M/s Health Biotech Ltd., Chandigarh V. DCIT, Chandigarh

ITA 849/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90210 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-06-2015
• Assessment Year: 2012-2013
• Appeal Filed On: 09-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Bonafide belief; Reasonable cause
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 849/CHD/2014 ASSESSMENT YEAR: 2012-13 HEALTH BIOTECH LTD. VS THE DCIT, SCO 162-164, CIRCLE 4(1), SECTOR 34-A, CHANDIGARH. CHANDIGARH PAN: AABCH1876K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SI NGH RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 23.06.2015 DATE OF PRONOUNCEMENT : 30.06.2015 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. CIT(APPEALS) CHANDIGARH DATED 28.08.2014 FOR ASSESSMENT YEAR 2012-13 CHALLENGING THE LEVY OF PEN ALTY UNDER SECTION 221(1) READ WITH SECTION 140A(3) OF T HE INCOME TAX ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT AS PER THE RETURN FILED BY THE ASSESSEE ON 29.09.2012, THE TAX PAYABL E UNDER SECTION 115JB WAS CALCULATED AT RS. 1,23,59,847/- W HICH WAS REQUIRED TO BE PAID BY THE ASSESSEE AS SELF ASS ESSMENT TAX. THE ASSESSEE HAD SHOWN TOTAL TAX PAID AT RS. 1,19,02,931/- IN THEIR RETURN, BUT ON PROCESSING TH E RETURN, 2 THE TAX PAYABLE WAS DETERMINED AT RS. 1,19,02,930/- UNDER SECTION 143(1) OF THE ACT. THE ASSESSING OFFICER A SKED THE ASSESSEE TO MAKE PAYMENT OF UNPAID SELF ASSESSMENT TAX BUT THE SAME WAS NOT PAID. THE ASSESSING OFFICER ISSUE D SHOW CAUSE NOTICE TO THE ASSESSEE WHY THE PENALTY UNDER SECTION 221(1) OF THE ACT SHOULD NOT BE LEVIED. THE ASSESSE E HAD SUBMITTED THAT ITS BANK ACCOUNTS WERE RUNNING IRREG ULAR AND BANK HAD DECLARED IT AS NON- PERFORMING ASSET T HEREBY AFFECTING WORKING CAPITAL POSITION OF THE ASSESSEE COMPANY. THE ASSESSEE HAD ALSO SUBMITTED THAT IT WAS NOT ABL E TO REPAY INTEREST TO THE BANK AND TERM LOAN INSTALLMEN TS AND DUE TO DISTRESSFUL SITUATION, REHABILITATION PROPOS AL HAD BEEN SENT TO THE BANK. THE ASSESSING OFFICER NOTIC ED THAT ASSESSEE'S TURNOVER WAS MORE THAN RS. 115 CR AND OT HER INCOME WAS MORE THAN RS. 254 LACS AND SO HE DID NOT AGREE WITH CONTENTION OF THE ASSESSEE. THE ASSESSING OFF ICER FINALLY HELD THAT ASSESSEE HAD NOT BEEN ABLE TO SHO W THAT IT WAS PREVENTED BY REASONABLE CAUSE FOR FAILURE TO PA Y THE OUTSTANDING TAX LIABILITY AND LEVIED PENALTY @ 10% OF THE OUTSTANDING TAX DEMAND WHICH WAS WORKED OUT TO RS. 11,90,290/-. 3. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE ASSESSING OF FICER AND FURTHER SUBMITTED THAT SELF ASSESSMENT TAX COUL D NOT BE PAID DUE TO PAUCITY OF FUNDS. THE ASSESSEE WAS IN EXPANSION MODE. SECURED LOANS OF THE ASSESSEE COMP ANY FROM BANKS INCREASED AND DESPITE THE PROFITS, ITS L IABILITY 3 KEPT ON INCREASING BECAUSE OF WHICH TAXES COULD NOT BE PAID. COMPANY HAD NOT DIVERTED ITS FUNDS TO SISTER CONCERN OR FOR ANY NON BUSINESS PURPOSES. 