Sheetal Refineries Ltd., Hyderabad V. Asst.CIT,Circle 3(1), Hyderabad

ITA 691/HYD/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7638 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARUN KUMAR MALANI
• Keywords: Recovery proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICAL MEMBER ITA.NO.568/HYD/2014 ASSESSMENT YEAR 2010-2011 THE DCIT, CIRCLE 3(1) HYDERABAD. VS. M/S. SHEETAL REFINERIES LTD., GAGAN PAHAD, RANGA REDDY DIST. PAN AAECS-3658-M (APPELLANT) (RESPONDENT) ITA.NO.691/HYD/2014 ASSESSMENT YEAR 2010-2011 M/S. SHEETAL REFINERIES LTD., GAGAN PAHAD, RANGA REDDY DIST. PAN AAECS-3658-M VS. THE DCIT, CIRCLE 3(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR REVENUE : MR. SOLGY JOSE T KOTTARAM FOR ASSESSEE : MR. ARUN KUMAR MALANI DATE OF HEARING : 21.08.2014 DATE OF PRONOUNCEMENT : 03.09.2014 ORDER PER B. RAMAKOTAIAH, A.M. THESE ARE CROSS-APPEALS AGAINST THE ORDER OF THE CIT(A), GUNTUR DATED 31.12.2013, ON THE ISSUE OF LE VY OF PENALTY UNDER SECTION 221(1) OF THE I.T. ACT, 1961. 2 ITA.NO.568 & 691/HYD/2014 M/S. SHEETAL REFINERIES LTD., HYDERABAD 2. BRIEFLY STATED, ASSESSEE COMPANY FILED ITS RETU RN OF INCOME FOR A.Y. 2010-2011 ON 13.10.2010 DECLARING T OTAL INCOME OF RS.9,27,62,643 UNDER NORMAL PROVISIONS AND INCOM E AT RS.8,12,69,520 AS PER PROVISIONS OF SECTION 115JB. THE TAX LIABILITY AS PER THE ASSESSEES OWN COMPUTATION WAS RS.3,45,21,923 AFTER CLAIMING TDS OF RS.5,38,443 AN D ADVANCE TAX OF RS.20,00,000 AND THE BALANCE TAX PAYABLE WAS WOR KED OUT TO RS.3,19,89,480. ASSESSEE DID NOT PAY SELF-ASSESSMEN T TAX BUT FILED RETURN OF INCOME ON DUE DATE. SINCE THERE IS FAILUR E ON THE PART OF THE ASSESSEE TO PAY SELF-ASSESSMENT TAX, A.O. ISSUE D NOTICE UNDER SECTION 221(1) AND LEVIED PENALTY OF RS.79,97,970 B EING 25% OF THE TAX PAYABLE. 3. ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT N ON- PAYMENT OF SELF-ASSESSMENT TAX WAS BEYOND THE CONTR OL OF THE ASSESSEE AS THE AT THE RELEVANT POINT OF TIME ASSES SEES FACTORY WAS CLOSED BY A.P. POLLUTION CONTROL BOARD W.E.F. 11/20 09 AND THEREFORE, ASSESSEE HAD NO BUSINESS ACTIVITY AT A L ATER PART OF THE YEAR AS WELL AS TILL THE FILING OF THE RETURN. FURT HER, AS A RESULT OF ACTION BY THE POLLUTION CONTROL BOARD, NEW PLANT WA S BEING CONSTRUCTED AT DIFFERENT PLACE, ALSO TOOK AWAY MUCH PART OF LIQUID RESOURCES. IT WAS HOWEVER SUBMITTED THAT COMPANY WA S DECLARED SICK AND FILED REFERENCE UNDER SECTION 15(1) OF SIC K INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 BEFORE THE BIFR, WHICH REGISTERED THE CASE VIDE NO.13/2013. AS A RESULT OF THE CLOSURE OF THE COMPANY AND ALSO DUE TO LARGE EXPANSION INTERE ST BURDEN HAS INCREASED WHICH CREATED FINANCIAL STRESS ON THE COM PANY. DUE TO THE ABOVE FACTORS AND ALSO DUE TO FIXED EXPENDITURE LIKE SALARIES ETC., THE COMPANY COULD NOT MAKE SELF-ASSESSMENT TA X BUT THESE WERE MADE GOOD IMMEDIATELY BY ISSUING CHEQUES TO TH E A.O. IN THE MONTH OF MARCH, 2011. IT WAS ALSO BROUGHT TO THE NO TICE OF THE LD. 3 ITA.NO.568 & 691/HYD/2014 M/S. SHEETAL REFINERIES LTD., HYDERABAD CIT(A) THAT EVEN THOUGH THE CHEQUES WERE ISSUED WIT H A DIFFERENT DATES IN THE MONTH OF MARCH THEY WERE CLEARED BY TH E A.O. ONE IN THE MONTH OF MARCH AND BALANCE THREE CHEQUES IN THE MONTH OF JUNE AND ASSESSEE IS NOT RESPONSIBLE FOR DELAY IN R EALISING THE TAXES. FURTHER, IT WAS SUBMITTED THAT ASSESSEE HAD BONAFIDE REASONS FOR NOT PAYMENT OF TAXES AND AS THERE WAS G OOD AND SUFFICIENT REASON PENALTY UNDER SECTION 221(1) IS N OT WARRANTED. 4. LD. CIT(A) WHILE PARTLY ACCEPTING ASSESSEES CONTENTION, RESTRICTED THE PENALTY TO 10% OF THE TA X DUE. HIS ORDER VIDE PARAS 7 AND 8 ARE AS UNDER : 7. I HAVE PERUSED THE ORDER LEVYING PENALTY U/S. 2 21(1) AS WELL AS THE SUBMISSIONS MADE BY THE APPELLANT. THE LEVY OF PENALTY U/S. 221(1) IS NOT MECHANICAL AND AUTOMATIC . THE PROVISO TO SECTION 221(1) STATES THAT WHERE THE AS SESSEE PROVES TO THE SATISFACTION OF THE (ASSESSING) OFFICER THAT THE DEFAULT WAS FOR GOOD AND SUFFICIENT REASONS, NO PENALTY SHALL B E LEVIED UNDER THIS SECTION. FURTHER, EVEN WHERE THE ASSESSING OFF ICER DECIDES TO LEVY PENALTY, THE AMOUNT OF PENALTY SHOULD BE BA SED ON THE CONDUCT OF THE ASSESSEE AND ALL ATTENDANT CIRCUMSTA NCES. VARIOUS JUDICIAL PRONOUNCEMENTS HELD THAT THE IMPOS ITION OF PENALTY IS NOT MANDATORY BUT IS DISCRETIONARY. THE DISCRETION, OF COURSE, WILL HAVE TO BE EXERCISED JUDICIOUSLY ACCOR DING TO WELL KNOWN PRINCIPLES. WHERE THE ASSESSEE HAS ESTABLISHE D THAT IT WAS IN A TIGHT POSITION FINANCIALLY, THE TRIBUNAL W AS HELD JUSTIFIED IN CANCELLING THE PENALTY. [CIT VS.CHERNB ARA PEAK ESTATES LTD. (1990) 183 ITR 471 (KA); CIT V JAIPUR ELECTRO PVT. LTD. (1990) 183 ITR 476 (RAJ.); CIT V BHIKAJI RAMCH ANDRA (1990) 183 ITR 478 (BOM)]. THE LEVY OF PENALTY U/S.221 IS NOT A MODE OF RECOVERY OF TAX. IT IS A PUNITIVE ACTION TO BE T AKEN TO DETER A WILLFUL DEFAULTER FROM FAILING TO PAY HIS TAX DUES. IT IS ALSO NOT A LEVY IN THE NATURE OF COST FOR DELAYED PAYMENT. EVE RY ASSESSEE, INCLUDING THE APPELLANT, IS LIABLE FOR INTEREST ON DELAYED PAYMENT OF TAXES INTO THE GOVERNMENT EXCHEQUER. IN THE INST ANT CASE, THE APPELLANT HAS PAID ALMOST RS.25 LAKHS OF INTEREST F OR DELAYED PAYMENT OF TAXES IN RESPECT OF THE PRESENT ASSESSME NT YEAR. FURTHER, THE RECORDS MADE AVAILABLE DURING APPELLAT E PROCEEDINGS SHOW THAT SUBSTANTIAL PART OF THE TAXES WERE PAID BY THE APPELLANT DURING FEBRUARY & MARCH, 2011. 4 ITA.NO.568 & 691/HYD/2014 M/S. SHEETAL REFINERIES LTD., HYDERABAD 8. IN THE CASE OF THE APPELLANT, IT IS CLEAR THAT FROM ASST. YEAR 2010-11 ITSELF, THE AFFAIRS OF THE COMPANY HAD BEEN SEVERELY AFFECTED AND A DOWNWARD FINANCIAL SPIRAL H AD STARTED. ON THE ONE HAND, THERE WAS STOPPAGE OF PRODUCTION W HILE ON THE OTHER HAND, CAPACITY EXPANSION AND SHIFTING OF FACT ORY HAD LED TO EXTREMELY HIGH FINANCIAL BURDEN. THE ULTIMATE PR OOF OF THE FINANCIAL CRISIS FACING THE COMPANY WAS THE FACT TH AT WITHIN A COUPLE OF YEARS, IT WAS DECLARED SICK AND ITS REFER ENCE UJS.15(1) OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISION S) ACT, 1985 HAS BEEN REGISTERED BY BIFR. I AM IN AGREEMENT WITH THE ASSESSING OFFICER THAT THE APPELLANT COMPANY WAS LI ABLE TO PAY TAXES, WHICH WERE DUE ON THE INCOME THAT THE COMPAN Y HAD GENERATED. THE TAXES PAYABLE ARE IN RESPECT OF PROF ITS EARNED BY THE APPELLANT AND THE FIRST CHARGE SHALL ALWAYS BE OF THE REVENUE IN RESPECT OF SUCH TAXES. THE SUBMISSIONS M ADE BY THE APPELLANT INDICATE THAT TO KEEP THE BUSINESS CYCLE RUNNING, ALL FUNDS WERE DIVERTED TOWARDS SETTING UP THE NEW UNIT AT NANDIGAMA. THE FUNDS DIVERTED INCLUDED THOSE, WHICH SHOULD HAVE GONE TOWARDS PAYMENT OF TAXES ON PROFITS EARNE D. HENCE, THE FAILURE OF THE APPELLANT TO PAY TAXES IN TIME S HOULD LEAD TO SOME PUNITIVE ACTION. HOWEVER, THE PUNITIVE ACTION SHOULD BE IN LINE WITH ALL ATTENDANT CIRCUMSTANCES. KEEPING IN VIEW THE FINANCIAL CRISIS FACED BY THE COMPANY, WHICH HAD IT S ORIGINS IN THE RELEVANT PREVIOUS YEAR, I AM OF THE OPINION THA T THE PENALTY LEVIED U/S. 221(1) ON THE APPELLANT COMPANY FOR DEL AYED PAYMENT OF SELF ASSESSMENT TAX SHOULD BE RESTRICTED TO 10% OF THE TOTAL TAXES PAYABLE I.E., RS.31,98,950/-. THE A PPELLANT COMPANY THUS GETS RELIEF OF RS.47,98,420/-. 5. REVENUE IS AGGRIEVED ON THE DELETION OF PENALTY TO AN EXTENT OF RS.47,98,420 WHEREAS, ASSESSEE IS AGGRIEV ED ON THE CONFIRMATION OF PENALTY TO AN EXTENT OF 31,98,950. 6. WE HAVE HEARD THE LD. COUNSEL WHO REITERATED TH E SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND LEARNED D.R. WHO RELIED ON THE ORDERS OF THE A.O. AS SEEN FROM THE S UBMISSIONS BEFORE THE LD. CIT(A) AS WELL AS FROM THE ORDER OF THE LD. CIT(A), THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEES COMPANY WAS STOPPED BY POLLUTION CONTROL BOARD AND ASSESSEE 5 ITA.NO.568 & 691/HYD/2014 M/S. SHEETAL REFINERIES LTD., HYDERABAD HAD TO CONSTRUCT A NEW PLANT AT NANDIGAMA. FURTHER, IN SPITE OF FINANCIAL CRUNCH ASSESSEE HAS DECLARED LARGE AMOUNT OF PROFITS AND THE TAXES DUE WERE ALSO ADMITTED. DUE TO SEVERE CAS H CRUNCH, ASSESSEE COULD NOT DISCHARGE TAX LIABILITY IMMEDIAT ELY. HOWEVER, THE SAME WAS DISCHARGED AS STATED BY THE ASSESSEE B EFORE THE LD. CIT(A). PENALTY UNDER SECTION 221(1) IS NOT AUTOMAT IC AND MANDATORY. THE PROVISO TO SECTION 221(1) STATES THA T WHERE ASSESSEE PROVES TO THE SATISFACTION OF THE A.O. DE FAULT FOR GOOD AND SUFFICIENT REASONS, NO PENALTY SHALL BE LEVIED UNDE R THIS SECTION. IN FACT, THIS ASPECT WAS EXAMINED BY THE LD. CIT(A) AN D CAME TO THE CONCLUSION THAT THERE ARE GOOD AND SUFFICIENT REASO NS FOR THE ASSESSEE NOT TO DISCHARGE THE SELF-ASSESSMENT TAX A T THE PARTICULAR POINT OF TIME DUE TO FINANCIAL CRUNCH. HOWEVER, HE RESTRICTED THE PENALTY TO 10% INSTEAD OF DELETING THE WHOLE OF THE AMOUNT. WE ARE OF THE OPINION THAT ASSESSEE HAD MADE OUT A GOOD CA SE IN ITS SUPPORT AND THE FACTS DO INDICATE THAT THERE ARE GO OD AND SUFFICIENT REASONS FOR ASSESSEES DELAY IN PAYMENT OF TAXES. RELYING ON THE VARIOUS CASE LAW WHICH ARE EXTRACTED BY THE LD. CIT(A) IN PARA-7 OF THE ORDER, IT CAN BE CONCLUDED THAT PENALTY UNDER SECTION 221(1) IS NOT A MODE OF RECOVERY OF T AXES AND THIS PUNITIVE ACTION CAN BE TAKEN IN CASE OF WILLFUL DEF AULT. ASSESSEE IS NOT A WILLFUL DEFAULTER AND IT HAS SUFFICIENT REASO NS TO NOT TO DISCHARGE THE TAX LIABILITY AT THE TIME OF FILING R ETURN, BUT WITHIN PERIOD OF 7 MONTHS DISCHARGED ENTIRE ADMITTED TAX. IN FACT THE CHEQUES ISSUED IN THE MONTH OF MARCH, 2011 WERE E NCASHED BY THE A.O. IN THE MONTHS OF MARCH AND JUNE,2011. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT ASSESSEE CANNOT BE CONSIDERED AS WILLFUL DEFAULTER. SINCE IT HAS BONAF IDE REASONS, WE ARE OF THE OPINION THAT PENALTY UNDER SECTION 221(1 ) IS NOT ATTRACTED ON THE FACTS OF THE CASE. THEREFORE, WE D ELETE THE PENALTY PARTLY CONFIRMED BY THE LD. CIT(A). ACCORDINGLY, AS SESSEE S APPEAL 6 ITA.NO.568 & 691/HYD/2014 M/S. SHEETAL REFINERIES LTD., HYDERABAD IS ALLOWED AND CONSEQUENTLY REVENUE APPEAL HAS TO B E DISMISSED AS THERE IS NO MERIT IN REVENUE CONTENTIONS. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.09.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 03 RD SEPTEMBER, 2014 VBP/- COPY TO 1. DY. COMMISSIONER OF INCOME TAX, CIRCLE 3 (1), 7 TH FLOOR, B-BLOCK, I.T. TOWERS, HYDERABAD. 2. M/S. SHEETAL REFINERIES LTD., 7-4-135/1, GAGAN P AHAD, RANGA REDDY DISTRICT. 3. CIT(A), GUNTUR + 1 COPY. 4. CIT-III, HYDERABAD 5. D.R. B BENCH, ITAT, HYDERABAD.