSING OFFICER MAY FROM TIME TO TIME DIRECT SO HOWEVER THAT THE TOTAL A MOUNT OF PENALTY DOES NOT EXCEED THE AMOUNT OF TAX IN ARREARS : PROVIDED THAT BEFORE LEVYING ANY SUCH PENALTY THE ASSESSEE SHALL BE GIVEN A REASONABLE 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 LE VIED 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-SE CTION MERELY BY REASON OF THE FACT THAT BEFORE THE LEVY OF SUCH PENALTY HE HAS PAID THE TAX . 12 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. (2) WHERE AS A RESULT OF ANY FINAL ORDER THE AMOUN T 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) ENABLE S 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 LE VY ANY SUCH PENALTY IF HE IS SATISFIED THAT THE DEFAULT WAS FOR GOOD AND SUFFICIENT REASONS. THER EFORE WE HAVE TO EXAMINE WHETHER THE DEFAULT IN THE PRESENT CASE WAS FOR GOOD AND SUFFICIENT RE ASONS. HONBLE MADRAS HIGH COURT IN THE CASE OF NACHIMUTHU INDUSTRIAL ASSOCIATION VS. CIT [ 1980] 123 ITR 611 (MAD.) HAS HELD THAT THE CRUCIAL WORDS GOOD AND SUFFICIENT REASONS SHOULD RECEIVE SUCH AN INTERPRETATION WHICH WILL RENDER IT POSSIBLE TO ACHIEVE EFFECTIVE SPEEDY AND PROPER IMPLEMENTATION OF THE PROVISIONS OF THE ACT AND IN PARTICULAR APPROPRIATE MEASURES TO SAFEG UARD THE INTEREST OF REVENUE. WHETHER THE FACTS OF A GIVEN CASE WILL CONSTITUTE GOOD AND SUF FICIENT REASON FOR NOT IMPOSING PENALTY IS A QUESTION OF FACT. 13.2 IN THE CASE BEFORE US THE ASSESSEE HAS MADE DE DUCTIONS OF TAX AT SOURCE IN FINANCIAL YEAR 2008-09 UNDER SECTIONS 194A 194C 194H 194I 194J AMOUNTING TO RS.96 89 402/-. IN RESPECT OF FINANCIAL YEAR 2009-10 UP TO 20/11/2009 THE ASSE SSEE MADE TDS UNDER ABOVE SECTIONS AS ALSO UNDER SECTION 192B OF RS.43 000/-. THERE IS NO DISP UTE ABOUT THE FACT THAT THE ASSESSEE HAD NOT MADE PAYMENT TO THE CREDIT OF THE CENTRAL GOVERNMEN T AFTER DEDUCTING THE TAX WITHIN THE TIME PRESCRIBED UNDER THE LAW. THEREFORE BY VIRTUE OF PROVISIONS OF SECTION 201(1) THE ASSESSEE WAS RIGHTLY DEEMED BY THE ASSESSING OFFICER TO BE AN AS SESSEE IN DEFAULT IN RESPECT OF THE TAX DEDUCTED BUT NOT PAID. 14. ON PERUSAL OF ORDER UNDER SECTION 221(1) WE FIN D THAT ASSESSING OFFICER HAD ISSUED NOTICE U/S 221(1) ON 30 TH NOVEMBER 2009 ASKING THE ASSESSEE TO DEPOSIT THE ENTIRE AMOUNT OF TAX DEDUCTED AT SOURCE BY 7 TH DECEMBER 2009. THE ASSESSEE VIDE HIS LETTER DATE D 11/12/2009 HAD STATED THAT DUE TO HEAVY FINANCIAL CRUNCH THE ASSES SEE WAS NOT IN POSITION TO DEPOSIT THE DEMAND 13 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. IN LUMP SUM AND THEREFORE THE ASSESSEE WAS PAYING THE DEMAND IN PARTS. THIS FACT RECORDED BY THE ASSESSING OFFICER IN ORDER UNDER SECTION 221(1) HAS NOT BEEN DISPUTED. IN ORDER DATED 30 TH DECEMBER 2009 IMPOSING PENALTY U/S 221(1) THERE IS NO MENTION OF NOTICE DATED 29 TH DECEMBER 2009. FROM THESE