4. THE LD. CIT(APPEALS) DID NOT ACCEPT CONTENTION O F THE ASSESSEE BECAUSE THE BALANCE SHEET ENDING 31.03.201 2 SHOWS CASH AND BANK BALANCE OF RS. 77,75,452/-. TH E LD. CIT(APPEALS) ALSO NOTED THAT IF ASSESSEE CAN SPEND MORE THAN RS. 5.73 CR ON EXPANSION, IT COULD HAVE VERY W ELL PAY THE INCOME TAX ALSO. THE LD. CIT(APPEALS), ACCORDI NGLY, DISMISSED APPEAL OF THE ASSESSEE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. THE LD. COUNSEL FOR THE ASSE SSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. HE HAS SUBMITTED THAT DUE TO PAUCITY OF FUNDS, TAX COULD NOT BE PAID BECAUSE ASSESSEE WAS IN EXPANSION MODE. THE SECURED LOAN OF THE ASSESSEE COMPANY FROM THE BANK HAD INCREASED AND DESPITE THE PROFITS, ITS LIABILITY KE PT ON INCREASING BECAUSE OF WHICH TAXES COULD NOT BE PAID . COPY OF THE BALANCE SHEET IS FILED IN SUPPORT OF THE SUB MISSION TO SHOW THAT SHORT TERM BORROWINGS HAD INCREASED AS CO MPARED TO EARLIER YEARS. LONG TERM BORROWINGS HAVE ALSO I NCREASED AS PER THE EARLIER YEARS ALONGWITH OTHER CURRENT LI ABILITIES. IN ALTERNATE CONTENTION, HE HAS SUBMITTED THAT PENA LTY IS EXCESSIVE IN NATURE. 6. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE ASS ESSEE CLAIMED PAYMENT OF TAXES IN THE RETURN OF INCOME BU T RECORD 4 REVEALED THAT ASSESSEE HAD NOT PAID ANY TAX LIABILI TY PLUS INTEREST TILL THE FILING OF THE RETURN AND PROCESSI NG OF THE RETURN UNDER SECTION 143(1) OF THE INCOME TAX ACT. THEREFORE, PENALTY WAS CORRECTLY LEVIED UNDER SECTI ON 221(1) OF THE INCOME TAX ACT. 7. FROM THE FACTS OF THE CASE IN THE LIGHT OF THE SUBMISSIONS OF THE PARTIES, WE ARE OF THE VIEW THAT PENALTY WAS CORRECTLY LEVIED UNDER SECTION 221(1) OF THE AC T BECAUSE ASSESSEE HAS NOT PAID SELF ASSESSMENT TAX AND WHILE PROCESSING THE RETURN OF INCOME UNDER SECTION 143(1 ), THE DEMAND HAD BEEN CREATED AGAINST THE ASSESSEE WHICH WAS NOT PAID BY THE ASSESSEE. HOWEVER, WE FIND THAT THE LEVY OF PENALTY IS EXCESSIVE IN NATURE BECAUSE ASSESSEE HAS MADE OUT A CASE OF PAUCITY OF FUNDS DUE TO EXPANSION OF BUSINESS AND THAT ASSESSEE WAS IN EXPANSION MODE. WE HAVE CONSIDERED THE IDENTICAL ISSUE IN THE CASE OF M/S L AKSHMI ENERGY & FOODS LTD. IN ITA NO. 348/CHD/2013 & CO 23/CHD/2014 IN WHICH WE HAVE RESTRICTED THE LEVY OF PENALTY UNDER THE SAME PROVISIONS TO 7.5% OF THE TO TAL DEMAND AS AGAINST 20% LEVIED BY THE AUTHORITIES BEL OW. THE FINDINGS IN THIS CASE ARE REPRODUCED AS UNDER : 13. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR LEVY OF THE PENALTY UNDER SECTION 221(1) OF THE ACT. THIS PROVISION PROVIDES FOR PENALTY PAYABLE WHEN TAX IN DEFAULT. WHEN AN ASSESSEE IS IN DEFAULT OR IS DEEMED TO BE IN DEFAULT IN MAKING PAYMENT OF TAX, HE SHALL, IN ADDITION TO THE AMOUNT OF ARREARS AND THE AMOUNT OF INTEREST PAYABLE UNDER SECTION 220(2), BE LIABLE BY WAY OF PENALTY, TO PAY 5 SUCH AMOUNT AS THE ASSESSING OFFICER MAY DIRECT AND IN CASE OF DEFAULT, FURTHER AMOUNT OR AMOUNTS AS THE ASSESSING OFFICER MAY FROM TIME TO TIME DIRECT SO, HOWEVER THAT TOTAL AMOUNT OF PENALTY WOULD NOT EXCEED THE AMOUNT OF TAX IN ARREARS. THE SECOND PROVISO TO THIS PROVISION PROVIDES THAT WHER E THE ASSESSEE PROVES TO THE SATISFACTION OF THE ASSESSING OFFICER THAT THE DEFAULT WAS FOR GOOD AND SUFFICIENT REASONS, NO PENALTY SHALL BE LEVIED UNDE R THIS SECTION. 