Commissioner of Income-tax-VIII v. Naresh Kumar Jaggi
[Citation -2014-LL-1222-7]

Citation 2014-LL-1222-7
Appellant Name Commissioner of Income-tax-VIII
Respondent Name Naresh Kumar Jaggi
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 22/12/2014
Judgment View Judgment
Keyword Tags admitted tax liability • outstanding demand • financial hardship • delay in payment • payment of tax • unpaid tax • evade tax
Bot Summary: The challenge in this appeal by the revenue under Section 260A of the Income Tax Act, 1961 is to the order dated March 31, 2014 passed by the Income Tax Appellate Tribunal, Delhi Bench, whereby the Tribunal, in cross appeals filed by the appellant-revenue and the respondent-assessee, upheld the order of the Commissioner of Income Tax, restricting the penalty imposed under Section 140A to 25. 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/-. 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. 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, 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. 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. 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. 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, 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 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. challenge in this appeal by revenue under Section 260A of Income Tax Act, 1961 ( Act in short) is to order dated March 31, 2014 passed by Income Tax Appellate Tribunal, Delhi Bench ( Tribunal , in short), whereby Tribunal, in cross appeals filed by appellant-revenue and respondent-assessee, upheld order of Commissioner of Income Tax (Appeals), restricting penalty imposed under Section 140A (3) to 25%. 2. relevant facts of case are, respondent-assessee filed return of income for Assessment Year 2009-10 on 03.11.2010 ITA No. 654/2014 Page 1 of 11 declaring income of Rs. 6,23,36,790/-, on which tax at Rs.1,26,46,875/- was due and payable after reducing advance tax paid of Rs. 14,60,000/-. respondent-assessee had not paid this admitted tax liability under Section 140A of Act. return was processed under Section 143(1) of Act. intimation under Section 143(1) of Act was served upon assessee on 02.01.2011 and assessee was required to make payment by 01.02.2011. assessee did not make payment of outstanding demand by said date. Accordingly, show cause notice under Section 140A(3) of Act was served upon assessee by Assessing Officer vide letter dated November 22, 2011. In reply to show cause notice, it was stand of assessee that admitted tax of Rs. 1,41,06875/- for Assessment Year 2009-10 stands paid by him inasmuch as Rs.14,00,000/- was paid as advance tax and balance amount of Rs. 1,26,46,875/- was paid in month of April, 2011 and in support of same, he attached necessary challans. He requested that he should not be treated as in default and action under Section 140A(3) of Act be not initiated. Assessing officer was of view that nothing has come from reply of assessee to overcome default committed under Section 140A(3) of Act. According to him, assessee had not shown and established reasonable cause for non payment of ITA No. 654/2014 Page 2 of 11 admitted tax liability. Assessing Officer referred to six judgments of different High Courts and Supreme Court and was of view that in absence of any reasonable cause for non payment of admitted tax liability, penalty should be imposed. He imposed penalty at 100% of admitted tax liability i.e. Rs.12646875/- or amount equal to unpaid tax liability. 3. respondent assessee filed appeal before Commissioner of Income Tax (Appeals), who was of following view: I have considered arguments of AO and rival submissions made in this regard. contention of appellant has no forces. plain reading of Sec. 140A(3) states:- 91(3) if any assessee fails to pay whole or any part of such tax or interest or both in accordance with provisions of sub-section (1), he shall, without prejudice to any other consequences which he may incur, be deemed to be assessee in default in respect of tax or interest or both remaining unpaid, and all provisions of this Act shall apply accordingly.) intention of legislative is clear on above provisions contained in Act. provisions are made to ensure strict compliance of law. This is evident from word "shall" used in treating assessee in default. Any other interpretation will ITA No. 654/2014 Page 3 of 11 defeat very purpose of provision. Where Assessing Officer initiated proceedings for levy or penalty by treating assessee as assessee in default and assessee challenged levy of penalty under section 221 on ground that no notice of demand under section 156 was served by Assessing Officer, it was held that liability to pay self assessment tax arises on basis of return furnished by assessee and failure to pay tax or interest or both on income admitted in return, renders 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 above I am of considered opinion that once default is committed appellant became assessee is default and cannot take shelter under any reason or circumstances. It is quite vague reason that appellant was facing financial crisis and that too without any proof and evidence. Even though tax and interest have been paid subsequently that will not cure defect of assessee in default u/S 140A(3). During appellant proceedings appellant stated that he had informed assessing officer about their financial crisis and inability to pay tax vide letter dated 27/08/2010 and 13/10/2010. appellant had also requested to grant installments for payment of tax. Since ITA No. 654/2014 Page 4 of 11 appellant had paid entire amount of tax before issuance of show cause intention to pay cannot be doubted and therefore does not deserve maximum penalty. However, appellant cannot escape from liability to pay penalty as intention of legislature regarding payment of tax is to pay as you earn. appellant should have arranged for payment of tax as income was earned. It is quite vague reason that appellant was facing financial crisis and that too without any proof and evidence. In my opinion appellant is definitely assessee in default and is liable to pay penalty. Since intention of appellant was not to evade tax and entire tax has been paid also, imposition of maximum penalty is not justified. In view of above, I restrict quantum of penalty to 25% of amount levied by AO, i.e. 25% of tax liability of appellant. Thus penalty is reduced to Rs. 31,61,720/- . 4. appellant-revenue as well as respondent-assessee filed cross appeals challenging order of Commissioner of Income Tax (Appeals) dated 31.08.2012 before Tribunal. Tribunal held as under: 9. We have heard both sides, considered material on record as well as submissions made before ITA No. 654/2014 Page 5 of 11 lower authorities and reiterated before this Bench in light of precedents relied upon by Ld. Counsel for assessee. It is not in dispute that assessee has earned substantial income in year under consideration but he did not pay due tax within 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 amount of penalty imposed by A.O. while taking very lenient view. Considering entirety of facts, circumstances of case and material on record in light of precedents relied upon, we are of view that relief already granted by Ld. CIT(A) is sufficient. As such, action of Ld. CIT(A) is confirmed and resultantly, appeal of assessee as well as of Department are dismissed . 5. Mr.Balbir Singh, Senior Standing Counsel for appellant- revenue would submit that there has been clear default on part of assessee as he had not paid amount due within specified period and penalty was rightly imposed by Assessing Officer. He would state that no reasonable cause was shown by assessee in not depositing admitted amount due as tax. He would justify order of Assessing Officer in imposing penalty @ 100% of tax due. ITA No. 654/2014 Page 6 of 11 6. Having heard learned Senior Standing Counsel for revenue, we note, respondent-assessee had stated, in his reply before Commissioner of Income Tax (Appeals), that he had paid admitted tax by 28.04.2011 before issuance of show cause notice by Assessing Officer on 22.11.2011. In addition assessee was liable to pay interest for delayed payment. delay in payment of tax as stated and argued by assessee was due to financial hardship or constraint due to huge losses suffered in share investments. In support, assessee had filed details of bank statements and other relevant details before Assessing Officer to explain his financial hardship, which it was stated was beyond his control. For said reasons, assessee was not in position to pay admitted tax within time. Though, CIT (Appeals) and Tribunal have not accepted plea of financial hardship, said authorities primarily were of opinion that there was no intention on part of assessee to avoid or intentionally delay payment of taxes. assessee had paid 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 Assessing Officer waited and issued notice only in November 2011. CIT (Appeals) and Tribunal reduced penalty to 25% of amount levied by Assessing Officer. We ITA No. 654/2014 Page 7 of 11 have not examined question of financial hardship, as assessee is not in appeal. only aspect which falls for our consideration is whether CIT (Appeals), so also Tribunal were justified in restricting penalty imposed under Section 140A(3) of Act to 25%. 