FACTS IT IS CLEAR THAT ASSESSING O FFICER LEVIED PENALTY U/S 221(1) ON THE STRENGTH OF NOTICE DATED 30.11.2009 INSPECT OF OUTSTANDING D EMAND OF RS 2 58 85 648/- AND NOT ON THE BASIS OF NOTICE DATED 29.12.2009 WHICH WAS SERVED O N 30.12.2009 IN RESPECT OF DEMAND OUTSTANDING AS ON THAT DATE AT RS 2 00 20 530/-. T HERE IS NOTHING SECTION 221 TO RESTRICT LEVY OF PENALTY ONLY ONCE. SECTION 221(1) RATHER EMPOWERS T HE ASSESSING OFFICER IN THE CASE OF A CONTINUING DEFAULT TO IMPOSE PENALTY OF SUCH FURTHE R AMOUNT OR AMOUNTS AS HE MAY FROM TIME TO TIME DIRECT SO HOWEVER THAT THE TOTAL AMOUNT OF PENALTY DOES NOT EXCEED THE AMOUNT OF TAX IN ARREARS. THUS IT HAS TO BE CONCLUDED THAT THE ASSES SING OFFICER HAD ISSUED ANOTHER NOTICE U/S 221(1) DATED 29 TH DECEMBER 2009 FOR BALANCE OF OUTSTANDING TAX PAYA BLE BY THE ASSESSEE AS ON THAT DATE AMOUNTING TO RS.2 00 20 530/- AS THE ASSE SSEE 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 PEN ALTY 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 INCORRE CT ON THE PART OF THE LD. CIT (APPEALS) TO SAY THAT OPPORTUNITY OF BEING HEARD WAS NOT GIVEN BY TH E ASSESSING OFFICER BEFORE IMPOSITION OF PENALTY UNDER SECTION 221(1) OF THE ACT. 15. IN FACT THE TAX DEDUCTED AT SOURCE ON BEHALF O F CENTRAL GOVERNMENT REMAINS WITH THE ASSESSEE IN TRUST AND NON-PAYMENT OF SUCH TAX WOULD AMOUNT TO BREACH OF TRUST. THE ASSESSEE IS LIABLE TO COMPENSATE THE CENTRAL GOVERNMENT BY WAY OF INTEREST U/S 201(1A) AND NON-PAYMENT OF TAX DEDUCTED AT SOURCE ON THE GROUND OF FINANCIAL C RUNCH WOULD MAKE THE ASSESSEE NOT ONLY LIABLE TO PENALTY U/S 221(1) OF THE ACT BUT ALSO FOR PROSE CUTION U/S 276B OF THE ACT. 14 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. 16. IN VIEW OF ABOVE DISCUSSION IT IS HELD THAT LD. CIT (A) WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS NOT LIABLE TO PENALTY U/S 221(1) OF TH E ACT. WE THEREFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE ORDER OF ASSESSING OFFICER F OR BOTH THE YEARS. 17. NOW COMING TO THE NEXT GROUND OF THE REVENU E THAT LD.CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSING OFFICER SHOULD HAVE WAITED FOR FINAL IZATION OF QUANTUM APPEAL UNDER SECTION 201(1) UP TO ITAT LEVEL AND THEN WOULD HAVE IMPOSED PENALT Y IF ANY. IN THIS CASE ADMITTEDLY NO APPEAL WAS FILED AGAINST ORDER U/S 201(1) BEFORE ITAT AND HENCE ASSESSEE APPEARS TO HAVE GIVEN WRONG INFORMATION BEFORE CIT (A). THERE IS NO PROVISION I N THE IT ACT 1961 THAT PENALTY UNDER SECTION 221(1) CAN BE IMPOSED ONLY AFTER THE ORDER OF ITAT AGAINST ORDER PASSED U/S 201(1) OF THE ACT. UNDER SECTION 221(2) WHERE AS A RESULT OF ANY FINAL ORDER THE AMOUNT OF TAX WITH RESPECT TO THE DEFAULT IN THE PAYMENT OF TAX ON WHICH THE PENALTY WAS LEVIED HAS BEEN WHOLLY REDUCED THE PENALTY LEVIED SHALL BE CANCELLED AND THE AMOUNT OF PENALTY PAID SHALL BE REFUNDED. HENCE IN OUR CONSIDERED OPINION THE OBSERVATION OF THE CIT (APPE ALS) IS CONTRARY TO PROVISIONS OF SECTION 221(2) OF THE ACT AND IS LIABLE TO BE SET ASIDE. WE ORDER ACCORDINGLY. 