Valley Iron & Steel Co. Ltd., New Delhi V. ACIT, New Delhi

ITA 939/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3270 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 03-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 15-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reasonable cause
• Section: 115JB; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D: NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 939/DEL /2013 ASSESSMENT YEAR: 2010-11 VALLEY IRON & STEEL CO. LTD., C/O RAJ KUMAR & ASSOCIATES, CA, 44235/7, ANSARI ROAD, DARYA GANJ, NEW DELHI-110002 (PAN: AAACV4632N) VS ACIT, CENTRAL CIRCLE-5, JHANDEWALAN, NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 2026/DEL /2013 ASSESSMENT YEAR: 2010-11 ACIT, CENTRAL CIRCLE-5, JHANDEWALAN, NEW DELHI. VS VALLEY IRON & STEEL CO. LTD., C/O RAJ KUMAR & ASSOCIATES, CA, 44235/7, ANSARI ROAD, DARYA GANJ, NEW DELHI-110002 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJKUMAR GUPTA, SHRI SUSHIL G OYAL, CA RESPONDENT BY : SHRI AMIT JAIN, SR. DR DATE OF HEARING : 22.11.2017 DATE OF PRONOUNCEMENT: 20.02.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M. THESE ARE CROSS APPEALS FILED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(A)-XXXI, NEW DELHI FOR ITA NO. 939/DEL/2013, 2026/D/2013 ASSESSMENT YEAR 2010-11 2 ASSESSMENT YEAR 2010-11 AND THE SOLE GROUND IN BOTH THE APPEALS IS LEVY OF PENALTY U/S 140 A (3) R/W SECTI ON 221 (1). ITA NO. 939/2013 IS THE ASSESSEES APPEAL WHEREAS I TA 2026/2013 IS THE DEPARTMENTS APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY HAD FILED RETURN OF INCOME ON 14.10.2010 DECLARING NIL INCOME AFTER CLAIMING EXEMPTION U/S 80IC OF THE ACT TO THE TUNE OF RS. 16,78,26,746/-. HOWEVER, INCOME U/S 115JB OF THE I NCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') WA S DECLARED AT RS. 19,60,90,859/- ON WHICH THE TOTAL TAX PAYABLE WAS C OMPUTED AT RS. 3,68,17,046/-. THE ASSESSEE COMPANY DID NOT MA KE ANY PAYMENT OF TAX U/S 210 OF THE ACT AND AFTER CLAIMIN G CREDIT OF RS. 66,55,415/- ON ACCOUNT OF TDS, TCS, ADVANCE TAX AND SELF ASSESSMENT TAX, THE TOTAL ADMITTED TAX LIABILITY WA S SHOWN AS PAYABLE AT RS. 3,01,61,630/-. THE RETURN WAS PROCES SED U/S 143(1) OF THE ACT. HOWEVER, THE ASSESSEE DID NOT M AKE ANY PAYMENT AGAINST THE DEMAND RAISED BY THE DEPARTMENT . THEREAFTER, THE ASSESSEE COMPANY WAS ISSUED A SHOW CAUSE NOTICE U/S 140A (3) TO WHICH THE ASSESSEE COMPANY DID NOT MAKE ANY COMPLIANCE. SUBSEQUENTLY, THE ASSESSEE COMPANY DID FILE A WRITTEN REPLY BEFORE THE ASSESSING OFFICER AND ITS MAIN ITA NO. 939/DEL/2013, 2026/D/2013 ASSESSMENT YEAR 2010-11 3 SUBMISSIONS FOR NON-DEPOSIT OF SELF ASSESSMENT TAX U/S 140A WERE THAT THE COMPANY HAD UNDERTAKEN