IN THE ITAT MUMBAI BENCH ‘A’

Safari Mercantile (P.) Ltd.

v.

Assistant Commissioner of Income-tax, Range 2(3), Mumbai

G.C. GUPTA, JUDICIAL MEMBER

AND A.K. GARODIA, ACCOUNTANT MEMBER

M.A. NO. 3 (MUM.) OF 2007

[ARISING OUT OF IT APPEAL NO. 1546 (MUM.) OF 2003]

[ASSESSMENT YEAR 2001-02]

MARCH 14, 2008

Section 221, read with sections 140A and 156, of the Income-tax Act, 1961 - Collection and recovery of tax - Penalty payable when tax in default - Assessment year 2001-02 - Whether in case of default under section 140A in payment of tax etc., before imposing penalty under section 221, it is not necessary to serve separate demand notice on assessee in accordance with statutory provision of section 156 in prescribed form - Held, yes

Facts

The assessee sold shares which resulted into capital gains of Rs. 74.18 crores. It did not deposit any amount of advance tax. On the basis of the computation of income total tax payable was Rs. 10.04 crores inclusive of interest under sections 234B & 234C of the Act. In accordance with the statutory provision of section 140A(1), the assessee was under a legal obligation to pay such tax. However, the assessee paid an amount of Rs. 90 lakhs by way of self-assessment tax under section 140A. The Assessing Officer imposed penalty under section 221 on the assessee. The Tribunal held that no reasonable cause for not depositing the tax in time with the Government could be established by the assessee and therefore, the penalty under section 221 has been rightly levied by the Assessing Officer. The assessee had not pointed out any mistake apparent from the record regarding this finding of the Tribunal. The assessee had filed instant application seeking rectification of the mistake in the order passed by the Tribunal. On the ground that as no notice of demand in the prescribed Form No. 7, as provided in section 156, was served on the assessee along with the order passed under section 140A prior to the issue of show-cause notice under section 221, the levy of penalty under section 221 was not in accordance with law.

Held

The statutory provision of section 156 provides that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. In the case of the assessee, the tax and interest is payable not in consequence of any order of assessment or any other order passed under this Act by the Assessing Officer. The fact is that in this case the amount of tax and interest is payable on the basis of the return filed by the assessee itself under the provisions of the Act and is payable by virtue of the provision of ‘self-assessment’ under section 140A(1).

Under the scheme of the Act, the amount of tax or interest found payable by an assessee on the basis of the return furnished under the provisions of the Act by the assessee is called ‘self-assessment tax’ as per the statutory provision of section 140A(1) and the assessee is obliged to pay the sum to the credit of the Government before furnishing the return and the return of income shall be accompanied by proof of payment of such tax and interest as provided under section 140A(1) and there is no requirement under the Act for passing an order by the Assessing Officer for payment of self-assessment tax by the assessee separately. The liability to pay self-assessment tax arises on the assessee on the basis of the return of income furnished by it and the failure to pay the whole or any part of such interest or tax payable in accordance with provision of section 140A(1), renders the assessee to be in default in respect of tax or interest or both remaining unpaid as per the statutory provision of section 140A(3). The tax, interest or any other sum found payable in accordance with the assessment or any other order passed by the Assessing Officer under the provisions of the Act are treated differently and in such case a separate notice of demand on the prescribed form has to be served by the Assessing Officer upon the assessee specifying the sum so payable in accordance with the provision of section 156. In the instant case, the amount found payable by the assessee was in accordance with the return of income furnished by the assessee for the relevant assessment year and so payable as ‘self-assessment tax’ under the statutory provision of section 140A(1) and the Act, nowhere provides for issue of any notice of demand under section 156, in case the amount of tax or interest is found payable on the basis of the return furnished by the assessee. The provision of section 221 provides for levy of penalty, when an assessee is in the default or is deemed to be in default in making the payment of tax. The assessee having failed to pay the amount of tax on the basis of the return furnished by it for the relevant assessment year in accordance with the provisions of section 140A(1), was ‘deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid’ as per the statutory provision of section 140A(3). The provision of section 140A(3) further provides that in case the assessee is deemed to be in default, all the provisions of this Act shall apply to the case of the assessee. The words ‘all the provisions of this Act’ shall include the provision of section 221 also, which provides for levy of penalty when an assessee is in default or is deemed to be in default in making the payment of tax, etc. There is no requirement of the provision of section 221 for service of separate notice of demand under section 156 on the prescribed form before the levy of penalty on the assessee and the only requirement of provisions of section 221 for levying penalty is that the assessee should be in default or deemed to be in default in making the payment of tax, etc.

The assessee was mixing up the two essentially different issues and procedure thereof as per the provisions of the Act with respect of the amount of tax or interest payable by an assessee on the basis of the return filed by the assessee as ‘self-assessment tax’ and the other issue of levy of tax, etc., by the Assessing Officer on ‘assessment’ of the assessee as per the various provisions of the Act. The scheme of the Act, is entirely different while dealing with the cases of ‘assessed tax’ and the tax payable as per return of income filed by the assessee as ‘self-assessment tax’ as per the statutory provision of section 140A(1). The provisions of section 221 providing for penalty payable when tax is in default applies to both the situations, i.e., when the assessee is in default in respect of the assessed tax or is deemed to be in default in making the payment of tax under ‘self-assessment tax’ as per the return of income filed by the assessee. ‘Self-assessment tax’ has to be calculated on the basis of the return filed by the assessee for the relevant assessment year and paid to the credit of the Government suo motu before furnishing the return of income and the return of income shall be accompanied by proof of payment of such tax and interest as per the statutory provisions of section 140A(1) and there is no requirement of issue of notice of demand under section 156 by the Assessing Officer for making such payment of tax and interest of the ‘self-assessment tax’ before furnishing the return of income by the assessee. In this view of the matter, the penalty under section 221 was rightly levied on the assessee and there was no mistake apparent from the record in the order of the Tribunal in directing the Assessing Officer to calculate the penalty under section 221 at the rate of 10 per cent of the tax payable and, accordingly, the instant application of the assessee had no merit, which was, accordingly, dismissed. [Para 7]

Case review

Mohan Wahi v. CIT [2001] 248 ITR 799/116 Taxman 63 (SC) (para 7); Murlidhar Jalan v. ITO [1961] 41 ITR 80 (Assam) (para 7); Pranavi Ram Baruva (No. 1) v. ACED [1976] 102 ITR 568 (Gauhati) (para 7), distinguished on facts.

Cases referred to

Mohan Wahi v. CIT [2001] 248 ITR 799/116 Taxman 63 (SC) [para 4], Murlidhar Jalan v. ITO [1961] 41 ITR 80 (Assam) [para 4], Pranavi Ram Baruva (No. 1) v. ACED [1976] 102 ITR 568 (Gauhati) [para 4], Madan & Co. v. Wazir Jaivir Chand AIR 1989 SC 630 (para 5) and Keshab Narayana Banerjee v. CIT [1999] 238 ITR 694 (Cal.) (para 5).

G.P. Mehta for the Appellant. Ravi Chandran for the Respondent.

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