No Penalty for non payment of self-assessment tax due to recession

ORDER

Smt. Diva Singh, Judicial Member – The present appeal has been filed by the assessee assailing the correctness of the order dated 22.12.2015 pertaining to 2011-12 assessment year of learned Commissioner of Income Tax (Appeals)-1, Chandigarh on the following grounds :

2. The relevant facts as extracted from the impugned order are as under :—

“Brief facts of the case are that the appellant filed its return of income on 27.03.2012 declaring a tax liability of Rs. 1,70,25,262/-. After adjustment of TDS/ TCS paid for Rs. 39,13,999/-and advance tax of Rs. 50.00 lacs, the appellant was supposed to pay remaining amount as self assessment tax for Rs. 81,10,99Q/- before the due date of filing of return, but the appellant failed to deposit the self assessment tax of Rs. 81,10,990/-. Sufficient opportunity was provided before holding the appellant as ‘assessee in default’ and penalty proceedings u/s 221(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act) was initiated. The Assessing Officer imposed a penalty of Rs. 16,22,200/- u/s 221(1) of the Act @ 20% on the unpaid self assessment tax of Rs. 81,10,990/-.”

3. The assessee as per record is found to have pleaded financial crunch before the CIT (Appeals) during the specific period. It was pleaded that various loans had been raised during the boom in the industry and on account of the unexpected recession in the business the assessee had defaulted in its payments even towards the bank. In support of its argument it has been stated that whereas the income of the assessee in 2010-11 assessment year was more than Rs.26 crores and in 2012-13 assessment year the assessee was running into losses. It has been submitted that return for 2012-13 assessment year was filed on 30.9.2012 and at that time the assessee was entitled to a refund of Rs.98,97,160/- accordingly the Assessing Officer was requested to adjust this refund due to the assessee since 30.9.2012 under section 140A of the Act for the year under consideration. On account of these facts of financial stringency and request for adjusting the refund due it was pleaded that the assessee should not have been considered to be an “assessee in default” for the purpose of levying penalty under section 221(1) of the Act.

4. The submissions of the assessee have not been accepted by the CIT (Appeals) as have been discussed in para 6.2 of his order. A perusal of the same shows that the CIT (Appeals) was of the view that since similar explanation was offered before the Assessing Officer and as there was nothing new before him the penalty imposed by the Assessing Officer deserved to be confirmed. The CIT (Appeals) also observed that for business loss there can be many reasons, one of which may be raising huge loans from banks requiring the assessee to pay substantial interest for the loans, however, the said action it was noted does not mean that the payment of TDS can be ignored. He was further of the view that the return for the year under consideration was filed on 27.3.2012. On the said date it was noted no refund was due to the assessee and even if the refund of the earlier assessment year is due it could only be adjusted against a notice of demand issued under section 156 of the Act. Thus the Assessing Officer, it was held, could not have adjusted the refund of a future date towards the assessee’s self assessment tax due at the time of filing of its return. Relying upon the Explanation-1 to section 221(1) of the Act the penalty imposed was confirmed and notice was taken of the fact that the assessee had paid self assessment tax only on 17.9.2013. Aggrieved by this, the assessee is in appeal before the I.T.A.T.

5. Both the parties have been heard. The assessee it is seen seeks to invoke “good and sufficient reasons” provided by the legislature as a defense in the Second proviso to section 221(1) so as to argue that penalty was not attracted. The relevant extract of the said provision is reproduced hereunder for ready reference :-

“S.221 (1) xxxxx

[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.— xxxxx.]”

5.1 A perusal of the same shows that the Statute permits the assessee to plead in its defense “good and sufficient reasons” to explain why the default has occurred. On a reading of the above it is eminently clear that the Statute has contemplated that the levy of penalty is not automatic and there is a discretion vested in the Assessing Officer for levy of penalty wherein the assessee is permitted to plead “good and sufficient reasons” as a defense. We find that in the facts of the present case the assessee is consistently pleading lack of funds on account of a sudden recession in the industry. In support of the said claim it has been pleaded that its income over the years has drastically reduced from a positive income of Rs.26 crores odd in 2010-11 assessment year to losses in 2012-13 assessment year. The substantial and drastic reduction in its income from Rs.26 crores in the immediately preceding assessment year to Rs.5.51 crores in the year under consideration is an argument consistently taken on record. On a reading of the orders of the tax authorities, we find that this factual aspect has neither been examined nor considered by the tax authorities. We are of the view that generalizing the issue that loss is a result of substantial loans per se cannot be an argument to negate the claim. Unless it can be shown that the loans have been raised with mala-fide intent deliberately, carelessly and irresponsibly to avoid paying just and due taxes to the State. We note that the stated purposes for taking the loan as per record is expansion of business at the time of a boom in the industry. The correctness of the claim needs to be examined. Merely because in hindsight the decision appears to be a wrong decision as instead of a boom the industry goes through a recession subsequently, we are of the view that such an event cannot be foreseen. Thus the subsequent consequences cannot be the determinative factors for dismissing the claim. It is the facts and factors available at the time of loan applications which can throw light on the bona fide/ mala fide of the assessee.

5.2 In the course of the hearing the Ld. CIT DR had sought a pass over in order to rely upon a decision of the Hon’ble High Court which could not be readily cited. Accordingly a pass over was allowed. Thereafter decision in the case of Satbir Nijjer v. CIT [IT Appeal No.63 of 2015, dated 18-1-2016] was referred to by the ld. CIT-DR. However, on a reading of the said decision the ld. CIT-DR was requested to address the proposition of law on which the Revenue would seek to rely upon. The ld. DR was unable to address the query. It was noticed that the said decision proceeds on the premises that the assessee therein was found to have diverted its money by investing the sale proceeds of its land in a sister concern which was incurring losses with the intention for avoiding the liability of income-tax. The factual findings in the facts of that case were sought to be upset by the assessee in the proceedings under section 154 before the assessing officer. The Hon’ble High Court refused to interfere in an appeal filed by the assessee in the facts of that case in the face of the consistent orders of the assessing officer; CIT appeals; and the ITAT. The decision was again read in the open Court and the ld. DR was unable to address the direct relevance of the said decision at this point of time as the facts in the present case still need to be first marshalled by the tax authorities. The said decision was found to be fact specific as the diversion of funds by the assessee in the facts of that case was found to be intentional and at best may come into play once the facts are found to be identical.

5.3 The learned CIT DR also sought to rely upon a decision of the Jurisdictional High Court dated 16-1-2015 in Kudos Chemie Ltd. v. CIT [2015] 230 Taxman 174  (Punj. & Har.) which appeal had been remanded to the ITAT and also listed for hearing before the present Constitution alongwith the present appeal. For the purpose of completeness of the record, it may be appropriate to briefly refer to the accepted facts on record in the said case : namely, the penalty imposed by the Assessing Officer u/s 140A(3) r.w.s. 221(1) of the Act of Rs.66 crores and Rs.65 crores in the appeal of the Revenue was partly sustained by the Co-ordinate Bench vide order dated 02.08.2013 in ITA No.1137 & 1138/Chd/2010 in 2008-09 & 2009-10 assessment years. The said penalty in the years had been held to be not exigible by the CIT (Appeals) in the facts of that case. In the appeal filed by the Revenue, the Coordinate Bench by allowing the Revenue’s appeal had restricted the penalty to Rs.10 crore in each of the two years. The said decision was challenged in appeal before the Hon’ble High Court. The Hon’ble High Court considering the operative portion of the I.T.A.T’s order wherein the relief was granted to the Revenue on the grounds of “ends of justice” and “applying liberal interpretation” faulted the Coordinate Bench for exercising its discretion without referring to relevant facts. A perusal of the said decision of the Hon’ble High Court shows that the remand was very fact specific as the finding of the ITAT that the penalty was to be levied had not been upset by the assessee in the facts of that case and on the appeal of the Revenue when the factum of levy of penalty had become final by the order of the ITAT the Hon’ble High Court directed a remand only for the purposes of proper quantification of the penalty upsetting the estimate of the ITAT as having been arrived at without referring to the relevant facts holding as under :—

‘………….

The assessee has, as recorded in the opening paragraph of the judgment, given up a challenge to exigibility to penalty and, therefore, the questions, as agreed by counsel for the parties, that require an answer are (a) whether quantum of penalty can be determined without referring to relevant factors and assigning adequate reasons? (b) whether quantum of penalty determined is not perverse and arbitrary? and (c) factors to be considered while determining quantum of penalty, under section 221 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). The questions are being answered together.

A perusal of the aforesaid extract reveals that the Tribunal has restored the assessee’s exigibility to penalty, but while doing so, has reduced the quantum of penalty to Rs.10 lacs for each financial year without assigning any reason other than holding that “the ends of justice” and a “liberal interpretation” require that the penalty be reduced.

The words “ends of justice” and “applying a liberal interpretation” are meaningless if they do not refer to relevant facts or factors that underline “the ends of justice” and ” a liberal interpretation”. The mere use of the words “the ends of justice” and “a liberal interpretation” while reducing penalty from Rs.66 lacs to Rs.10 lacs each, particularly when the Tribunal had accepted that the assessee has not discharged onus to explain its default, are insufficient to infer a legal exercise of discretion to determine the quantum of penalty. The impugned order, therefore, does not meet the parameters of a judicial, much less a quasi judicial determination. While exercising the power to determine the quantum of penalty, whether in original or appellate proceedings, the discretion so conferred has to be exercised by reference to relevant facts, followed by a perceptible process of reasoning, leading to a fair and just conclusion. A few factors which, in our considered opinion, may be relevant, though not be exhaustive of the circumstances that may be taken into consideration are:- (a) the period of default; (b) the reasons for default; (c) the recurring nature of the default; (d) conduct of the assessee and (e) any extenuating circumstances putforth by the assessee. The Tribunal did not take into consideration any relevant fact or factor but by merely using a few legal phrases, reduced the penalty from 66/60 to 10 lacs each. The discretion conferred to determine the quantum of penalty, is judicial in nature and may if the facts and factors so warrant, be more or less than the Rs.10 lacs determined by the Tribunal or the Rs.66 lacs determined by the Assessing Officer. The Tribunal having determined the quantum of penalty without assigning any tangible reason or by referring to any relevant fact or factor, has arbitrarily reduced penalty to Rs.10 lacs. The Tribunal would, therefore, be required to reconsider the quantum of penalty liable to be paid by the assessee. The questions of law are answered in favour of the revenue accordingly.’ [Emphasis provided]

5.4 Accordingly, on reading of the said decision we find that the incorrectness of the facts which would be determinative for arriving at a conclusion have not been examined or considered by the Revenue. The parties have requested a remand to the Assessing Officer as the argument on facts have not been considered by the tax authorities. The ld. AR had initially taken the position that the issue be decided at this stage but finally in the face of the reluctance of the Revenue to adopt the said course it was agreed that the issues may be remanded for considering the facts. The reluctance of the ld. CIT-DR was on the grounds that the specific facts and arguments need to be verified. Considering the material available on record we find that the ld. CIT-DR on facts was justified to request a remand. Accordingly, in the aforesaid peculiar facts and circumstances the issue is set aside back to the Assessing Officer with the direction to pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. The assessee is also directed at the same time to place full and necessary facts and evidences in support of its claim in order to facilitate the Assessing Officer to pass a speaking order.

6. In the result, the appeal of the assessee is allowed for statistical purposes.