18. IN THE RESULT BOTH THE APPEALS FILED BY THE RE VENUE ARE ALLOWED. C. O. NO. 301 (DEL) OF 2011 : 19. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE CROSS OBJECTION ARE AS FOLLOWS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE DEPARTMENTAL APPEAL IS BAD IN LAW AND IS LIABLE TO BE DISMISSED; 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE DEPARTMENTAL APPEAL IS BAD IN LAW BY STATING IN THE GROUNDS OF APPEAL THAT SUFFICIENT OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO DEPOSIT THE DEMAND RAISED UNDER SECTION 201(1) BUT SILENT ON THE OPPORTUNITY PROVIDED BEFORE IMPOSITION OF PE NALTY WHICH IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE; 15 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. 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 STA TING TO DEPOSIT THE BALANCE DEMAND OF RS.2 00 20 530/- AND IF THE SAME IS NOT D EPOSITED IMMEDIATELY PENALTY PROCEEDINGS WILL BE INITIATED. SO ON 30/12/2009 TH E ASSESSING OFFICER SAYS THE PENALTY PROCEEDINGS WILL BE INITIATED AND ON THE SA ME 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 LA W 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 COU RT IN THE CASE OF HINDUSTAN STEEL LTD. VS. STATE OF ORISSA (1972) 83 ITR 26 (SC ) IT WAS HELD THAT NO PENALTY SHOULD BE IMPOSED UNLESS THE PARTY OBLIGED EITHER A CTED 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 ERRED BY NOT SENDING NOTICE OF DEMAND UNDER SECTION 156 OF THE INCOME TAX ACT FOR OUTSTANDING DEMAND RS.2 58 85 648/- IN CONSEQUE NCE OF ORDER PASSED UNDER SECTION 201(1) OF THE INCOME TAX ACT AND HENCE NO T IME LIMIT WAS PROVIDED TO PAY THE DEMAND. SINCE THE DEMAND NOTICE WAS NOT SERVED THE ASSESSEE CANNOT BE DEEMED TO BE IN DEFAULT AND CONSEQUENTLY PENALTY UNDER SECTION 221(1) CANNOT BE IMPOSED. 20. IN GROUND NO. 2 CONTENTION OF THE ASSESSEE IS T HAT THE ORDER PASSED UNDER SECTION 221 IS SILENT ABOUT OPPORTUNITY PROVIDED BEFORE IMPOSITION OF PENALTY. THE ASSESSING OFFICER HAD ISSUED NOTICE ON 30 TH NOVEMBER 2009 ASKING THE ASSESSEE TO DEPOSIT THE AMOUNT BY 7/12/2009. THE ASSESSEE SENT REPLY DATED 11/12/2009 EXPLAINING ITS FINANCIAL DIFFICULTIES. THEREFORE WE DO NOT FIND ANY SUBSTANCE IN THE CONTENTION OF THE ASSESSE E THAT NO PROPER OPPORTUNITY OF BEING HEARD WAS PROVIDED BEFORE IMPOSITION OF PENALTY. HENCE THIS GROUND OF CROSS OBJECTION IS DISMISSED. 