7. Suffice to state, it is case of proportionality . Supreme Court in case of Coimbatore District Central Cooperative Bank vs. Coimbatore District Central Cooperative Bank Employees s Association & Anr. [2007] 4 SSC 669 on aspect of proportionality in paras No.18 and 34 has held as under:- 18. 'Proportionality' is principle where Court is concerned with process, method or manner in which decision-maker has ordered his priorities, reached conclusion or arrived at decision. very essence of decision-making consists in attribution of relative importance to factors and considerations in case. doctrine of proportionality thus steps in focus true nature of exercise - elaboration of rule of permissible priorities. xxx 34. As observed by this Court in M.P. Gangadharan and Anr. v. State of Kerala, constitutional requirement for judging question of reasonableness and fairness on part of statutory authority must be considered having regard to factual matrix in each case. It cannot be put in straitjacket ITA No. 654/2014 Page 8 of 11 formula. It must be considered keeping in view doctrine of flexibility. Before action is struck down, Court must be satisfied that case has been made out for exercise of power of judicial review. Court observed that we are not unmindful of development of law that from doctrine of Wednesbury unreasonableness , Court is leaning towards doctrine of proportionality . But in case of this nature, doctrine of proportionality must also be applied having regard to purport and object for which Act was enacted. 8. In case in hand, it is to be seen whether penalty of 25% restricted by CIT (Appeals) and Tribunal is justified or penalty must be one imposed by Assessing Officer. We note, CIT (Appeals) while restricting penalty to 25% was of view that there was no intention to evade tax. conclusion of CIT (Appeals) which is upheld by Tribunal reducing quantum of penalty is justified. Such finding is keeping in view fact that assessee paid advance tax of Rs.14,00,000/-. After return was processed under Section 143(1) of Act, intimation was sent to assessee on 01.02.2011 calling upon him to make payment by 01.02.2011. assessee deposited tax due by April 28, 2011, which is much before date of issuance of notice under Section 140A(3) of Act by Assessing Officer i.e. November 22, 2011. Further, we are of view, ITA No. 654/2014 Page 9 of 11 when authorities were justified in restricting penalty to 25% based on cogent material and finding, more so when it is discretionary, as is clear from reading of Section 221 of Act which is reproduced below:- Penalty payable when tax in default. 221. (1) When assessee is in default or is deemed to be in default in making payment of tax, he shall, in addition to amount of arrears and amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as Assessing Officer may direct, and in case of continuing default, such further amount or amounts as Assessing Officer may, from time to time, direct, so, however, that total amount of penalty does not exceed amount of tax in arrears : Provided that before levying any such penalty, assessee shall be given reasonable opportunity of being heard : Provided further that where assessee proves to satisfaction of Assessing Officer that default was for good and sufficient reasons, no penalty shall be levied under this section. Explanation. For removal of doubt, it is hereby declared that assessee shall not cease to be liable to any penalty under this sub-section merely by reason of ITA No. 654/2014 Page 10 of 11 fact that before levy of such penalty he has paid tax. (2) Where as result of any final order amount of tax, with respect to default in payment of which penalty was levied, has been wholly reduced, penalty levied shall be cancelled and amount of penalty paid shall be refunded. 9. discretion so exercised is within mandate of law and based on good, valid and cogent ground. If at all, Assessing Officer was rather harsh, and did not give due credence to several mitigating factors, including payment made. Contumacious and maladroit conduct, though not relevant while deciding question of reasonable cause, are relevant consideration when we examine question of penalty. Revenue perhaps harbours belief that maximum penalty must be imposed in all cases, which is not legislative mandate. No substantial question of law arises for our consideration. appeal is thus dismissed. (V.KAMESWAR RAO) JUDGE (SANJIV KHANNA) JUDGE DECEMBER 22, 2014 km ITA No. 654/2014 Page 11 of 11 Commissioner of Income-tax-VIII v. Naresh Kumar Jaggi
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