Dy. CIT, Circler-3(3), Hyderabad V. M/s. Vivimed Labs Ltd., Hyderabad

ITA 121/HYD/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6555 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 29-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R RAMESH
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Reasonable cause
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.121/HYD/2014 ASSESSMENT YEAR 2010-2011 THE DCIT, CIRCLE - 3(3), HYDERABAD. VS. M/S. VIVIMED LABS LTD., HYDERABAD 500 081. PAN AAACV6060A (APPELLANT) (RESPONDENT) ITA.NO.224/HYD/2014 ASSESSMENT YEAR 2010-2011 M/S. VIVIMED LABS LTD., HYDERABAD 500 081. PAN AAACV6060A VS. THE DCIT, CIRCLE - 3(3), HYDERABAD. (APPELLANT) (RESPONDENT) FOR REVENUE : MR. B.R. RAMESH FOR ASSESSEE : MR. P. MURALIMOHAN RAO DATE OF HEARING : 12.04.2016 DATE OF PRONOUNCEMENT : 13 .0 5 .2016 ORDER PER SMT. P. MADHAVI DEVI, J.M. BOTH ARE CROSS-APPEALS FOR THE A.Y. 2010-2011. THESE APPEALS ARE FILED AGAINST THE ORDER OF THE CI T(A)-IV, HYDERABAD DATED 29.11.2013. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE A.Y. 201 0-2011 ON 24.09.2010 DECLARING TOTAL INCOME OF RS.10,30,93 ,600 2 ITA.NOS.121 & 224/HYD/2014 M/S. VIVIMED LABS LTD., HYDERABAD. AND INCOME UNDER SECTION 115JB OF THE ACT OF RS.22,12,40,000. THE TAX LIABILITY AS PER THE ASSES SEES OWN COMPUTATION IS RS.3,75,99,758 AND AFTER CLAIMIN G CREDIT FOR TDS OF RS.23,12,552 AND ADVANCE TAX PAYM ENT OF RS.1,10,00,000, ASSESSEE DETERMINED ITS NET AGGR EGATE LIABILITY AT RS.2,42,87,176. THE A.O. OBSERVED THAT THE ASSESSEE HAS FILED THE RETURN OF INCOME WITHOUT MAK ING PAYMENT OF THE AFORESAID SELF DETERMINED TAXES. IN VIEW THEREOF, THE A.O. ISSUED NOTICE UNDER SECTION 221(1 ) OF THE I.T. ACT TO THE ASSESSEE ON 24.01.2011 TO SHOW CAUS E AS TO WHY THE PENALTY UNDER SECTION 221(1) SHOULD NOT BE IMPOSED IN ITS CASE FOR THE FAILURE TO PAY TAXES. I N RESPONSE TO THE SAID NOTICE, THE ASSESSEE NEITHER A PPEARED NOR SUBMITTED ANY REPLY. THEREAFTER, THE A.O. HELD THAT THE TAX LIABILITY IN QUESTION REPRESENTED THE LIABI LITY ADMITTED BY THE ASSESSEE ON ITS OWN AND IS NOT THE RESULT OF AN ASSESSMENT NOR IS IT DISPUTED. HE OBSERVED TH AT THE ASSESSEE COMPANY HAS MADE ONLY PART-PAYMENT OF ADVANCE TAX AND HAS FILED THE RETURN OF INCOME WITH OUT MAKING PAYMENT OF THE BALANCE SELF-ASSESSMENT TAX O F RS.2,42,87,176. IN VIEW OF THE SAME, HE HELD THAT T HE ASSESSEE HAS WILLFULLY DEFAULTED IN MAKING PAYMENT OF TAX WITHIN THE MEANING OF THE PROVISIONS OF SUB-SECTION (1) OF SECTION 221OF THE ACT. HE, THEREFORE, IMPOSED PENAL TY EQUIVALENT TO 25% OF THE AGGREGATE TAX LIABILITY I. E., RS.60,71,794 UNDER SECTION 221(1) OF THE ACT. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) STATING THAT THE ACTION UNDER SECTION 22 1 COULD 3 ITA.NOS.121 & 224/HYD/2014 M/S. VIVIMED LABS LTD., HYDERABAD. NOT BE TAKEN IN RESPECT OF THE AMOUNT DECLARED AS P AYABLE UNDER SECTION 140A AND THAT THE SELF-ASSESSMENT TAX PAYABLE DID NOT MATERIALISE TILL THE RETURN WAS PRO CESSED UNDER SECTION 143(1) AND THEREFORE, THE A.O. COULD NOT HAVE LEVIED THE PENALTY WITHOUT RAISING ANY DEMAND UNDER SECTION 156 OF THE ACT. THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSEE WAS FACING PAUCITY OF FUNDS AT THE TIM E OF FILING OF RETURN AS IS APPARENT FROM THE BALANCE SH EET AS ON 31.03.2010 WHICH SHOWED A CLOSING CASH BALANCE O F RS.80,000 ONLY. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE WAS A PUBLIC LIMITED COMPANY LISTED AT MAJ OR STOCK EXCHANGES IN INDIA AND HAS ALSO BEEN PROMPT I N PAYMENT OF TAXES OVER THE YEARS. IT WAS ALSO SUBMIT TED THAT THE ASSESSEE HAD SUBSEQUENTLY PAID BALANCE OF TAX AS A MATTER OF PRIORITY AS AND WHEN FUNDS BECAME AVAIL ABLE TO IT AND THAT THE ENTIRE SELF-ASSESSMENT TAX PAYAB LE HAD BEEN PAID BY 11.03.2011. THE ASSESSEE THUS, PRAYED THAT THE PENALTY BE LIFTED. THE CIT(A) AFTER CONSIDERING THE ASSESSEES CONTENTIONS, AT PARAS 5 TO 7 OF HER ORDE R, HAS HELD AS UNDER : 5. SEC.221 APPLIES TO ANY ASSESSEE WHO IS IN DEFAULT OR IS DEEMED TO BE IN DEFAULT IN MAKING A PAYMENT OF TAX. AN ASSESSEE IS DEEMED TO BE IN DEFAULT U/S 140A(3) IF HE FAILS TO PAY THE WHOLE OR ANY PART OF TAX OR INTEREST OR BOTH PAYABLE U/S 140A(1) . SEC.140A(3), DEEMING AN ASSESSEE TO BE IN DEFAULT I S SET IN MOTION THE MOMENT THERE IS A FAILURE TO PAY THE SELF-ASSESSMENT TAX U/S.140A(1). THE APPLICATION OF SEC.140A(3) IS, THEREFORE, NOT DEPENDENT ON THE PROCESSING OF THE RETURN OR THE ISSUE OF A DEMAND NOTICE U/S.156. 4 ITA.NOS.121 & 224/HYD/2014 M/S. VIVIMED LABS LTD., HYDERABAD. 6. THE APPELLANT HAS ADMITTEDLY NOT PAID THE SELF ASSESSMENT TAX OF RS.2,42,87,180 BEFORE FILING THE RETURN. THEREFORE, APPLYING THE PROVISIONS OF SEC.140A(3) IN THE APPELLANT'S CASE, IT IS DEEMED T O BE IN DEFAULT BY VIRTUE OF ITS FAILURE TO PAY THE SELF ASSESSMENT TAX AND THEREFORE, PENALTY U/S 221 WAS LEVIABLE ON IT. 7. HOWEVER, THE AR HAS ALSO POINTED TO THE VARIOUS EXTENUATING CIRCUMSTANCES OF PAUCITY OF FUN DS WHICH LED TO THE DEFAULT IN PAYMENT OF SELF- ASSESSMENT TAX. AT THE SAME TIME, THE AR HAS NOT FURNISHED ANY DETAILS OF THE FINANCIAL POSITION OF THE APPELLANT BETWEEN THE PERIOD 01.04.2010 TILL 24.09.2010 WHEN THE RETURN WAS FILED TO CONCLUSIVEL Y ESTABLISH ITS CASE. THEREFORE, WHILE THERE MAY BE SOME MERIT IN THE APPELLANT'S CLAIM THAT THERE WAS REASON FOR THE DEFAULT, THIS CLAIM HAS NOT BEEN CONCLUSIVELY ESTABLISHED. TAKING THE TOTALITY OF FA CTS INTO ACCOUNT, THE APPELLANT IS GRANTED PARTIAL RELI EF AND THE PENALTY IS RESTRICTED TO A SUM OF RS.15,00,000. 