14. FROM THE FACTS OF THE CASE IN THE LIGHT OF THE FINDINGS OF THE AUTHORITIES BELOW, IT IS CLEAR THAT SELF ASSESSMENT TAX AMOUNTING TO RS. 8.14 CR IN RESPECT OF THE RETURN FILED BY ASSESSEE FOR ASSESSMENT YEAR UNDER APPEAL WAS NOT PAID BY THE ASSESSEE. EVEN BEFORE US, IT IS NOT IN DISPUTE THA T ASSESSEE WAS IN DEFAULT OR WAS DEEMED TO BE IN DEFAULT IN MAKING PAYMENT OF TAX. THE ONLY EXCEPTION PROVIDED UNDER SECTION 221(1) OF THE ACT IF ASSESSEE IS ABLE TO PROVE TO THE SATISFACTION OF ASSESSING OFFICER THAT THE DEFAULT WAS FOR GOOD AND SUFFICIENT REASONS. THE SECTION 221(1) ALSO DID NO T PROVIDE ANY MINIMUM PENALTY IN THE MATTER AND IT IS THE DISCRETION OF THE ASSESSING OFFICER TO LEVY THE PARTICULAR AMOUNT AS PENALTY, HOWEVER THE PENALTY AMOUNT WOULD NOT EXCEED THE AMOUNT OF TAX IN ARREARS. IN THE CASE OF THE PRESENT ASSESSEE, THE ASSESSING OFFICER HAS LEVIED PENALTY OF 20% OF THE ARREARS OF TAXES I.E. 8.41 CR AND LEVIED THE PENALT Y OF RS. 1.62 CR. THEREFORE, IT IS TO BE CONSIDERED WHETHER ASSESSEE HAS ANY GOOD AND SUFFICIENT REASONS FOR DEFAULT IN PAYMENT OF TAXES OR WHETHER ASSESSING OFFICER HAS CORRECTLY LEVIED THE PENALTY OF 20% OF THE ARREARS OF TAXES. 15. THE ASSESSEE PLEADED BEFORE THE AUTHORITIES BELOW THAT ASSESSING OFFICER DID NOT ACCEPT THE 6 REQUEST OF THE ASSESSEE FOR ADJUSTMENT OF REFUND FO R ASSESSMENT YEAR 2007-08 AGAINST THE DEMAND DUE FOR ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE ALSO PLEADED THAT RS. 1 CRORE WAS PAID IN TWO INSTALLMENTS AND BALANCE OF RS. 14.67 LACS WAS ALSO PAID. THEREFORE, ASSESSEE PLEADED THAT DUE TO THIS BONAFIDE BELIEF, THE TAXES WERE NOT PAID. HOWEVER, THE LD. CIT(APPEALS) HAS QUOTED FROM THE ORDER OF THE ASSESSING OFFICER THE REASONS WHY THE ADJUSTMENT OF TAXES FROM THE REFUND OF ASSESSMENT YEAR 2007-08 WERE NOT GIVEN IN THE CASE OF THE ASSESSEE. THE ASSESSEE FURTHER PLEADED THAT THERE WAS A FINANCIAL DIFFICULTY IN PAYING THE TAXES. TH E LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AND SUBMITTED THAT FINANCIAL CONDITION OF THE ASSESSEE COMPANY WAS IN BAD SHAPE WHICH IS EVIDENT FROM THE PERUSAL OF THE BALANCE SHEET FOR FINANCIAL YEAR 2010-11 AS SUBMITTED AND THE FUNDS HAD BEEN BLOCKED IN THE INVENTORY, BOOK DEBTS AND OTHERS AS PER COLUMN 3 OF THE BALANCE SHEET UNDER THE HEAD CURRENT ASSET WHICH LED TO PAUCITY OF FUNDS AVAILABLE FOR PAYMENT OF SELF ASSESSMENT TAX. EVEN THE ASSESSEE HAD TO BORROW MORE AND MORE FUNDS FROM THE BANKS AND OTHERS TO COPE UP WITH THE SITUATION AS THE SECURED AND UNSECURED LOANS WHICH WERE TO THE TUNE OF RS. 751.66 CR AS ON 31.03.2010 HAD GONE UPTO RS. 996.22 CR AS ON 31.03.2011, THEREBY INCREASING THE LIABILITY BY APPROXIMATELY 33%. IT WOULD PROVE PAUCITY OF THE FUNDS IN THE CASE OF THE ASSESSEE. 15(I) THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THESE CIRCUMSTANCES ULTIMATELY LED TO DIP IN THE CREDIT RATING AS IS EVIDENT FROM PB-8 AND 9 OF THE PAPER BOOK WHICH HAD ALSO WORSENED FINANCIAL CONDITION OF THE ASSESSEE. DUE TO PAUCITY OF THE FUNDS AND STEEP FALL IN THE PROFIT DURING TH E 7 FINANCIAL YEAR 2010-11, DURING WHICH SELF ASSESSMENT TAX WAS TO BE PAID, DUE TO PAUCITY OF FUNDS THE TAXES COULD NOT BE PAID. THE PROFIT DURI NG FINANCIAL YEAR 2009-10 WAS RS.118.94 CR WHICH REDUCED TO RS.77.48 CR DURING FINANCIAL YEAR 2010- 11. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT DUE TO ABOVE REASONS, THE SELF ASSESSMENT TAXES COULD NOT BE PAID ON RETURNED INCOME. 16. ON GOING THROUGH THESE SUBMISSIONS OF THE ASSESSEE AND COPY OF THE BALANCE SHEET FILED ON RECORD, IT MAY BE A CASE OF THAT THE LIABILITY OF T HE ASSESSEE HAS INCREASED AND THAT CREDIT RATING OF TH E ASSESSEE HAS REDUCED BUT THERE WAS A PROFIT IN ASSESSMENT YEAR UNDER APPEAL AS WELL AS IN SUBSEQUENT ASSESSMENT YEAR 2011-12. MAY BE THE PROFIT HAS REDUCED BUT IT IS NOT A CASE THAT ASSESS EE HAS NOT EARNED ANY PROFIT. THEREFORE, CONSIDERING THE MATERIAL ON RECORD, WE DO NOT FIND IT TO BE CAS E OF GOOD AND SUFFICIENT REASONS FOR NOT PAYING THE TAXES AS PER LAW. THEREFORE, PENALTY SHALL HAVE TO BE LEVIED IN THE FACTS AND CIRCUMSTANCES. HOWEVER, CONSIDERING THE FINANCIAL POSITION OF THE ASSESSEE HAS WORSENED AND THAT THE CREDIT RATING OF THE ASSESSEE HAS ALSO REDUCED AND ULTIMATELY WHEN SELF ASSESSMENT TAX WAS TO BE PAID IN SUBSEQUENT ASSESSMENT YEAR 2011-12, THERE WAS A FALL IN THE PROFIT. THEREFORE, CONSIDERING THE EXPLANATION GIV EN BY THE ASSESSEE, WE ARE OF THE VIEW THE ASSESSING OFFICER WAS NOT JUSTIFIED IN LEVYING THE PENALTY OF 20% OF THE ARREARS OF TAXES. IT IS ON VERY HIGH SI DE AND THE ASSESSING OFFICER SHOULD HAVE CONSIDERED THE FINANCIAL POSITION OF THE ASSESSEE BEFORE LEVYI NG THE PENALTY IN THE MATTER. THE LD. CIT(APPEALS) REJECTED THIS CONTENTION OF THE ASSESSEE BECAUSE THOSE REASONS WERE NOT PLACED BEFORE ASSESSING 8 OFFICER. HOWEVER, LD. CIT(APPEALS) FORGOT TO NOTE THAT HE HAS COTERMINOUS POWERS TO THAT OF THE ASSESSING OFFICER AND THE APPELLATE PROCEEDINGS ARE CONTINUATION OF THE ASSESSMENT PROCEEDINGS. THEREFORE, WHEN THOSE FACTS WERE PLEADED BEFORE LD. CIT(APPEALS), HE SHOULD HAVE CONSIDERED THE SAME IN PROPER PERSPECTIVE FOR DOING JUSTICE BETWEEN THE PARTIES. 17. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES AS NOTED ABOVE, WE HOLD THAT 20% OF THE PENALTY OF OUTSTANDING DEMAND WAS EXCESSIVE, UNREASONABLE AND THEREFORE, WE MODIFY THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE PENALTY UNDER SECTION 221(1 ) OF THE ACT BY RESTRICTING THE PENALTY AT 7.5% OF TH E OUTSTANDING SELF ASSESSMENT TAX OF RS. 8.14 CR AND THE ASSESSING OFFICER SHALL RE-WORK THE PENALTY AMOUNT ACCORDINGLY. THE ORDERS OF AUTHORITIES BELOW LEVYING THE PENALTY AT 20% IS THUS, SET ASIDE AND MODIFIED TO THE EXTENT OF 7.5%. 18. IN VIEW OF THE ABOVE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. FROM THE FACTS OF THE CASE IN THE LIGHT OF THE O RDER OF EVEN DATE IN THE CASE OF M/S LAKSHMI ENERGY & FOODS LTD. (SUPRA) WE MODIFY THE ORDERS OF THE AUTHORITIES BEL OW IN THIS CASE AND DIRECT THE ASSESSING OFFICER TO LEVY THE P ENALTY AT 7.5% OF THE OUTSTANDING TAX DEMAND OF RS.1.19 CR AG AINST 10% LEVIED BY THE AUTHORITIES BELOW. THE ORDERS OF THE AUTHORITIES BELOW TO THAT EXTENT ARE MODIFIED AND A SSESSING 9 OFFICER SHALL RESTRICT PENALTY OF 7.5% AS AGAINST 1 0% LEVIED BY THE ASSESSING OFFICER. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE,2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH JUNE,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH