LOK HOUSING AND CONSTRUCTIONS LTD, MUMBAI V. ITO 8(2)(2), MUMBAI

ITA 6704/MUM/2011

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8928 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-10-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Initiation of penalty proceedings; Corroborative evidences
• Section: 234B; 115JB; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO .6704 /MUM. /2011/2011 ( ASSESSMENT YEAR : 2009 10 ) LOK HOUSING AND CONSTRUCTIONS LTD. LOK BHAVAN, LOK BHARATI COMPLEX MAROL MAROSHI ROAD ANDHERI (E), MUMBAI 400 059 PAN AAACL1881B . APPELLANT V/S INCOME TAX OFFICER WARD 8(2)(2), MUMBAI . RESPONDENT ASSESSE E BY : SHRI DEEPAK TRALSH A WALA REVENUE BY : SHR I RAJESH KUMAR YADAV DATE OF HEARING 09.10.2017 DATE OF ORDER 03.11.2017 O R D E R PER SAKTIJIT DEY, J.M. CAPTIONED APPEAL AT THE INSTANCE OF THE ASSESSEE IS AGAINST THE ORDER DATED 12 TH JULY 2011, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 17, MUMBAI, SUSTAINING PENALTY IMPOSED UNDER SECTION 221(1) OF THE INCOME - TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR AN AMOUNT OF ` 23,82,515, FOR THE ASSESSMENT YEAR 2009 10. 2 . BRIEF FACTS ARE, THE ASSESSEE A COMPANY FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR O N 25 TH SEPTEMBER 2009, DECLARING 2 LOK HOUSING AND CONSTRUCTIONS LTD. NIL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. HOWEVER, THE ASSESSEE COMPUTED TAX LIABILITY AT ` 26,45,782 ON THE BOOK PROFIT DECLARED UNDE R SECTION 115JB OF THE ACT. WHILE VERIFYING THE RETURN OF INCOME FILED BY THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT PAID THE SELF ASSESSMENT TAX LIABILITY OF ` 26,45,782 AS PER ITS OWN COMPUTATION. HE FURTHER OBSERVED, THOUGH, THE SAID TAX LIABILITY WAS REQUIRED TO BE DISCHARGED BEFORE FILING OF RETURN OF INCOME , THE ASSESSEE HAS NOT DONE SO. ACCORDINGLY, THE ASSESSING OFFICER VIDE LETTER DATED 12 TH JANUARY 2010, CALLED UPON THE ASSESSEE TO EXPLAIN THE REASON FOR NON PAYMENT OF SEL F ASSESSMENT TAX AND ALSO TO EXPLAIN WHY PENALTY UNDER SECTION 221(1) OF THE ACT SHOULD NOT BE LEVIED FOR SUCH DEFAULT IN PAYING SELF ASSESSMENT TAX. IN RESPONSE TO THE LETTER ISSUED BY THE ASSESSING OFFICER , THE ASSESSEE VIDE LETTER DATED 21 ST JANUARY 201 0, STATED THAT SELF ASSESSMENT TAX COULD NOT BE PAID BECAUSE OF NON AVAILAB ILITY OF FUNDS . T HE ASSESSING OFFICER REJECTED THE AFORESAID EXPLANATION OF THE ASSESSEE IN THE ABSENCE OF SUPPORTING AND CORROBORATIVE EVIDENCES. HE ALSO OBSERVED, THE ASSESSEE HAS NOT SATISFIED THE NATURE OF FINANCIAL DIFFICULTIES WHICH PREVENTED HIM FROM DISCHARGING THE TAX LIABILITY. ACCORDINGLY, HE PASSED AN ORDER ON 5 TH MARCH 2010, IMPOSING PENALTY OF ` 