4. AGAINST THIS ORDER OF THE CIT(A), BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFOR E US. 5. THE LD. COUNSEL FOR THE ASSESSEE, REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW W HILE THE LD. D.R. RELIED UPON THE ORDER OF THE A.O. THE LD. COUNSEL ALSO PLACED RELIANCE UPON THE FOLLOWING DEC ISIONS IN SUPPORT OF HIS CONTENTIONS : 1. DCIT VS. SHEETAL REFINERIES LTD., (2014) 50 TAXMANN.COM 84 (HYD) (TRIBU.) 2. CIT VS. BHIKAJI RAMCHANDRA (1990) 183 ITR 478 (BOM.) 5 ITA.NOS.121 & 224/HYD/2014 M/S. VIVIMED LABS LTD., HYDERABAD. 3. CIT VS. JAIPUR ELECTRO P. LTD., (1980) 3 TAXMAN 375 (RAJ.) 4. CIT VS. CHEMBARA PEAK ESTATES LTD., (1989) 47 TAXMANN 166 (KER.) 5. ITO VS. DEVSONS (P) LTD., (2008) 113 TTJ 615 (DEL.) 6.1. IT IS THE CONTENTION OF THE LD. COUNSEL FOR T HE ASSESSEE THAT WHEN THE ASSESSMENT HAS NOT BEEN MADE UNDER SECTION 143(1) OR 143(3) OF THE I.T. ACT, THE ASSESSEE CANNOT BE HELD TO BE AN ASSESSEE-IN-DEFAULT OR D EEMED TO BE IN DEFAULT IN MAKING THE PAYMENT OF TAX AND THEREFORE, THE PROVISIONS OF SECTION 221(1) ARE NOT APPLICABLE. THE STAND OF THE REVENUE IS THAT THE AS SESSEE HAS BY ITSELF COMPUTED THE TAX PAYABLE BY IT BUT HA S FAILED TO MAKE THE PAYMENT AND THEREFORE, THERE WAS NO NECESSITY OF HOLDING THE ASSESSEE TO BE AN ASSESSE E-IN- DEFAULT BEFORE LEVYING THE PENALTY UNDER SECTION 2 21(1) OF THE I.T. ACT. 7. THE ALTERNATE CONTENTION OF THE ASSESSEE IS THA T SINCE THE ASSESSEE HAS MADE THE PAYMENT OF TAX BEFO RE THE A.O. PASSED THE ORDER OF PENALTY, THE PENALTY O UGHT NOT TO HAVE BEEN LEVIED. THE LD. COUNSEL FOR THE AS SESSEE HAS ALSO FILED BEFORE US A CHART SHOWING THE DATES ON WHICH PAYMENTS HAVE BEEN MADE AND ACCORDING TO HIM, THE TOTAL OF SELF-ASSESSMENT TAX PAID AS ON 24.02.2 011 WAS SUFFICIENT TO MEET THE TAX LIABILITY OF THE ASS ESSEE AND THE TAX PAID OF RS.50 LAKHS ON 11.03.2011 HAS ONLY RESULTED IN THE EXCESS AMOUNT PAID OF RS.44,13,738. IT 6 ITA.NOS.121 & 224/HYD/2014 M/S. VIVIMED LABS LTD., HYDERABAD. WAS THEREFORE SUBMITTED THAT THE ASSESSEE WAS NOT L IABLE FOR PENALTY UNDER SECTION 221(1) OF THE ACT. IN SUP PORT OF THIS CONTENTION, HE HAS PLACED RELIANCE UPON THE COORDINATE BENCH DECISION OF ITAT AT HYDERABAD IN T HE CASE OF CIT VS. SHEETAL REFINERIES LTD., (CITED SUP RA), WHEREIN IT WAS HELD THAT FOR BONAFIDE REASONS, IF T HE ASSESSEE COULD NOT DISCHARGE THE TAX LIABILITY BY T HE TIME OF FILING OF RETURN BUT HAS DISCHARGED THE ENTIRE A DMITTED TAX LIABILITY WITHIN A PERIOD OF 7 MONTHS THEREFROM , PENALTY UNDER SECTION 221(1) IS NOT ATTRACTED. THE LD. COUNSEL FURTHER SUBMITTED THAT IN THE CASE BEFORE U S ALSO, THE ASSESSEE HAD A REASONABLE CAUSE OF PAUCITY OF F UNDS FOR NOT MAKING THE PAYMENT OF TAX BEFORE THE DATE O F FILING OF THE RETURN AND HAS DISCHARGED THE ENTIRE TAX LIA BILITY WITHIN SIX MONTHS THEREFROM AND BEFORE THE DATE OF PASSING THE PENALTY ORDER AND HENCE, THE PENALTY IS NOT LEVIABLE. SIMILAR VIEWS HAVE BEEN EXPRESSED IN THE OTHER DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE AS SESSEE. 8. ON THE OTHER HAND, THE LD. D.R. RELIED ON THE ORDER OF THE A.O. 9. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT IT IS NOT IN DISPU TE THAT THE ASSESSEE HAS DEFAULTED IN PAYMENT OF SELF ASSES SMENT TAX BEFORE FILING OF ITS RETURN OF INCOME. THE PROV ISIONS OF SECTION 221(1) OF THE ACT ARE ATTRACTED WHERE ANY A SSESSEE DEFAULTS IN PAYMENT OF TAX. TAX INCLUDES ADVANCE TA X UNDER SECTION 210 OF THE ACT. THE FIRST PROVISO TO SECTION 7 ITA.NOS.121 & 224/HYD/2014 M/S. VIVIMED LABS LTD., HYDERABAD. 221(1) OF THE ACT REQUIRES A REASONABLE OPPORTUNITY TO BE GIVEN TO THE ASSESSEE OF BEING HEARD BEFORE IMPOSIN G ANY PENALTY WHILE THE SECOND PROVISO PROVIDES THAT WHER E THE A.O. IS SATISFIED THAT THE DEFAULT WAS FOR GOOD AND SUFFICIENT REASONS, NO PENALTY SHALL BE LEVIED. 9.1. THE MOOT QUESTION THAT ARISES BEFORE US IS, WHETHER ASSESSMENT HAS TO BE COMPLETED EITHER UNDER SECTION 143(1) OR UNDER SECTION 143(3) OF THE I.T. ACT, 1961 BEFORE HOLDING THE ASSESSEE TO BE AN ASSESSEE-IN-D EFAULT? 9.2. IN THIS CONTEXT, IT IS TO BE NOTICED THAT EVE RY ASSESSEE IS REQUIRED TO COMPUTE ITS TAXABLE INCOME AND PAY THE SELF ASSESSMENT TAX OR ADVANCE TAX AS SPECI FIED IN THE ACT. IN ADDITION TO THE ABOVE, THE REVENUE DEPA RTMENT IS ALSO EMPOWERED TO VERIFY THE COMPUTATION OF INCO ME MADE BY THE ASSESSEE AND COMPLETE THE ASSESSMENT BY BRINGING ALSO TO TAX SUCH INCOME OF THE ASSESSEE WH ICH IS TAXABLE UNDER THE ACT BUT HAS NOT BEEN OFFERED TO T AX BY THE ASSESSEE. THUS, IT CAN BE SEEN THAT THE ASSESSE ES TAX LIABILITY ARISES NOT ONLY WHEN THE ASSESSMENT ORDER IS PASSED BUT IT ARISES AS SOON AS THE ASSESSEE DETERM INES ITS TAX LIABILITY. BY SELF ASSESSMENT, THE ASSESSEE IS AWARE OF ITS TAX LIABILITY AND IS REQUIRED TO PAY THE TAX ACCORDINGLY VOLUNTARILY EVEN BEFORE A DEMAND UNDER SECTION 156 OF THE ACT IS RAISED. THEREFORE, WE ARE NOT IN AGREEMENT WITH THE CONTENTIONS OF THE ASSESSEE THAT THE PENALTY IS NOT ATTRACTED IN THE ASSESSEES CASE. HO WEVER, AS REGARDS THE APPLICABILITY OF THE SECOND PROVISO TO 8 ITA.NOS.121 & 224/HYD/2014 M/S. VIVIMED LABS LTD., HYDERABAD. SECTION 221(1) OF THE ACT, WE FIND THAT THE PENALTY IS NOT LEVIABLE IF THE ASSESSEE PROVES TO THE SATISFACTION OF THE A.O. THAT THE DEFAULT WAS FOR GOOD AND SUFFICIENT R EASONS. THE ASSESSEE HAS EXPLAINED THE REASON FOR DEFAULT A S THE PAUCITY OF FUNDS. THOUGH THE A.O. AND THE CIT(A) HA VE RECORDED THAT ASSESSEE HAS NOT FILED ANY DOCUMENTS TO SHOW THAT THE ASSESSEE WAS SUFFERING FROM PAUCITY O F FUNDS BEFORE THE DATE OF FILING OF THE RETURN, ASSE SSEE HAS FILED A PAPER BOOK BEFORE US CERTIFYING THAT ALL TH ESE DOCUMENTS WERE FILED BEFORE THE AUTHORITIES BELOW. FROM PAGES 18 TO 86 OF THE PAPER BOOK, WE FIND THAT THES E ARE THE COPIES OF BANK ACCOUNT OF THE ASSESSEE. IT IS N OTICED THAT THERE HAS BEEN A NEGATIVE BALANCE FOR A LONG P ERIOD I.E., FROM 03.04.2010 TO 30.09.2010. WHETHER THIS I S THE ONLY BANK A/C OF THE ASSESSEE IS NOT CLEAR. IN FACT , THE CIT(A) HAS IMPLIEDLY ACCEPTED THE ASSESSEES CONTEN TIONS OF PAUCITY OF FUNDS AS ONE OF THE REASON BY RESTRIC TING THE PENALTY TO RS.15 LAKHS. THE DECISIONS ON WHICH THE ASSESSEE HAS PLACED RELIANCE UPON, ALSO DELETED THE PENALTY UNDER SECTION 221(1) OF THE ACT BY ACCEPTIN G SIMILAR CONTENTIONS OF THE ASSESSEES THEREIN. THER EFORE, IN OUR OPINION, THE CIT(A), HAVING ACCEPTED THAT THE A SSESSEE HAD SUFFICIENT AND GOOD REASONS FOR THE DEFAULT IN PAYMENT OF TAX LIABILITY, OUGHT NOT TO HAVE CONFIRM ED THE PENALTY OF RS.15 LAKHS. HOWEVER, AS THE DOCUMENTS PRODUCED BY THE ASSESSEE IN PROOF OF THE PAUCITY OF FUNDS HAVE NOT BEEN VERIFIED BY ANY OF THE AUTHORITIES BE LOW, WE DEEM IT FIT AND PROPER TO REMIT THE VERIFICATION OF THE SAME TO THE FILE OF THE A.O. IT IS, HOWEVER, MADE CLEAR THAT IF THE 9 ITA.NOS.121 & 224/HYD/2014 M/S. VIVIMED LABS LTD., HYDERABAD. ASSESSEES CONTENTIONS OF PAUCITY OF FUNDS IS FOUND TO BE CORRECT, THEN THE PENALTY STANDS DELETED. OTHERWISE , THE ISSUE SHALL BE DISPOSED OF IN ACCORDANCE WITH LAW. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF T HE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.05.2016. SD/- SD/- (B. RAMAKOTAIAH) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 13 TH MAY, 2016 VBP/- COPY TO : 1. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(3), 7 TH FLOOR, B BLOCK, I.T. TOWERS, A.C. GUARDS, HYDERABAD. 2. M/S. VIVIMED LABS LTD., 2 ND FLOOR, VEERNAG TOWERS, HABSIGUDA, HYDERABAD. 3. CIT(A) - IV, HYDERABAD. 4. CIT - III, HYDERABAD. 5. D.R. ITAT B BENCH, HYDERABAD. 6. GUARD FILE