CAPITAL EXPEND ITURE IN PLANT AND MACHINERY, THERE WAS DELAY IN GETTING TER M LOAN AND WORKING CAPITAL LIMITS FROM BANKS, THE MARKET OF TH E STAINLESS STEEL INDUSTRY HAD WORSENED OVER THE LAST SEVERAL M ONTHS AND PRICE REALIZATION FROM SALES WAS MUCH BELOW THE COS TS. IT WAS ALSO SUBMITTED THAT DUE TO TIGHT FINANCIAL POSITION , THE COMPANY COULD NOT PAY SELF ASSESSMENT TAX IN TIME AND FURTH ER THE PROBLEMS OF THE COMPANY HAD FURTHER BEEN AGGRAVATED BY SUDDEN CLOUD BURST BECAUSE OF WHICH THERE WAS FLOOD IN THE FACTORY AND LOT OF DAMAGE HAD BEEN CAUSED TO PLANT AND MACHINER Y AS WELL AS THE MATERIAL, FORCING THE COMPANY TO SHUT DOWN THE FACTORY. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND WAS OF THE OPINION THAT THE ASSESSEE COMPANY HA D FAILED TO MAKE PAYMENT OF THE ADMITTED TAX LIABILITY AND THAT THE ATTITUDE OF THE COMPANY WAS THAT OF A NON-COMPLIANT ASSESSEE . THEREAFTER, THE ASSESSING OFFICER PROCEEDED TO IMPOSE PENALTY @ 100% ON THE ADMITTED TAX LIABILITY I.E. RS. 3,01,61,630/-. 2.1 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. CIT (A) WHO CONFIRMED THE IMPOSITION OF PENALTY BUT CURTAILED I T TO RS. 10 LAKH ONLY. NOW, THE DEPARTMENT IS IN APPEAL CHALLENGING THE ACTION OF ITA NO. 939/DEL/2013, 2026/D/2013 ASSESSMENT YEAR 2010-11 4 THE LD. CIT (A) IN CURTAILING THE PENALTY TO RS. 10 LAKH ONLY WHEREAS THE ASSESSEE IS CHALLENGING THE UPHOLDING O F PENALTY BY LD. CIT (A) TO THE EXTENT OF RS. 10 LAKH. 3. THE LD. AR SUBMITTED THAT THE PENALTY HAD BEEN I MPOSED WITHOUT ISSUANCE OF A SHOW CAUSE NOTICE U/S 221(1) OF THE ACT AND, THEREFORE, THE PENALTY WAS ABSOLUTELY UNSUSTAI NABLE. IT WAS ALSO SUBMITTED THAT THERE EXISTED A REASONABLE CAUS E FOR NOT PAYING THE SELF ASSESSMENT TAX WHICH WAS THAT THE A SSESSEE WAS UNDERGOING ACUTE FINANCIAL CRUNCH AND HAD ABSOLUTEL Y NO LIQUIDITY. IT WAS ALSO SUBMITTED THAT THE RETURN W AS FILED ON 14.10.2010 AND, THUS, THE ALLEGED DEFAULT TOOK PLAC E ON 14.10.2010 ON WHICH DATE THE REGULAR BANK ACCOUNTS OF THE ASSESSEE HAD NEGATIVE BANK BALANCES AND THE BANK AC COUNTS ALREADY HAVING BEEN OVERDRAWN, THERE WAS NO FURTHER WITHDRAWAL FACILITY AVAILABLE WITH THE BANK. IT WAS ALSO SUBM ITTED THAT THE COMPANY WAS ALREADY A SICK COMPANY AND THE REFERENC E FOR REGISTRATION AS A SICK COMPANY WITH BIFR ALREADY ST OOD REGISTERED VIDE LETTER DATED 02.09.2016. IT WAS ALSO SUBMITTE D THAT THERE WAS AN ERROR IN COMPUTATION IN THE NOTICE OF DEMAND IN WHICH THE DEMAND HAD BEEN CREATED AT RS. 6,03,17,204/- WHEREA S THE CORRECT DEMAND WAS RS. 2,30,14,590/- AND THE ERROR HAD ITA NO. 939/DEL/2013, 2026/D/2013 ASSESSMENT YEAR 2010-11 5 OCCURRED DUE TO NON-COMPLIANCE OF DEDUCTION U/S 80I C WHICH STOOD CORRECTED VIDE ORDER DATED 15.9.2011 THEREBY REDUCING THE DEMAND OF RS. 2,30,14,590/-. IT WAS ALSO SUBMITTED THAT OUT OF THE RECTIFIED DEMAND OF RS. 2,30,14,590/-, RS. 2,25 ,00,000/- STOOD PAID ON 23.09.2011 AND 29.09.2011 I.E. WITHIN 15 DAYS OF RECTIFICATION APPLICATION BEING ALLOWED AND THE NEW NOTICE OF DEMAND HAVING BEEN ISSUED. IT WAS ALSO SUBMITTED T HAT ON 15.9.2011, I.E. MUCH PRIOR TO THE DATE OF THE IMPUG NED PENALTY ORDER I.E. 24.11.2011, THE EARLIER DEMAND OF RS. 6 ,03,17,200/- STOOD VACATED AND CONSEQUENTLY, NOTICE U/S 221(1) D ATED 5.9.2011 ALSO STOOD VACATED BY OPERATION OF LAW AS NO DEMAND OF RS. 6,30,17,200/- REMAINED OUTSTANDING AND FOR THE OUTSTANDING DEMAND OF RS. 2,30,14,590/-, SUBSTANTIAL PAYMENT OF RS. 2,25,00,000/- HAD ALREADY BEEN MADE. THE LD. AR PR AYED FOR THE DELETION OF THE ENTIRE PENALTY. 4. THE LD. SR. DR PLACED RELIANCE ON THE FINDINGS O F THE ASSESSING OFFICER AND SUBMITTED THAT ONCE THE DEFAU LT HAD BEEN ESTABLISHED, THE LD. CIT (A) WAS NOT JUSTIFIED IN R EDUCING THE QUANTUM OF PENALTY. ITA NO. 939/DEL/2013, 2026/D/2013 ASSESSMENT YEAR 2010-11 6 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE A SSESSEE HAD SUBMITTED A REASONABLE CAUSE OF FINANCIAL CRUNCH FO R ITS INABILITY TO PAY THE SELF ASSESSMENT TAX WITHIN TIME. IT IS ALSO SEEN THAT THE ASSESSEE COMPANY HAS SINCE APPROACHED THE BIFR FOR BEING DECLARED A SICK COMPANY AND ITS REGISTRATION WITH T HE BIFR HAS ALSO BEEN EFFECTED. WE FIND THAT THE LD. CIT (A) H AS, ALTHOUGH, CONFIRMED THE PENALTY WHILE CURTAILING IT TO RS. 10 LAKH ONLY, HE HAS ALSO AGREED WITH THE ASSESSEES SUBMISSION THAT THE ASSESSEE WAS DEFINITELY IN FINANCIAL DIFFICULTY. THE LD. CIT (A) HAS MENTIONED IN PARA 4.7.4 OF THE IMPUGNED ORDER THAT HE AGREES THAT THE ASSESSEE HAS BEEN ABLE TO EXPLAIN TO A LAR GE EXTENT THE CAUSE FOR DEFAULT IN PAYMENT OF SELF ASSESSMENT TAX . THE LD. CIT (A) HAS ALSO NOTED THAT THE ASSESSEE WAS DEFINITELY IN FINANCIAL DIFFICULTY DUE TO VARIOUS REASONS AND THE FLASH FLO ODS AT THE FACTORY PREMISES AND DAMAGE TO PLANT AND MACHINERY HAS PUT A STRAIN ON THE LIQUIDITY POSITION OF THE ASSESSEE. IN PARA 4.7.5, THE LD. CIT (A) HAS FURTHER NOTED THAT THE ASSESSEES F INANCIAL DIFFICULTIES EXISTED AT THE TIME OF FILING THE RETU RN OF INCOME WHICH IS THE TIME WHEN THE DEFAULT IN PAYMENT OF SELF ASS ESSMENT TAX OCCURRED. THE LD. CIT (A) HAS ALSO OBSERVED THAT T HIS FACT SHOULD ITA NO. 939/DEL/2013, 2026/D/2013 ASSESSMENT YEAR 2010-11 7 HAVE PERSUADED THE ASSESSING OFFICER TO TAKE A LENI ENT VIEW OF THE MATTER. THE LD. CIT(A) HAS ALSO OBSERVED IN PARA 4 .3 OF THE ORDER THAT THE ASSESSEE HAD MADE OUT A VERY STRONG CASE B EFORE THE ASSESSING OFFICER FOR NON-PAYMENT OF SELF-ASSESSMEN T TAX DUE TO FINANCIAL DIFFICULTIES AND THAT THE ASSESSEE HAD AL SO PAID ALL THE TAX ARREARS ALONG WITH UP-TO-DATE INTEREST BEFORE T HE LEVY OF PENALTY. THE LD. CIT (A) HAS ALSO NOTED THAT THE A SSESSING OFFICER HAD BEEN PASSING ORDERS, PROVIDING TIME FOR MAKING PAYMENT OF TAXES AND ALSO VARYING THE TAX DEMAND BY PASSING OR DER U/S 154 OF THE INCOME TAX ACT, 1961 AND THEREFORE, IN VIEW OF ALL THE FACTORS, THERE WAS NO SUFFICIENT GROUND FOR LEVYING PENALTY FOR SUCH A LARGE SUM AND, THEREAFTER, THE LD. CIT (A) H ELD THAT LEVY OF PENALTY U/S 221 AMOUNTING TO RS. 10 LAKH WOULD MEET THE ENDS OF JUSTICE. 5.1 WE FIND IT RATHER STRANGE THAT ON THE ONE HAND, THE LD. CIT (A) ACCEPTS THAT THE ASSESSEE HAD SEVERE FINANCIAL CRUN CH WHICH IT WAS ABLE TO SUBSTANTIATE BOTH BEFORE THE ASSESSING OFFICER AS WELL AS THE LD. CIT (A), BUT EVEN THEN, THE LD. CIT (A) DEEMED IT FIT TO SUSTAIN A PART OF THE PENALTY. THIS, IN OUR CONSID ERED OPINION, DOES NOT APPEAR TO BE CORRECT AS PER LAW. THE HON BLE MADRAS HIGH COURT IN THE CASE OF NACHIMUTHU INDUSTRIAL ASS OCIATION VS. ITA NO. 939/DEL/2013, 2026/D/2013 ASSESSMENT YEAR 2010-11 8 CIT REPORTED IN 123 ITR 611 (MADRAS) HAS HELD THAT ALTHOUGH THE MAIN PART OF SECTION 221 OF THE ACT ENABLES THE ASS ESSING OFFICER TO LEVY PENALTY, STILL UNDER THE SECOND PROVISO HE NEED NOT LEVY PENALTY OR CANNOT LEVY PENALTY IF DEFAULT WAS FOR G OOD AND SUFFICIENT REASON. THE HONBLE MADRAS HIGH COURT O BSERVED THAT PAUCITY OF FUNDS ALSO HAS TO BE TAKEN INTO ACCOUNT. SIMILARLY, ITAT DELHI BENCH IN THE CASE OF ACIT VS RAKESH KUMA R GARG IN ITA NO. 5198/DEL/2013 VIDE ORDER DATED 11.05.2015 H ELD THAT FINANCIAL CONSTRAINT AND LIQUIDITY CRUNCH FACED BY THE ASSESSEE AT THE TIME OF FILING THE RETURN IS A GOOD AND SUFFICI ENT REASON TO PROVE AND EXPLAIN DEFAULT BY THE ASSESSEE IN MAKING PAYMENT OF TAX AT THE TIME OF FILING OF RETURN AND NO PENALTY CAN BE LEVIED U/S 221 IN SUCH A CASE. THEREFORE, LOOKING INTO THE FA CTS OF THE CASE AND ALSO KEEPING IN MIND THE REASONABLE CAUSE GIVEN BY THE ASSESSEE BEING SEVERE FINANCIAL/LIQUIDITY CRUNCH, W HICH HAS BEEN DULY ACKNOWLEDGED AND ACCEPTED BY THE LD. CIT(A) IN THE IMPUGNED ORDER, WE ARE OF THE OPINION THAT NO PENAL TY IS LEVIABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORD INGLY, WE DELETE THE ENTIRE PENALTY AND DISMISS THE GROUND RA ISED BY THE DEPARTMENT. ITA NO. 939/DEL/2013, 2026/D/2013 ASSESSMENT YEAR 2010-11 9 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED AND THE APPEAL OF THE DEPARTMENT STANDS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 20.02. 2018. SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) PRESIDENT JUDICIAL MEMBER DATED: 20 TH FEBRUARY, 2018 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER ASSISTANT REGISTRAR