Sanjay Garg, J.M:— With this common order we will dispose off two appeals filed by the assessee against the imposition and confirmation of the penalty upon it for different assessment years i.e A.Y 2008–09 and A.Y 2011–12
ITA No. 6345.Mum/2012 for A.Y 2008–09
2. In this appeal the assessee has agitated the confirmation of penalty amount of Rs. 65,00,000/- by the learned CIT(A) vide order dated 06.09.12, levied by the AO vide order dated 30.06.11 u/s. 271(1)(c) of the I.T Act.
2.1 In brief the facts of the case are that the assessee, a private limited company engaged in the business of manufacturing and exporting of agro based seed oils, filed its return of income declaring total income at Rs. 82,96,100/- and book profit u/s. 115JB of the I.T Act at Rs. 93,76,366/-. The AO during the assessment proceedings noticed that the assessee had claimed exemption u/s. 10B while working out profit u/s. 115JB of the I.T Act inspite of the fact that as per the amended provisions of the I.T Act, the assessee was not entitled to do so w.e.f 01.04.2008 i.e for the assessment year in question. The assessee vide letter dated 28.10.2010 stated to the AO that the claim was made on the basis of certificate issued by the Chartered Accountant in Form No. 56G and the assessee accordingly claimed exemption while computing its income. The AO did not agree with the submission of the assessee holding that the assessee merely tried to shift the burden of default on its accountant whereas, it was for the assessee to correctly compute its income as per the amended provisions of the I.T Act. He thus made an addition of Rs. 5,55,27,229/- and added back the same to the book profits of the assessee for the purpose of MAT and penalty proceedings were also initiated u/s. 271(1)(c) of the Act. In the penalty proceedings, the assessee did not appear. The AO worked out the amount of tax sought to be evaded at Rs. 63,13,895/- and imposed penalty of Rs. 65 lacs on the assessee. The learned CIT(A) confirmed the penalty order holding that the assessee was required to correctly compute and calculate the tax payable by it. It was the responsibility of the assessee to make the correct claim and to file the correct return of income and furnish correct particulars as per the amended provisions. The leaned CIT(A) did not accept the argument of the assessee that the tax was calculated in bona fide belief as per the certificate/computation of quantum of exemption u/s. 10B issued by the Chartered Accountant. He observed that the Chartered Accountant might have connived with the assessee in making the false claim and furnishing inaccurate particulars of claim. The learned CIT(A) thus held that the assessee was not entitled for exemption u/s. 10B for the relevant assessment year and he claimed the same wrongly. He confirmed the penalty levied by the AO.
2.2 Before us the learned AR has submitted that the Chartered Accountant of the assessee company while issuing the certificate in support of the book profits u/s. 115JB erroneously deducted the exempt income u/s. 10B under bona fide belief as he inadvertently failed to take note of the amendment brought in the relevant provisions of I.T Act vide Finance Act 2007 w.e.f 01.04.2008 whereby the exempt income u/s. 10B is not permissible for deduction while computing the book profits u/s. 115JB of the I.T Act. The mistake was inadvertent and bona fide and it was not a case of concealment of income or furnishing of inaccurate particulars of income.
2.3 It may be observed that the related amendment has been brought vide Finance Act 2007 w.e.f 01.04.2008 and the relevant assessment year was the first year during which the said amended provisions were to be implemented. The assessee company for its tax matters relied upon its Chartered Accountant. But the Chartered Accountant inadvertently failed to take note of the amended provisions and claimed exemption u/s. 10B as per the previous practice. Accordingly, the assessee company in bona fide belief relying upon the computation made by its Chartered Accountant claimed the said exemption. In such circumstances, in our view, the present case is not a case of concealment of income or furnishing of wrong particulars of income, rather it is a case of wrong claim of exemption which was based on bona fide belief in view of the circumstances as observed above. We do not think that this is a fit case for levy of penalty. Accordingly, the order of the CIT(A) confirming the penalty imposed upon the assessee is hereby set aside.
2.4 In the result, this appeal of the assessee is allowed.
ITA No. 6346.Mum/2012 for A.Y 2011–12
3. In this appeal the assessee has agitated the order of the CIT(A) dated 06.09.2012 confirming the penalty amounting to Rs. 87,18,548/- levied u/s. 221(1) r.w.s 140A(3) of the I.T Act.
3.1 In brief the facts of the case are that the self assessment tax of Rs. 1,57,18,548/- calculated by the assessee in its return of income for A.Y 2011–12 was not paid. The AO vide letter dated 21.10.2011 directed the assessee to show cause as to why penalty u/s. 221(1) r.w.s 140A(3) should not be imposed for default in payment of self assessment tax. A subsequent notice dated 23.11.2011 was also issued to the assessee. In response the assessee agreed to make the payment by 21.12.2011 However, the assessee could make a payment of Rs. 40 lacs only up to 21.12.2011 He paid a further sum of Rs. 30 lacs on the date of penalty order i.e 16.01.2012 So out of the total tax amount of Rs. 1,57,18,158/- the assessee paid an amount of Rs. 70 lacs only despite sufficient opportunities given by the AO to the assessee for this purpose. Since an amount of Rs. 87,18,548/- still remained to be paid, the AO vide penalty order dated 16.01.2012 levied penalty equal to the defaulted amount of tax i.e of Rs. 87,18,548/- u/s. 221(1) of the Act. The assessee preferred appeal before the learned CIT(A). However, before filing of the appeal the assessee made all the payment of tax along with the interest due.