21. IN GROUND NO. 3 THE ASSESSEE HAD CONTENDED THAT THE ASSESSING OFFICER HAD INITIATED PENALTY PROCEEDINGS UNDER SECTION 221 ON 30 TH DECEMBER 2009 AND HAD IMPOSED PENALTY ON THE SAME DAY. CONSEQUENTLY LEVY OF PENALTY IS BAD IN LAW. WHILE DECIDING THE APPEAL OF THE REVENUE WE HAVE HELD THAT THE ASSESSING OFFICER HA D ISSUED NOTICE UNDER SECTION 221 ON 30 TH 16 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. NOVEMBER 2009 AND THEREFORE PENALTY HAS BEEN IMP OSED AFTER ISSUE OF SHOW CAUSE NOTICE UNDER SECTION 221(1) OF THE ACT. THE FACT THAT NOTICE WA S ISSUED ON 30 TH NOVEMBER 2009 HAS NOT BEEN DENIED BY THE ASSESSEE. THEREFORE THIS GROUND OF CROSS OBJECTION IS ALSO DESERVES TO BE DISMISSED. 22. THE ASSESSEE VIDE GROUNDS IN THE CROSS OBJECTIO N NOS. 2 AND 3 HAS SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). WE HAVE HOWEVER REVERSED THE ORDER OF THE LD. CIT (APPEALS) FOR THE REASONS MENTIONED IN THE ORDER. FOR THE SAME REASO NS GROUND NOS. 2 AND 3 OF THE CROSS OBJECTION ARE DISMISSED. 23. IN GROUND NO. 4 OF THE CROSS OBJECTION THE ASSE SSEE HAS STATED THAT THE DEPARTMENTAL APPEAL IS BAD IN LAW STATING THAT THERE IS NO PROVI SION OF LAW TO WAIT FOR FINALIZATION OF THE QUANTUM APPEAL BEFORE LEVYING PENALTY. IN REVENUES APPEAL WE HAVE HELD THAT THE ORDER OF THE LD. CIT (APPEALS) IS CONTRARY TO THE PROVISIONS OF SECTION 221(2) OF THE ACT AND HAVE REVERSED THE FINDINGS OF THE LD. CIT (APPEALS) ON THIS ISSUE. F OR THE SAME REASONS THIS GROUND OF CROSS OBJECTION IS DISMISSED. 24. GROUND NO. 5 OF THE CROSS OBJECTION RELATES TO THE ISSUE THAT DEMAND NOTICE UNDER SECTION 156 FOR OUTSTANDING DEMAND OF RS.2 58 85 684/- WAS NOT SERVED ON THE ASSESSEE AND THEREFORE THE ASSESSEE CANNOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT AND CONSEQUENTLY PENALTY UNDER SECTION 221(1) OF THE ACT CANNOT BE IMPOSED. IN RE VENUES APPEAL WHILE DECIDING THE ISSUE RELATING TO NOTICE OF DEMAND UNDER SECTION 156 WE H AVE DELIBERATED THE ISSUE IN DETAIL AND HAVE COME TO THE CONCLUSION THAT THE ASSESSEE WAS DEEMED TO BE IN DEFAULT IN RESPECT OF TAX DEDUCTED AT SOURCE BY OPERATION OF LAW AS PROVIDED IN SECTION 2 00 OF THE INCOME TAX ACT AND NOT IN CONSEQUENCE OF AN ORDER PASSED BY THE ASSESSING OFF ICER FOR WHICH DEMAND NOTICE UNDER SECTION 156 WAS TO BE ISSUED. HENCE THE NOTICE OF DEMAND UN DER SECTION 156 WAS NOT REQUIRED TO BE ISSUED. THEREFORE GROUND NO. 5 OF THE CROSS OBJEC TION DESERVES TO BE REJECTED. 17 I TA. NOS. 3413 & 3412 (DEL) OF 2011 A N D C. O. NO. 301 (DEL) OF 2011. 25. GROUND NOS. 1 6 AND 7 IN THE CROSS OBJECTION A RE GENERAL IN NATURE AND REQUIRE NO DISCUSSION. 26. IN THE RESULT THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 27. IN NUT SHELL BOTH THE APPEALS FILED BY THE REV ENUE ARE ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 16 TH SEPTEMBER 2011. SD/- SD/- [ R. P. TOLANI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 TH SEPTEMBER 2011. * MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANTS. 2. RESPONDENTS. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT.