Revenue is in appeal against decision of CIT(A) II, Dehradun dt. 12th May, 2005 by virtue of which penalty of Rs. 21 lakhs imposed under s. 221 of IT Act, 1961 has been cancelled. We have heard parties and perused records. Relevant facts briefly stated are that assessee had filed return of income for asst. yr. 2000- 01 on 31st Oct., 2000 declaring income of Rs. 76,73,190 from real estate business. assessee had paid self-assessment tax of only Rs. 7,50,000. return was processed under s. 143(1) on 22nd Jan., 2001 and demand of Rs. 30,52,501 created (tax plus surcharge of Rs. 25,32,153 with interest under s. 234B at Rs. 3,79,815 and under s. 234C at Rs. 1,40,533). assessee was unable to pay aggregate demand. sum of Rs. 7,50,000 had been paid by assessee earlier leaving balance demand of Rs. 23,02,501 as outstanding. request had been made to AO for granting instalments. assessee had made payments of Rs. 23,00,000 from 16th Nov., 2000 to 4th March, 2002 as per details contained in para 2 of CIT(A) s order. AO initiated penalty proceedings under s. 222(1) and issued show-cause notice dt. 10th May, 2002 asking assessee to explain as to why penalty under s. 222(1) may not be imposed for delay in payment of taxes. Written explanation was submitted by assessee but AO was not satisfied with same. assessee was accordingly held to be guilty of having defaulted in payment of taxes and accordingly liable to penalty under s. 221 of Act. penalty of Rs. 21 lakhs was imposed. CIT(A) has in impugned order pointed out that entire demand along with interest had been paid by assessee by 4th March, 2002 and that AO had issued notice for imposition of penalty only after entire demand was paid by assessee. CIT(A) has further referred to explanation of assessee for delay in making payments. It is further been pointed out that AO vide order sheet entry dt. 21st Jan., 2002 had noted as under: "Shri Avdesh Kumar Parvinder S. Kochar appeared. He has been asked to pay Rs. 6 lakhs by 30th Jan., 2002 and balance by 15th Feb., 2002." It has also been pointed out by CIT(A) that assessee has paid sum of Rs. 6 lakhs on 25th Jan., 2002 and balance demand of Rs. 5 lakhs was paid on 4th March, 2002. CIT(A) has also referred to CBDT Circular No. 20(LXXXVl)-D of 1964 dt. 7th July, 1964 which contains reference to speech of Finance Minister assuring House that instructions will be issued to officers that wherever it is justifiable, no penalty should be imposed. CIT(A) has, after taking into account financial difficulties of assessee in making payment, time extended by ITO for making payments, circular of Board and various judicial decisions held that it was not fit case for imposition of penalty under s. 221. CIT(A) has further made reference to various other cases where AO has not imposed penalty under similar circumstances. CIT(A) has also pointed out that this is perhaps first case where AO has imposed penalty of Rs. 21 lakhs which in this case is equivalent to 100 per cent of demand in respect of which there was delay in payment. According to CIT(A), AO has erred in imposing penalty. He has accordingly deleted penalty against which Revenue is in appeal before us. learned Departmental Representative contended before us that there was admitted default in making payments and therefore assessee was liable to penalty under s. 221 of Act. There was no stay granted by AO for payment of disputed demand. explanation furnished by assessee for delay in making payments was not satisfactory. Therefore, penalty was rightly imposed by AO. It was accordingly pleaded that order of CIT(A) may be set aside and that of AO restored. learned counsel for assessee on other hand sought to support order of CIT(A). It was contended before us that AO had himself granted time to assessee for making payment of disputed demand after being satisfied about existence of reasonable cause. AO had granted time to assessee upto 30th Jan., 2002 in regard to payment of taxes and after 15th Feb., 2002 for payment of interest. assessee had made payment of taxes before 30th Jan., 2002 and therefore there was no default in making payments. It was contended that technically there was delay in making payments but delay was covered by reasonable cause and therefore CIT(A) was justified in deleting so. In regard to payment of interest our attention was invited to s. 221 of Act, which provides for imposition of penalty in event of default for making payment of taxes. According to learned counsel for assessee no penalty has been provided for delay in making payment of interest levied under Act. Reliance was placed on decision of Delhi Bench of Tribunal in case of ITO vs. Devsons (P) Ltd. (2008) 113 TTJ (Del) 615 which supported contention advanced on behalf of assessee that no penalty can be imposed for delay in payment of interest. Our attention was invited to decision of CIT(A) containing details of demand/details of payments made. Learned counsel pointed out that entire demand of tax was paid by 25th Jan., 2002 when time allowed by ITO was upto 30th of Jan., 2002. AO had also extended time for making payment of interest upto 15th Feb., 2002. There was delay of less than 20 days in making payment o f interest. There was no justification for AO to impose penalty with reference to delay in payment of interest. It was further contended that AO had initiated penalty proceedings only after paying entire demand. It was accordingly pleaded that appeal of Revenue may be dismissed. We have given careful consideration to rival submissions. As is evident from facts stated above, there was delay in making payment on account of tax and interest which was payable under s. 140A on basis of return filed by assessee. There is also provision in Act for payment of interest in case there is delay in making payments of taxes. There is no dispute about payment of such interest before us. dispute is about penalty imposed under s. 221 of Act. Sec. 221 of Act provides for penalty when tax is in default. Technically s. 221 is attracted in this case insofar as there is delay in making payment of taxes by assessee. So however it is well-established principle of law that penalty under provisions of Act is not automatic. AO has got discretion to impose or not to impose penalty depending upon facts and circumstances of each case. discretion vested with AO has to be exercised judicially and not arbitrarily. assessee had expressed its difficulties in making payment of taxes and AO had extended time to assessee for making payment of taxes and interest presumably keeping in view such difficulties. CIT(A) has pointed out from records that AO had extended time for making payment of taxes and interest upto 15th Feb., 2002. assessee had made payment of entire taxes by 25th Jan., 2002 and payment of interest was made on 4th of March, 2002. There has been delay of less than 20 days in making payment of interest from date allowed by AO for making such payment. Whether delay of less than 20 days for making payment of interest justifies imposition of penalty of Rs. 21 lakhs there cannot be no two opinions that it does not. AO has evidently been harsh with assessee by imposing penalty of Rs. 21 lakhs after entire demand was paid. Since assessee had made payment of entire taxes by 25th Jan., 2002 against time allowed by AO upto 30th Jan., 2002, there was no justification for imposition of penalty under s. 221 in respect of taxes paid belatedly but admittedly within time allowed by AO. assessee has made delay of 19 days in making payment of interest. So however as held by Delhi Bench of Tribunal in case of Devsons (P) Ltd. (supra) penalty under s. 221 is not attracted in respect of delay in payment of interest. Therefore CIT(A) in our view was justified in canceling penalty of Rs. 21 lakhs imposed by AO. Finding no merit in this appeal of Revenue, we dismiss same. *** Assistant Commissioner of Income-tax v. Avdesh Kumar Parvinder S. Kochar