Dy.CIT, Circle-3(3), Hyderabad V. M/s Vensar Construction Company Limited, Hyderabad

ITA 622/HYD/2013

• Counselvise Citation: 62222514 RSA 2013
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 30-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K HARITA
• Assessee Lawyers: P PRASAD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.622/HYD/2013 ASSESSMENT YEAR 2010-2011 THE DCIT, CIRCLE 3(3) HYDERABAD VS. M/S. VENSAR CONSTRUCTION CO. LTD. HYDERABAD 500 034. PAN AAACV 8199G (APPELLANT) (RESPONDENT) FOR REVENUE : MS. K. HARITA FOR ASSESSEE : MR. P. PRASAD DATE OF HEARING : 06.03.2014 DATE OF PRONOUNCEMENT : 21.03.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL IS FILED BY REVENUE AGAINST THE ORDER OF THE CIT(A)-IV, HYDERABAD DATED 13.02.2013 FOR THE A .Y. 2010- 2011 DELETING THE PENALTY LEVIED BY THE ASSESSING O FFICER TO THE TUNE OF RS.42,97,929/- BY ORDER DATED 03.03.2011 UN DER SECTION 221(1) OF THE I.T. ACT, 1961 . 2. BRIEFLY STATED, ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOME FOR A.Y. 2010-2011 ON 08.10.2010 DECLARING TOTAL INCOME OF RS.11,83,89,693/-. THE ASSESSEE HAD COMPUTED ITS TAX LIABILITY THEREIN AT RS.4,02,40,657/- OUT O F WHICH TAX DEDUCTED AT SOURCE HAS AMOUNTED TO RS.2,30,48,941/- . THE ASSESSEE HAS NOT DEPOSITED THE BALANCE OF TAX WITHI N THE DUE DATE FOR FILING RETURN OF INCOME STATED TO BE ON TH E REASON OF NON RECEIPT OF FUNDS FROM CONTRACT WORKS OF STATE G OVERNMENT. IN REPLY TO THE NOTICES ISSUED UNDER SECTION 221, A SSESSEE 2 ITA.NO.622/HYD/2013 M/S. VENSAR CONSTRUCTION CO. LTD. HYD STATED THAT THE COMPANY WAS EXPECTING FUNDS FROM ST ATE GOVERNMENT BY 15.03.2011 AND SHALL PAY ARREARS OF T AX IMMEDIATELY AND REQUESTED NOT TO LEVY PENALTY, AS T HERE IS NO WILLFUL NEGLIGENCE ON THE PART OF ASSESSEE TO AVOID PAYMENT OF TAX. SELF-ASSESSMENT TAX OF RS.1,71,91,716/- WAS PA ID ON 08.03.2011, BEFORE PASSING PENALTY ORDER UNDER SECT ION 221(1) OF THE I.T. ACT. AO LEVIED PENALTY WHICH WAS DELETE D BY CIT(A) ON THE REASON THAT ASSESSEE WAS HAVING GENUINE REAS ONS TO DEFER PAYMENT OF TAX. THE ORDER OF LD. CIT(A) IS AS UNDER : 5.1 I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE AR. A PERUSAL OF THE CASH FLOW S UBMITTED BY THE AR SHOWS THAT THE APPELLANT DID INDEED HAVE A C ASH CRUNCH. THOUGH THE APPELLANT HAD AN OVERDRAFT FACIL ITY FROM THE BANKS, THESE HAD BEEN FULLY DRAWN AND IT WAS NOT PO SSIBLE FOR THE APPELLANT TO PAY TAXES FROM THE OVERDRAFT SOURC ES. THE AR HAS ALSO SUBMITTED THAT THE OVERDRAFT FACILITY HAD BEEN FULLY UTILISED IN THE WORKING CAPITAL REQUIREMENTS SINCE A DEFAULT IN THE EXECUTION OF WORKS WOULD HAVE LED TO PENALISATI ON BY THE STATE GOVERNMENTS WHO HAD AWARDED THE CONTRACTS. I AM, THEREFORE, CONVINCED THAT THE APPELLANT HAD GENUINE FINANCIAL DIFFICULTIES WHICH PREVENTED IT FROM PAYING THE ADM ITTED TAX, WHETHER AS ADVANCE TAX OR AS SELF- ASSESSMENT TAX. 5.2. IN THE CASE OF CIT V DADU WALA AND CO. [1988] 170 ITR 491{RAJ), IT WAS HELD AS FOLLOWS WITH REGARD TO LEVY OF PENALTY U/S 221: 'THE IMPOSITION OF PENALTY PROVIDED FOR THEREIN IS WITHIN THE DISCRETION OF THE INCOME-TAX OFFICER WHEN THE ASSES SEE IS IN DEFAULT IN MAKING PAYMENT OF INCOME-TAX. HOWEVER, T HE EXERCISE OF DISCRETION IS NOT TO BE ARBITRARY BUT I S DEPENDENT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS E QUALLY CLEAR THAT PENALTY IS NOT AUTOMATICALLY ATTRACTED I N CASE OF DEFAULT IN PAYMENT OF INCOME-TAX AND THE SAME HAS T O BE IMPOSED IF THE FACTS AND CIRCUMSTANCES ON WHICH THE DISCRETION IS TO BE EXERCISED JUSTIFY IMPOSITION OF PENALTY. ' 5.3 IN THE CASE OF BHIKAJI RAMCHANDRA, THE COURT H ELD THAT THE FINDING BY THE ITAT THAT THE ASSESSEE HAD BEEN PREVENTED FROM PAYING THE ADVANCE TAX DUE TO FINANCIAL INABIL ITY WAS REALLY A FINDING THAT THERE WAS GOOD AND SUFFICIENT CAUSE FOR NOT PAYING THE TAX. 3 ITA.NO.622/HYD/2013 M/S. VENSAR CONSTRUCTION CO. LTD. HYD 5.4 SIMILARLY, IN THE CASE OF CHEMBARA PEAK ESTATE S P. LTD., THE ITAT HAD MADE A FINDING THAT THE ASSESSEE WAS IN A TIGHT FINANCIAL POSITION. THE HIGH COURT UPHELD THE CANCELLATION OF PENALTY U/S 221 IN THE CASE. 5.5 THE CIRCUMSTANCES ARE SIMILAR IN THE APPELLANT 'S CASE. THE APPELLANT HAS ESTABLISHED THAT IT WAS FACED WIT H A SEVERE FUNDS CRUNCH DUE TO DELAY IN RECEIPT OF PAYMENTS FR OM THE GOVERNMENT FOR THE WORKS EXECUTED BY IT AND THAT IT S OVERDRAFT FACILITY WAS ENTIRELY USED IN ITS WORKING CAPITAL R EQUIREMENT. UNDER THE CIRCUMSTANCES, THE LEVY OF PENALTY WAS NOT JUSTIFIED AND IS DIRECTED TO BE CANCELLED. THE APPE AL IS ALLOWED. 3. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. THE LEARNED D.R. CONTENDED THAT ASSESSEE FILED RETURN OF INCOME WITHOUT MAKING PAYMENT OF SELF ASS ESSMENT TAX. FURTHER, THE TAX LIABILITY IN QUESTION WAS ADM ITTED BY THE ASSESSEE COMPANY AND IT WAS NEITHER THE RESULT OF A N ASSESSMENT NOR IT WAS DISPUTED. FURTHER, THE ASSESS EE DID NOT MAKE PAYMENT OF ADVANCE TAX IN ANY OF THE FOUR QUAR TERS AND FILED THE RETURN OF INCOME WITHOUT MAKING PAYMENT O F SELF ASSESSMENT TAX OF RS.1,71,91,716/-. THEREFORE, THE ORDER PASSED BY THE A.O. LEVYING PENALTY UNDER SECTION 22 1(1) TO THE TUNE OF RS.42,97,929/- WAS CORRECT, AS THE ASSESSEE WILLFULLY DEFAULTED IN MAKING PAYMENT OF TAXES WITHIN THE MEA NING OF THE PROVISIONS OF SUB SECTION (1) OF SECTION 221 OF THE I.T. ACT, 1961. 5. THE LD. COUNSEL REITERATED THE CONTENTIONS RAIS ED BEFORE THE CIT(A) AND RELIED ON THE ORDER OF THE CI T(A). LD. COUNSEL SUBMITTED THAT SINCE THE ASSESSEE COMPANY H AS TO RECEIVE FUNDS FROM THE STATE GOVERNMENT FOR THE CIV IL CONSTRUCTION WORKS AND THAT THERE WAS SUBSTANTIAL D ELAY IN RELEASE OF FUNDS THERE FROM, THE ASSESSEE COMPANY W AS UNABLE 4 ITA.NO.622/HYD/2013 M/S. VENSAR CONSTRUCTION CO. LTD. HYD TO PAY THE ADVANCE TAX OR SELF ASSESSMENT TAX. ASSE SSEE COMPANY HAD ALSO USED ITS BANK LIMITS FULLY TO MEET ITS WORKING CAPITAL REQUIREMENTS AND THESE LIMITS HAD G OT EXHAUSTED FULLY. IN SUPPORT OF ITS CONTENTION, THE LD. COUNSEL DRAWN OUR ATTENTION OF THE CASH FLOW STATEMENT FOR THE PERIOD 1.6.2010 TO 31.12.2010 TO SUBSTANTIATE THAT THERE W AS A GENUINE CASH CRUNCH DURING THIS PERIOD WHICH LED TO THE DEFAULT IN PAYMENT OF TAXES AND THEREFORE, SUBMITTE D THAT THE ORDER PASSED BY THE LD. CIT(A) IS AS PER LAW AND IN LINE WITH VARIOUS JUDICIAL PRECEDENTS. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AT OUR INSTANCE THE A.R. HAS FILED THE DETAILS OF THE WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A)-IV, INDICATING THE FINANCIAL POSITION AND CASE LAW RELIED UPON BY IT. WE DO FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE, AS SUBMITTED BEFORE TH E CIT(A). SINCE THERE IS A PROBLEM OF LIQUIDITY DURING THE RE LEVANT PERIOD, THERE SEEMS TO BE GENUINE REASON FOR NOT PAYING SEL F ASSESSMENT TAX BY THE ASSESSEE. IT WAS ALSO INFORME D THAT ASSESSEE HAS NEVER DEFAULTED EITHER IN THE EARLIER YEAR OR IN THE LATER YEAR. CONSIDERING THESE FACTS, WE UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE REVENUE GROUNDS. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.03.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATED 21 ST MARCH, 2014 VBP/- 5 ITA.NO.622/HYD/2013 M/S. VENSAR CONSTRUCTION CO. LTD. HYD COPY TO : 1. THE DCIT, CIRCLE 3(3), 7 TH FLOOR, B BLOCK, I.T. TOWERS, AC GUARDS, HYDERABAD. 2. M/S. VENSAR CONSTRUCTION CO. LTD., PLOT NO.28, 1 ST FLOOR, NAVODAYA COLONY, ROAD NO.2, BANJARA HILLS, HYDERABAD 500 034. 3. CIT(A)-IV, HYDERABAD 4. CIT-III, HYDERABAD 5. D.R. ITAT, A BENCH, HYDERABAD.