The assessee submitted before the CIT(A) that there was shortage of funds due to devaluation of dollar and default by the buyers in payments due to the assessee and, therefore, the assessee could not make the payment of tax within the stipulated period. The assessee submitted before the CIT(A) that the default in making the payment of tax was not deliberate or intentional rather the same was for good and sufficient reasons i.e paucity of funds and financial stringencies etc. It was further submitted that the AO was required to consider relevant factors like the period of delay, conduct of the assessee, past history of payment of tax by the assessee and other circumstances and further the levy of maximum penalty without stating any reason was not justifiable. The maximum penalty could have been imposed in exceptional cases of deliberate default. The failure of the assessee to pay tax was not deliberate rather it was due to reasons beyond his control.
However, the learned CIT(A) did not agree with the contentions of the assessee observing that the assessee had merely claimed that due to slump in market the payment could not be paid but he did not furnish any evidence in this regard. The assessee failed to show as to how and where its funds were held up and how it was facing financial difficulty with the support of any evidence. He therefore, observed that the assessee had failed to show any good or sufficient reasons for not making the payment of self assessed tax. He further observed that the AO had given sufficient opportunities to the assessee and the penalty was levied only on the amount which was outstanding on the day on which penalty order was passed. He, therefore, confirmed the penalty levied by the AO. The assessee is thus in appeal before us.
3.2 The learned AR has repeated the same contentions before us which were put before the learned CIT(A). He was fair enough to admit that there was a default on the part of the assessee inviting the imposition of penalty. However, he has submitted that maximum penalty @100% was not justifiable in the case of the assessee as there were genuine reasons for the assessee for non-payment of the tax due to financial crunch and further that the conduct of the assessee in payment of the entire tax along with interest within one month from the date of penalty order and before filing of the present penalty appeal shows that the default was not willful but it was merely accidental. The learned DR, on the other hand, has relied upon the orders of the authorities below.
3.3 We have carefully considered the submissions made by the learned representative of the parties. It is not disputed that the assessee had failed to pay self assessment tax and further that he was given reasonable opportunity to pay his tax dues before the imposition of penalty by the AO. Though the assessee has claimed that the default was due to financial crunch as noted above and it was beyond the control of the assessee, however, as per the observations of the learned CIT(A) the assessee had failed to support his contention with any evidence. It is also a fact on the file that the assessee had deposited the entire tax due along with interest before filing the penalty appeal before the CIT(A). The learned AR has relied upon the authority of Hon'ble Gujarat High Court styled as “CIT v. Prarthana Construction Pvt. Ltd.” Appeal No. 1672/2010 decided on 15.11.2011. In the said case penalty of Rs. 30 lacs was imposed by the AO against the principal tax payment of Rs. 58.87 lacs. However, the Tribunal was of the opinion that penalty of Rs. 30 lacs was excessive and, therefore, reduced the penalty by providing formula to impose penalty @15% per annum for every month of default till the actual payment. In appeal, the Hon'ble Gujarat High Court observed that though as per the provisions of section 221 of the Act penalty amount can be levied on the assessee up to total principal sum of tax due and there was no minimum amount prescribed under the said section, but that itself does not mean that the penalty can be imposed without proper reasons at a rate that AO might impose. It was also observed that no reasons were indicated by the AO for imposing such penalty. However, Hon'ble High Court was in agreement with the counsel for the revenue in pointing out that such a formula adopted by the Tribunal incorporating the provisions of sections 215, 216 and 217 into penalty proceedings u/s. 221 would not be ordinarily justified. However, the Hon'ble High Court held that the order of the Tribunal was one quantifying the penalty relating to length of default and it was the discretionary exercise of powers of the Tribunal. There being no question of law arising out of the appeal, the appeal of the revenue was dismissed.
3.4 A careful reading of the judgment relied upon by the assessee shows that vide said judgment the Hon'ble High Court has not laid any principal of law. It has been expressed in clear terms that no fixed formula can be adopted for calculation of penalty u/s. 221 of the Act. The Hon'ble High Court noted that the Tribunal had exercised its judicial discretion calculating the penalty in accordance with the length of time of default and that there was no question of law arising out of the appeal.
Hence, in our view no such formula can be adopted in each and every case. The imposition or quantum of penalty depends upon the facts and circumstances of each case individually. What were the actual facts of the said case and what relevant facts influenced the judgment of the Tribunal to hold that penalty was excessive have not been brought to our knowledge. As observed above, each case has its own facts and for exercise of judicial discretion, no straight jacket formula can be adopted.
3.5 Coming to the facts of this case, despite availing sufficient opportunity, the assessee in this case failed to make the payment of tax at the time of passing of penalty order of the AO. Even the assessee could not substantiate its contention of financial crunch with any supporting evidence. However, the fact which cannot be ignored is that the assessee made the entire payment of tax along with interest before preferring the penalty appeal before the CIT(A) i.e within a very short period of 30 days. In our view, reducing the penalty in this case @15% p.a on the defaulted amount will virtually amount to waiving off the penalty and the resultant amount will be negligible when compared to the penalty amount imposed by the AO. No doubt, while imposing penalty @100% on the defaulted amount the AO did not record his reasons for the same. Though as per the provisions, in levying the quantum of penalty there is discretion vested in the AO, but the discretion is to be exercised on the basis of reasonableness and with judicious approach. Hence, in our view the levy of maximum penalty in this case @100% of the defaulted amount is not justifiable. But reducing the same to almost negligible amount will also be not justified in face of the statutory provisions of the Act. Keeping in view the overall facts and circumstances of the case, explanation put forward by the assessee and the conduct of the assessee in depositing the amount of tax along with interest within a short period after the imposition of penalty, in our view, the interests of justice will be well served, if the amount of penalty is reduced to 1/3 of the amount imposed by the AO. We order accordingly.
3.6 Thus, this appeal of the assessee is partly allowed.
4. In the result, in view of our observations above, the assessee's appeal in ITA No. 6345.Mum/2012 is allowed and appeal in ITA No. 6346.Mum/2012 is partly allowed.