* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on November 21, 2014
Judgment delivered on December 22, 2014
+ ITA No. 654/2014
COMMISSIONER OF INCOME TAX-VIII ..... Appellant
Through: Mr.Balbir Singh, Senior Standing
Counsel
versus
NARESH KUMAR JAGGI ..... Respondent
Through: None
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V.KAMESWAR RAO
V.KAMESWAR RAO, J.
1. The challenge in this appeal by the revenue under Section 260A of
the Income Tax Act, 1961 (`Act' in short) is to the order dated March 31,
2014 passed by the Income Tax Appellate Tribunal, Delhi Bench
(`Tribunal', in short), whereby the Tribunal, in cross appeals filed by the
appellant-revenue and the respondent-assessee, upheld the order of the
Commissioner of Income Tax (Appeals), restricting the penalty imposed
under Section 140A (3) to 25%.
2. The relevant facts of the case are, the respondent-assessee filed
return of income for the Assessment Year 2009-10 on 03.11.2010
ITA No. 654/2014 Page 1 of 11
declaring an income of Rs. 6,23,36,790/-, on which tax at
Rs.1,26,46,875/- was due and payable after reducing the advance tax
paid of Rs. 14,60,000/-. The respondent-assessee had not paid this
admitted tax liability under Section 140A of the Act. The return was
processed under Section 143(1) of the Act. The intimation under Section
143(1) of the Act was served upon the assessee on 02.01.2011 and the
assessee was required to make the payment by 01.02.2011. The assessee
did not make the payment of outstanding demand by the said date.
Accordingly, a show cause notice under Section 140A(3) of the Act was
served upon the assessee by the Assessing Officer vide a letter dated
November 22, 2011. In the reply to the show cause notice, it was the
stand of the assessee that the admitted tax of Rs. 1,41,06875/- for the
Assessment Year 2009-10 stands paid by him inasmuch as
Rs.14,00,000/- was paid as advance tax and the balance amount of Rs.
1,26,46,875/- was paid in the month of April, 2011 and in support of the
same, he attached necessary challans. He requested that he should not be
treated as in default and the action under Section 140A(3) of the Act be
not initiated. The Assessing officer was of the view that nothing has
come from the reply of the assessee to overcome the default committed
under Section 140A(3) of the Act. According to him, the assessee had
not shown and established a reasonable cause for non payment of the
ITA No. 654/2014 Page 2 of 11
admitted tax liability. The Assessing Officer referred to six judgments
of the different High Courts and the Supreme Court and was of the view
that in the absence of any reasonable cause for non payment of the
admitted tax liability, penalty should be imposed. He imposed penalty at
100% of the admitted tax liability i.e. Rs.12646875/- or an amount equal
to the unpaid tax liability.
3. The respondent assessee filed an appeal before the Commissioner
of Income Tax (Appeals), who was of the following view:
"I have considered the arguments of the AO and rival
submissions made in this regard. The contention of
appellant has no forces. A plain reading of the Sec.
140A(3) states:-
91(3) if any assessee fails to pay the whole or any
part of such tax or interest or both in accordance with
the provisions of sub-section (1), he shall, without
prejudice to any other consequences which he may
incur, be deemed to be an assessee in default in
respect of the tax or interest or both remaining
unpaid, and all the provisions of this Act shall apply
accordingly.)