26,45,782, BEING 100% OF THE TAX LIABILITY. THE ASSESSEE CHALLENGED THE IMP OSITION OF PENALTY BY FILING AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3 LOK HOUSING AND CONSTRUCTIONS LTD. 3 . THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT THE ASSESSEE HAVING FAILED TO SATISFACTORILY EXPLAIN THE FINANCIAL HARDSHIP PREVENTING IT FROM PAYING THE SELF ASSESSMENT TAX THERE IS NO SUFFICIENT CAUSE FOR COMMITTING THE DEFAULT. ACCORDINGLY, HE HELD THAT IMPOSITION OF PENALTY UNDER SECTION 221 (1) OF THE ACT IS VALID. HOWEVER, HE HELD THAT SUCH PENALTY CAN BE LEVIED ONLY ON TH E TAX COMPONENT AND NOT THE INTEREST CHARGED UNDER SECTION 234B AND 234C OF THE ACT. ACCORDINGLY, HE REDUCED THE QUANTUM OF PENALTY TO ` 23,82,515. 4 . LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, THE PENALTY IMPOSED BEING IN VIOLATION OF THE STATUTORY PROVI SION, PENALTY ORDER HAS TO BE QUASHED. REFERRING TO THE PENALTY ORDER PASSED UNDER SECTION 221(1) OF THE ACT, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, THE ASSESSING OFFICER HAS NOT MENTIONED OR DISCUSSED ANYTHING ABOUT THE STARTING POINT OF THE PEN ALTY. HE SUBMITTED, WHILE INITIATING PROCEEDINGS UNDER SECTION 221 OF THE ACT, THE ASSESSING OFFICER IS REQUIRED TO STATE THE STARTING POINT OF THE DEFAULT WHICH FORM S THE BASIS FOR IMPOSITION OF PENALTY. THE NEXT CONTENTION OF THE LEARNED AUTHORISED REPRE SENTATIVE IS , THE ASSESSING OFFICER HAS IMPOSED PENALTY UNDER SECTION 221 (1) OF THE ACT BOTH ON THE TAX AS WELL AS INTEREST WHEREAS AS PER THE PROVISIONS OF SECTION 221 (1) OF THE ACT, 4 LOK HOUSING AND CONSTRUCTIONS LTD. PENALTY HAS TO BE LEVIED ONLY ON THE TAX COMPONENT. THEREFORE, HE SUBMIT TED, THE QUANTUM OF PENALTY IMPOSED BY THE ASSESSING OFFICER BEING MORE THAN THE AMOUNT PRESCRIBED UNDER THE STATUTE , PENALTY ORDER PASSED IS INVALID. IN SUPPORT OF SUCH CONTENTION S , THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE DECISION OF HON'BLE GUWAHATI HIGH COURT IN CIT V/S GOLAPRAI HOONLAL & CO., 110 ITR 896. FURTHER, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, THE ASSESSING OFFICER HAS FAILED TO PROVE THAT THERE WAS A DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE IN NOT PAYING THE SELF ASSESSMENT TAX. LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, IN CASE OF ONE OF THE GROUP CONCERN UNDER IDENTICAL FACTS AND CIRCUMSTANCES, THE TRIBUNAL HAS DELETED THE PENALTY IMPOSED UNDER SECTION 221 (1) OF THE ACT. IN THIS CONTEXT, HE RELIED UPON THE DECI SION OF THE TRIBUNAL, MUMBAI BENCH, IN SEAGREEN MARKETING PVT. LTD. V/S ITO, ITA NO.850 AND 863/MUM./2010 DATED 30 TH NOVEMBER 2010. HE SUBMITTED, IN CASE OF OTHER GROUP CONCERN S ALSO, THE TRIBUNAL HAS REDUCED THE QUANTUM OF PENALTY UNDER SECTION 221 (1) OF THE ACT IN THE RANGE OF 2.5% TO 5% OF THE DEFAULTED TAX LIABILITY. THUS, HE MADE A WITHOUT PREJUDICE SUBMISSION THAT PENALTY UNDER SECTION 221(1) OF THE ACT MAY BE REDUCED TO 1% OF THE UNPAID TAX LIABILITY. 