High Court of
Commissioner of Income-tax
v.
R.K. Agrawal and Vikram Nath, JJ.
IT
Reference No. 157 of 1989
July
20, 2007
Section 221 of the Income-tax Act, 1961 -
Collection and recovery of tax - Penalty payable when tax in default -
Assessment years 1982-83 and 1983-84 - Whether assessee having failed to comply
with provisions of TDS would be liable to penalty under section 221,
notwithstanding fact that TDS and interest, if any accrued thereon, have been
paid prior to initiation of penalty proceeding - Held, yes
Section 221, read with section 201, of the
Income-tax Act, 1961 - Collection and recovery of tax - Penalty payable when
tax in default - Assessment years 1982-83 and 1983-84 - Assessee having failed
to comply with provisions regarding TDS, penalty was levied upon it under
section 221 - However, on appeal, Tribunal set aside penalty on grounds, that ITO’s discretion to levy penalty had not been fairly
exercised; and that no penalty could be levied for non-filing of Form No. 26C -
Whether even though no penalty is leviable under
section 221(1) for not furnishing Form No. 26C, yet since in instant case
penalty proceedings were initiated for violation of provisions of section
201(1), Tribunal had misdirected itself on that issue - Held, yes - Whether,
however, Tribunal’s findings, that ITO’s discretion
to levy penalty on assessee had not been fairly exercised, being based on
appreciation of evidence and material on record, could not be interfered with
and, therefore, penalty was rightly deleted by Tribunal - Held, yes
Facts
The assessee had failed to comply with the
provisions regarding TDS in respect of the amount paid to various contractors
during the relevant years. Therefore, the ITO levied penalty on it under
section 221. On appeal, the AAC partly allowed the appeal. On the second
appeal, the Tribunal cancelled the penalty levied by the ITO in its entirety,
holding that as the assessee had paid tax and interest thereon on his own
without any action or threat of action by the ITO, penalty could not be
properly levied; that the ITO’s discretion to levy
penalty on the assessee had not been fairly exercised; and that the ITO had
initiated action not because the tax was not paid, but because Form No. 26C was
not submitted and in view of the Tribunal, no penalty could be levied for
default in furnishing Form No. 26C in which details of tax deducted had to be
furnished.
On reference :
Held
It was not in dispute that the Tribunal had
set aside the penalty on three grounds, namely (1) tax and interest had been
deposited before the penalty proceedings was initiated; (2) the ITO’s discretion to levy penalty had not been fairly
exercised; and (3) no penalty could be levied for non-filing of Form No. 26C
required under the provision of rule 27(2)(c). [
So far as the first ground was concerned, the
view of the Tribunal that penalty could not be imposed on the ground that the
TDS and interest due thereon had already been paid before the initiation of
penalty proceeding, was not correct. The Explanation to section 221(1), which specifically provides that the
penalty shall not cease to be leviable on an assessee
merely by reason of the fact that before the levy of such penalty, the assessee
has paid the tax, puts the position beyond any pale of doubt that
notwithstanding the fact that the tax and interest had already been paid by the
assessee, the assessee could still be liable for penalty under section 221(1). [
It is immaterial as to whether TDS and
interest, if any accrued thereon, have been paid prior to the initiation of
penalty proceeding or after the notice has been issued. The view of the
Tribunal on that aspect could not be sustained. [
So far as the third ground for deleting the
penalty, i.e., no penalty
is exigible for non-filing of Form No. 26C required
under rule 37(2)(c) was concerned, it was found
that the show-cause notice dated 10-8-1984 had been issued by the ITO under
section 201(1)/221(1) after the assessee had filed Form No. 26C and the ITO had
noticed the default. Even though no penalty is leviable
under section 221(1) for not furnishing Form No. 26C, yet in the instant case,
the penalty proceedings had been initiated for violation of the provision of
section 201(1). The Tribunal appeared to have misdirected itself on that issue.
[
However, the Tribunal’s findings that the ITO’s discretion to levy penalty on the assessee had not
been fairly exercised, were based on appreciation of evidence and material on
record. The High Court, while giving its opinion in a reference, does not sit
in appeal over the findings recorded by the Tribunal, which are not perverse.
Thus, the Tribunal had rightly deleted the penalty. [
Therefore, even though the order of the
Tribunal on the points of law was not correct, yet on the issue of fair
exercise of discretion, there was no reason to interfere. [
Case review
Laxmi & Co. v. CIT [1981] 128 ITR 259 (All.) [
Cases referred to
Laxmi & Co. v. CIT [1981] 128 ITR 259 (All.) [
A.N. Mahajan for the Applicant.
nn