The intention of the legislative is clear on above
provisions contained in the Act. The provisions are
made to ensure strict compliance of the law. This is
evident from the word "shall" used in treating the
assessee in default. Any other interpretation will
ITA No. 654/2014 Page 3 of 11
defeat the very purpose of the provision. Where the
Assessing Officer initiated proceedings for levy or
penalty by treating the assessee as assessee in default
and the assessee challenged levy of penalty under
section 221 on the ground that no notice of demand
under section 156 was served by the Assessing
Officer, it was held that liability to pay self
assessment tax arises on the basis of the return
furnished by the assessee and the failure to pay tax or
interest or both on the income admitted in the return,
renders the assessee to be in default. Hence, there
was no need to issue notice of demand.(Safari
Mercantile Pvt. Ltd. Vs. CIT(2008) 21 SOT 531
(Mum). In view of the above I am of the considered
opinion that once the default is committed the
appellant became the assessee is default and cannot
take shelter under any reason or circumstances. It is
quite a vague reason that the appellant was facing
financial crisis and that too without any proof and
evidence. Even though the tax and interest have been
paid subsequently that will not cure the defect of the
assessee in default u/S 140A(3). During the appellant
proceedings the appellant stated that he had informed
the assessing officer about their financial crisis and
inability to pay tax vide letter dated 27/08/2010 and
13/10/2010. The appellant had also requested to
grant installments for payment of tax. Since the
ITA No. 654/2014 Page 4 of 11
appellant had paid the entire amount of tax before
issuance of show cause the intention to pay cannot be
doubted and therefore does not deserve the maximum
penalty. However, the appellant cannot escape from
the liability to pay penalty as the intention of the
legislature regarding payment of tax is to pay as you
earn. The appellant should have arranged for
payment of tax as the income was earned. It is quite a
vague reason that the appellant was facing financial
crisis and that too without any proof and evidence. In
my opinion the appellant is definitely an assessee in
default and is liable to pay penalty. Since the
intention of the appellant was not to evade tax and the
entire tax has been paid also, the imposition of
maximum penalty is not justified. In view of the
above, I restrict the quantum of the penalty to the
25% of the amount levied by the AO, i.e. 25% of the
tax liability of the appellant. Thus the penalty is
reduced to Rs. 31,61,720/-".
4. The appellant-revenue as well as the respondent-assessee filed
cross appeals challenging the order of the Commissioner of Income Tax
(Appeals) dated 31.08.2012 before the Tribunal. The Tribunal held as
under:
"9. We have heard both the sides, considered the
material on record as well as submissions made before
ITA No. 654/2014 Page 5 of 11
the lower authorities and reiterated before this Bench
in the light of the precedents relied upon by Ld.
Counsel for the assessee. It is not in dispute that the
assessee has earned substantial income in the year
under consideration but he did not pay the due tax
within the stipulated time after service of demand
notice. Neither any reasonable cause has been shown
nor substantiated and Ld. CIT(A) appears to have
given relief of 75% of the amount of penalty imposed
by the A.O. while taking a very lenient view.
Considering the entirety of facts, circumstances of the
case and material on record in the light of the
precedents relied upon, we are of the view that relief
already granted by Ld. CIT(A) is sufficient. As such,
the action of Ld. CIT(A) is confirmed and resultantly,
appeal of the assessee as well as of the Department are
dismissed".
5. Mr.Balbir Singh, Senior Standing Counsel for the appellant-
revenue would submit that there has been a clear default on the part of
the assessee as he had not paid the amount due within the specified
period and the penalty was rightly imposed by the Assessing Officer. He
would state that no reasonable cause was shown by the assessee in not
depositing the admitted amount due as tax. He would justify the order of
the Assessing Officer in imposing penalty @ 100% of the tax due.
ITA No. 654/2014 Page 6 of 11
6. Having heard the learned Senior Standing Counsel for the
revenue, we note, the respondent-assessee had stated, in his reply before
the Commissioner of Income Tax (Appeals), that he had paid the
admitted tax by 28.04.2011 before the issuance of the show cause notice
by the Assessing Officer on 22.11.2011. In addition the assessee was
liable to pay interest for the delayed payment. The delay in payment of
tax as stated and argued by the assessee was due to the financial hardship
or constraint due to huge losses suffered in share investments. In support,
the assessee had filed the details of the bank statements and other
relevant details before the Assessing Officer to explain his financial
hardship, which it was stated was beyond his control. For the said
reasons, the assessee was not in a position to pay the admitted tax within
time. Though, the CIT (Appeals) and the Tribunal have not accepted the
plea of financial hardship, the said authorities primarily were of the
opinion that there was no intention on the part of the assessee to avoid or
intentionally delay payment of taxes. The assessee had paid the entire tax
but belatedly. He had also paid interest. This belated payment was made
voluntarily and without resort to any coercive steps. Payment was made
in April 2011, whereas the Assessing Officer waited and issued notice
only in November 2011. The CIT (Appeals) and the Tribunal reduced
the penalty to 25% of the amount levied by the Assessing Officer. We
ITA No. 654/2014 Page 7 of 11
have not examined the question of financial hardship, as the assessee is
not in appeal. The only aspect which falls for our consideration is
whether the CIT (Appeals), so also the Tribunal were justified in
restricting the penalty imposed under Section 140A(3) of the Act to
25%.
7. Suffice to state, it is a case of `proportionality'. The Supreme
Court in the case of Coimbatore District Central Cooperative Bank vs.
Coimbatore District Central Cooperative Bank Employees's
Association & Anr. [2007] 4 SSC 669 on the aspect of `proportionality'
in paras No.18 and 34 has held as under:-
"18. 'Proportionality' is a principle where the Court is
concerned with the process, method or manner in which the
decision-maker has ordered his priorities, reached a
conclusion or arrived at a decision. The very essence of
decision-making consists in the attribution of relative
importance to the factors and considerations in the case. The
doctrine of proportionality thus steps in focus true nature of
exercise - the elaboration of a rule of permissible priorities.
xxx
34. As observed by this Court in M.P. Gangadharan and Anr.
v. State of Kerala, the constitutional requirement for judging
the question of reasonableness and fairness on the part of the
statutory authority must be considered having regard to the
factual matrix in each case. It cannot be put in a straitjacket
ITA No. 654/2014 Page 8 of 11
formula. It must be considered keeping in view the doctrine of
flexibility. Before an action is struck down, the Court must be
satisfied that a case has been made out for exercise of power
of judicial review. The Court observed that we are not
unmindful of the development of the law that from the
doctrine of "Wednesbury unreasonableness", the Court is
leaning towards the doctrine of "proportionality". But in a
case of this nature, the doctrine of proportionality must also
be applied having regard to the purport and object for which
the Act was enacted.
8. In the case in hand, it is to be seen whether penalty of 25%
restricted by the CIT (Appeals) and the Tribunal is justified or the
penalty must be the one imposed by the Assessing Officer. We note, the
CIT (Appeals) while restricting the penalty to 25% was of the view that
there was no intention to evade tax. The conclusion of the CIT (Appeals)
which is upheld by the Tribunal reducing the quantum of penalty is
justified. Such a finding is keeping in view the fact that the assessee paid
advance tax of Rs.14,00,000/-. After the return was processed under
Section 143(1) of the Act, the intimation was sent to the assessee on
01.02.2011 calling upon him to make payment by 01.02.2011. The
assessee deposited the tax due by April 28, 2011, which is much before
the date of issuance of notice under Section 140A(3) of the Act by the
Assessing Officer i.e. November 22, 2011. Further, we are of the view,
ITA No. 654/2014 Page 9 of 11
when the authorities were justified in restricting the penalty to 25%
based on cogent material and finding, more so when it is discretionary,
as is clear from the reading of Section 221 of the Act which is
reproduced below:-
"Penalty payable when tax in default.
221. (1) When an assessee is in default or is deemed to be
in default in making a payment of tax, he shall, in addition
to the amount of the arrears and the amount of interest
payable under sub-section (2) of section 220, be liable, by
way of penalty, to pay such amount as the Assessing
Officer may direct, and in the case of a continuing
default, such further amount or amounts as the Assessing
Officer may, from time to time, direct, so, however, that
the total amount of penalty does not exceed the amount of
tax in arrears :
Provided that before levying any such penalty, the
assessee shall be given a reasonable opportunity of being
heard :
Provided further that where the assessee proves to the
satisfaction of the Assessing Officer that the default was
for good and sufficient reasons, no penalty shall be levied
under this section.
Explanation.--For the removal of doubt, it is hereby
declared that an assessee shall not cease to be liable to
any penalty under this sub-section merely by reason of the
ITA No. 654/2014 Page 10 of 11
fact that before the levy of such penalty he has paid the
tax.
(2) Where as a result of any final order the amount of tax,
with respect to the default in the payment of which the
penalty was levied, has been wholly reduced, the penalty
levied shall be cancelled and the amount of penalty paid
shall be refunded."
9. The discretion so exercised is within the mandate of law and based
on good, valid and cogent ground. If at all, the Assessing Officer was
rather harsh, and did not give due credence to several mitigating factors,
including the payment made. Contumacious and maladroit conduct,
though not relevant while deciding the question of reasonable cause, are
relevant consideration when we examine the question of penalty.
Revenue perhaps harbours the belief that maximum penalty must be
imposed in all cases, which is not the legislative mandate. No substantial
question of law arises for our consideration.
The appeal is thus dismissed.
(V.KAMESWAR RAO)
JUDGE
(SANJIV KHANNA)
JUDGE
DECEMBER 22, 2014
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