5 . LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE FINDING OF THE LEARNED COMMISSIONER (APPEALS). 5 LOK HOUSING AND CONSTRUCTIONS LTD. 6 . WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD IN THE LIGHT OF THE DECISIONS RELIED UPON. UNDISPUTEDLY, THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSM ENT YEAR ON 25 TH SEPTEMBER 2009, WITHOUT DISCHARGING THE TAX AND INTEREST LIABILITY OF ` 26,45,782, AS COMPUTED UNDER SECTION 140 A(3) OF THE ACT. THE ASSESSING OFFICER WHILE VERIFYING THE RETURN OF INCOME HAVING NOTICED THE AFORESAID FACT H AS CONFRONTED TH E SAME TO THE ASSESSEE AND ASKED HIM TO EXPLAIN WHY PENALTY UNDER SECTION 221(1) OF THE ACT LEVIED FOR DEFAULT IN DISCHARGING THE SELF ASSESSMENT TAX LIABILITY. IN THE PENALTY ORDER PASSED UNDER SECTION 221(1) OF THE ACT, THE ASSESSING OFFICER HAS CLEARLY STATED THE FACTS RELATING TO THE DE FAULT COMMITTED BY THE ASSESSEE. THUS, THE STARTING POINT OF INITIATION OF PENALTY PROCEEDINGS IS THE FILING OF RETURN OF INCOME BY THE ASSESSEE WITHOUT DISCHARGING THE SELF ASSESSMENT TAX LIABILITY COMPUTED UNDER SECTION 140A(3) OF THE ACT. THEREFORE, THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ASSESSING OFFICER HAS NOT MENTIONED THE STARTING POINT OF THE PENALTY PROCEEDING IS DEVOID OF MERIT, HENCE, REJECTED. AS FAR AS THE OTHER CONTENTION OF THE LEA RNED AUTHORISED REPRESENTATIVE THAT THE PENALTY ORDER IS INVALID SINCE , THE QUANTUM OF PENALTY IMPOSED BY THE ASSESSING OFFICER IS MORE THAN THE AMOUNT PRESCRIBED UNDER SECTION 221 (1) OF THE ACT. A PLAIN READING OF SECTION 221 (1) OF THE ACT WOULD REVEAL TH AT THE 6 LOK HOUSING AND CONSTRUCTIONS LTD. ASSESSING OFFICER IF IS OF THE VIEW THAT THE ASSESSEE HAS DEFAULTED IN MAKING PAYMENT OF HIS ADMITTED TAX LIABILITY HE MAY DIRECT THE ASSESSEE TO PAY PENALTY UNDER SECTION 221(1) OF THE ACT AN AMOUNT WHICH IN NO CASE WILL EXCEED THE AMOUNT OF TAX IN ARREAR. IT IS THE CONTENTION OF THE ASSESSEE THAT THE TAX IN ARREAR AS MENTIONED IN SECTION 221 (1) OF THE ACT MEANS THE TAX COMPONENT ALONE AND NOT THE INTEREST. W HILE IMPOSING PENALTY UNDER SECTION 221 (1) OF THE ACT, THE ASSESSING OFFICER HAS ALSO INCLUD ED THE INTEREST COMPONENT , THEREBY , EXCEED ING THE UPPER LIMIT PRESCRIBE D UNDER SECTION 221 (1) OF THE ACT. IN OUR VIEW, THE MISTAKE COMMITTE D BY THE ASSESSING OFFICER IS NOT THAT FATAL SO AS TO INVALID ATE THE PENALTY PROCEEDING. IT IS QUITE POSSIBLE , THE ASSESSING OFFICER HAS QUANTIFIED THE PENALTY BEING OF THE VIEW THAT THE TAX IN ARREAR WOULD ALSO INCLUDE THE INTEREST COMPONENT. BE THAT AS IT MAY, THE LEARNED COMMISSIONER (APPEALS) HAS REDUCED THE PENALTY IMPOSED BY THE ASSESSING OFFICER TO THE TAX COMPO NENT ONLY. THEREFORE, IN OUR VIEW, FOR THIS REASON ALONE, THE PENALTY ORDER PASSED UNDER SECTION 221 (1) OF THE ACT CANNOT BE QUASHED. AT THIS STAGE, WE MAY REFER TO THE DECISION IN GOLAPRAI HOONLAL & CO. (SUPRA) RELIED UPON BY THE LEARNED AUTHORISED REPRES ENTATIVE. THE SAID CASE DEALT WITH THE ISSUE OF PENALTY UNDER SECTION 271(1)(A) OF THE ACT. IN THE FACTS OF THE SAID CASE, THERE WAS A FUNDAMENTAL ISSUE RELATING TO STARTING POINT OF THE DEFAULT WHETHER SHOULD BE RECKONED FROM THE DUE 7 LOK HOUSING AND CONSTRUCTIONS LTD. DATE OF RETURN UNDER SECTION 139 (1) OF THE ACT OR THE DATE OF SERVICE OF NOTICE UNDER SECTION 139 OF THE ACT . SINCE , THE ASSESSING OFFICER HAD NOT SPECIFIED THE STARTING POINT OF DEFAULT WITH REFERENCE TO THE AFORESAID TWO DATES, THE COURT HELD THAT IMPOSITION OF PENALTY IS IN VALID. AS FAR AS THE SECOND ISSUE RELATING TO QUANTUM OF PENALTY NOT BEING IN COMPLIANCE TO THE STATUTORY PROVISIONS , IN THE CASE BEFORE THE HON'BLE GAUWAHATI HIGH COURT THERE WAS DIFFERENCE BETWEEN THE COMPUTATION OF PENALTY BY THE ASSESSING OFFICER AND THE COMPUTATION SUBMITTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. AS PER COMPUTATION OF THE ASSESSING OFFICER THE PENALTY WAS LEVIED FOR 18 MONTHS @ 2% OF THE TAX FOR EACH MONTH DURING WHICH THE DEFAULT CONTINUED , WHEREAS , AS PER THE COMPUTATION OF LEA RNED DEPARTMENTAL REPRESENTATIVE, THE PENALTY WAS COMPUTED FOR A PERIOD OF 14 MONTHS WHICH WAS LESSER THAN THE PENALTY COMPUTED BY THE ASSESSING OFFICER. IN THE AFORESAID FACTUAL CONTEXT THE COURT HELD THAT PENALTY IMPOSED AT LESSER THAN THE AMOUNT PRESCRI BED IN THE STATUTORY PROVISION IS INVALID. HOWEVER, NO SUCH FACTS EITHER RELATING TO STARTING POINT OF PENALTY PROCEEDING OR THE QUANTUM OF PENALTY ARE INV OLVED IN THE APPEAL BEFORE US. AS DISCUSSED EARLIER, THE ASSESSING OFFICER HAS CATEGORICALLY MENTIONE D THE STARTING POINT OF THE PENALTY PROCEEDING AS THE DATE OF FILING OF RETURN OF INCOME WITHOUT DISCHARGING THE TAX LIABILITY. EVEN , AS FAR AS THE QUANTIFICATION OF PENALTY IS CONCERNED, WE FIND THE FACTS IN 8 LOK HOUSING AND CONSTRUCTIONS LTD. THE INSTANT CASE ARE TOTALLY DIFFERENT FROM THE FACTS INVOLVED IN THE DECISION OF HON'BLE GAUWAHATI HIGH COURT IN GOLAPRAI HOONLAL & CO. (SUPRA). THEREFORE, THE RATIO LAID DOWN IN THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 7 . FURTHER, THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT PROVED ANY DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE IN COMMITTING THE DEFAULT. IN OUR VIEW, THE STATUTORY PROVISION DOES NOT REQUIRE THE ASSESSING OFFICER TO PROVE SO. IT ONLY MANDATES THAT IF THE ASSESSEE PROVES TO THE SATISFACTION OF THE ASSESSING OFFICER TH AT THE DEFAULT WAS FOR GOOD AND SUFFICIENT REASONS, NO PENALTY SHALL BE LEVIED. IN THE FACTS OF THE PRESENT CASE, THE ASSESSING OFFICER HAVING NOT FOU ND ANY SUFFICIENT REASON MADE OUT BY THE ASSESSEE HAS LEVIED PENALTY. AFTER EXAMINING THE FACTS ON RECORD, WE ARE ALSO CONVINCED THAT THE ASSESSEE HAS FAILED TO FULLY ESTABLISH THE FACT THAT IT DID NOT HAD SUFFICIENT FUNDS TO DISCHARGE THE AUDITED TAX LIAB ILITY. THAT BEING THE CASE, THE ASSESSEE WAS LIABLE TO BE VISITED WITH PENALTY UNDER SECTION 221(1) OF THE ACT. 8 . HAVING HELD SO, IT IS NOW NECESSARY TO EXAMINE WHAT SHOULD BE THE REASONABLE AMOUNT OF PENALTY IMPOSABLE ON THE ASSESSEE KEEPING IN VIEW THE FACTS OF THE PRESENT CASE. A READING OF SECTION 221(1) OF THE ACT SUGGESTS THAT A DISCRETION HAS BEEN VESTED WITH T HE ASSESSING 9 LOK HOUSING AND CONSTRUCTIONS LTD. OFFICER TO IMPOSE PENALTY OF AN AMOUNT NOT EXCEEDING THE TAX IN ARREAR. THUS, THOUGH, AN UPPER LIMIT HAS BEEN FIXED AS FAR AS THE QUANTUM OF PENALTY IS CONCERNED, THERE IS NO LOWER LIMIT. THEREFORE, IMPOSITION OF PENALTY AT THE MAXIMUM RATE IS NOT AUTOMATIC. THE ASSESSING OFFICER HAS TO FIX THE QUANTUM OF PENALTY JUDICIOUSLY AND NOT ARBITRARILY. NOTABLY, IN CASE OF SOME OF THE GROUP CONCERN S UNDER IDENTICAL FACTS AND CIRCUMSTANCES, THE TRIBUNAL HAS UPHELD IMPOSITION OF PENALTY UNDER SECTION 221 (1) OF THE ACT RANGING BETWEEN 2.5% TO 5% OF THE DEFAULTED TAX LIABILITY. IN THIS CONTEXT, WE MAY REFER TO THE FOLLOWING ORDERS. I ) SEAGREEN MARKETING PVT. LTD., ITA NO.3785/MUM./2011, DATED 11.07.2012; II ) ORYX FINANCE AND INVESTMENT PVT. LTD., ITA NO.3815/MUM ./ 2011 DATED 28.03.2012 III ) MIDAS FOOT WARES PVT. LTD., ITA NO.5789/MUM./2009, DATED 19.11.2010; AND IV ) OZON FINANCE AND INVESTMENT PVT. LTD., ITA NO.5790/MUM./ 2009, DATED 09.09.2010. 9 . KEEPING IN VIEW THE AFORESAID DECISIONS OF THE CO ORDINATE BENCH, WE ARE O F THE CONSIDERED OPINION THAT IN THE FACTS OF THE PRESENT CASE, PENALTY UNDER SECTION 22 1 (1) OF THE ACT, SHOULD BE IMPOSED @ 5% OF THE DEFAULTED TAX LIABILITY OF ` 23,82,515. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE PENALTY UNDER SECTION 221(1) OF T HE ACT ACCORDINGLY. 10 LOK HOUSING AND CONSTRUCTIONS LTD. 10 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.11.2017 SD/ - G.S. PANNU ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 03.11.2017 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI .