Assessee liable to penalty u/s 221(1) for non payment of self assessment tax under section 140A, where return is revised and tax is paid at the time of filing the revised return of income – ITAT Special Bench
Penalty for non payment of self assessment tax where return is revised and tax is paid
ABCAUS Case Law Citation:
ABCAUS 2090 (2017) (10) ITAT
Important Case Laws Cited/relied upon by the parties:
Beco Engineering Co Ltd Vs CIT [(1984) 148 ITR 478 (P&H)]
ACIT Vs Shri Shakti Credits Limited [(2014) 66 SOT 0175
Niranjan Lal Ram Chandra vs. CIT [(1982) 134 ITR 352 (All)],
CIT vs Mahendra Mills [(2000) 243 ITR 56 (SC)]
Someshwar Sahkari Sakar Kharana Ltd [(1989) 177 ITR 443 (Bom)]
CIT Vs Arun Textile [(1991) 192 ITR 700 (Guj)],
CIT vs Vegetable Products Ltd [(1973) 88 ITR 192 (SC)].
Reliance Industries Ltd Vs CIT [(2015) 377 ITR 74 (Bom)]
Prakash Nath Khanna Vs CIT [(2004) 266 ITR 1 (SC)]
Vinod Kumar Khatri Vs DCIT [(2016) 129 DTR 377 (Del)]
CIT vs Sun Engineering Works Pvt Ltd [(1992) 198 ITR 297 (SC)]:
Brief Facts of the Case:
A Division Bench of the ITAT had doubted the correctness of another division bench order holding that the provisions of Section 221 (1) of the Income Tax Act, 1961 ( ‘the Act’) cannot be invoked in respect of non-payment of self-assessment tax under section 140A at the time of filing an income tax return which has been revised subsequently. The other Division Bench had thus made a recommendation for constitution of a special bench to decide the issue. Accordingly, a Special Bench was constituted to decide the question.
The assessee in the instant appeal was a public company which had filed its return of income within the prescribed time. However, the assessee , contrary to its claim, was found not to have not paid the required self-assessment tax under section 140A. When the Assessing Officer (AO)sought the proof of deposit of the tax as it was not reflected in the income tax department software, the assessee accepted that the amount was not actually paid by the assessee. It was stated that on account of the financial stringency and liquidity crunch, at the time of filing of the return of income, the company could not make payment of self-assessment tax. In the same letter written by the assessee, it was further submitted that “subsequently, certain apparent mistakes and omissions were found and in respect of which the assessee was in the process of revision of accounts a filing of the revised return of income. Later, the assessee filed his revised return of income and paid the admitted self-assessment tax liability thereon
On these facts, the Assessing Officer imposed a penalty on account of nonpayment of self-assessment tax liability under section 140A. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee went in appeal before the Tribunal. When the matter was being heard by a division bench of the Tribunal, the assessee relied upon a decision of another division bench in which it was held that since the admitted tax liability had been paid at the time of filing the return under section 139(5) of the Act, the provisions of sub-section (3) of section 140A of the Act cannot be invoked for imposing penalty under section 140A of the Act for non-payment of tax or interest on the income declared in the return.
The Question framed:
Whether an assessee is liable to penalty under section 221(1) of the Act in a case in which the though the assessee has not paid the self assessment tax under section 140A, while filing the return of income, but revises the income, by filing revised return of income, and pays the tax on the revised return of income at the time of filing the revised return of income?
Contention of the Assessee:
It was submitted that there were serious mistakes in the original profit and loss account due to certain omissions and mistakes and, therefore, financial statements had been revised incorporating the changes required to be made to give suitable effects of omissions and mistakes. It was emphasized that the revision of return was wholly bonafide. It was also pointed that that the return was revised well within permissible limit and there is no, and there cannot be any, dispute on this aspect of the matter either.
It was submitted that that the impact of filing of a bonafide revised return is that once a valid revised income tax return is filed, old income tax return is to be ignored in entirety as it supplants, supersedes and replaces the original income tax return.
It was submitted that the filing of a revised income tax return thus completely supersedes and replaces the original income tax return, and, therefore, it cannot be open to the Assessing Officer to refer to the original income tax return for the purpose of ascertaining default in payment of admitted tax liability. The very foundation of the impugned penalty proceedings thus, was vitiated in law.
It was submitted that the default in payment of admitted tax liability under section 221 r.w.s.140A is an event specific lapse for non-payment of admitted tax liability at the time of filing of the income tax return and once the income tax return itself is lawfully revised, the original return ceases to have any relevance.
It was further argued that if the views so canvassed by the assessees were not legally correct, it was at least a possible view of the matter, and when two reasonable views are possible, the view in favour of the assessee should be adopted as per law laid by the Hon’ble Supreme Court.
Observations made by the Tribunal:
The Special Bench (bench) observed that a plain reading of the statutory provisions would show, the lapse, referred to in section 140A(1), is the failure “to pay such (admitted) tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return” and the lapses punishable under section 221(1) are the lapses in respect of “default in making a payment of tax”. The default triggering the penal liability under section 221(1) is the default in making payment of tax, and that the default in payment is tax is with reference to the filing of the income tax return. Thus, default is committed at the point of time when a return of income is filed without making payment of the admitted tax liability.
The Bench opined that clearly, therefore, the assessee committed a default in not paying the admitted tax liability when it filed the original income tax return, without payment of admitted tax liability. To this extent, there was no dispute or ambiguity at all.
The Bench clarified that the impact of filing a revised income tax return to the extent it pertains to the assessment proceedings, is that it is the validly revised return which is the starting point for the assessment of income, the original income tax return ceases to be relevant. However, that substitution of income tax return is only for the purposes of assessment of income. The Bench observed that all the judicial precedents relied by the assessee were on these lines. The questions which come up for consideration in the context of all those judicial precedents was assessment of income and the related claims, in the income tax returns.
According to the Bench there was an unanimity in all these decisions that the claims made in revised return alone could be considered by the Assessing Officer but neither the Bench had any different opinion on this proposition nor is that aspect at all relevant in deciding the issue before it.
The Bench observed that the claims made in an income tax return is one thing and all the actions connected with the original income tax return becoming a legal nullity quite another thing. The basic character and traits of these two set of things are materially different, and just because revised return substitutes the original income tax return for the purposes of adjudication on claims made in the income tax return does not mean that revised income tax return also substitutes original income tax return for all legal purposes, including penal consequences in respect of defaults committed in respect of the original income tax return. The Bench observed that if followed, it would be a wholly superfluous approach.
Regarding the decisions of the Superior Courts relied by the assessee, the Bench opined that the observations made by Their Lordships in this context could not be viewed on standalone basis as a complete exposition of law on the question which did not even come up for consideration before Their Lordships.
Relying on the observations made by Hon’ble Supreme Court the Bench opined that indeed it is the duty of every subordinate judicial forum to apply the ruling of the superior Courts in such a manner so as to enforce the true legal principles emerging from the same, by putting the words and expression used in the ruling in the right perspective and by taking a holistic legal view of the matter. Such an exercise is not to be viewed as diluting the law laid down in a ruling, but as a cerebral judicial exercise and a call of duty in judicial offices.
The Bench opined that the question before it was whether by paying the admitted tax liability at the time of filing revised income return, the lapse committed in not paying the admitted tax liability at the time of filing the original income tax return gets obliterated or wiped out so that the consequences of earlier lapse must not be visited with penal consequences. The answer has to be emphatically in negative.
The Bench opined that the assessee had undoubtedly committed the default in not making payment of admitted tax liability under section 140A(1) at the point of time when this income tax return was filed, and it is this default in respect of which penalty is imposable under section 221(1). As Section 221(1) itself states in so many words, the assessee “shall not cease to be liable to any penalty under this sub-section merely by reason of the fact that before the levy of such penalty he has paid the tax”. Subsequent payment of tax, whether with or without revision of income tax return, is thus of no help to the assessee so far as penal consequences under section 221(1) are concerned.
The Bench observed that as regards the submissions regarding event based triggers for penal consequences and time based triggers for penal consequences, even if it is accepted that penalty under section 221(1) r.w.s. 140A(1) requires an event based trigger, rather than a time based trigger, nothing really turns on this plea of the assessee since the event triggering the penal consequences under section 221(1) r.w.s. 140A(1) is non-payment of admitted tax liability at the time of filing original income tax return and subsequent revision of income tax return with due payment of admitted tax liability, for the detailed reasons set out above, does not obliterate the default at the time of filing original return of income. The payment of admitted tax liability, while filing revised return of income under section 139(5), does not affect the lapse committed at the time of filing the original return of income, even though claims made in such original income tax return stand supplanted by the claims made in the revised income tax return.
Decision/Held:
It was held that the assessee was, in principle, covered by the scope of the penalty under section 221(1) of the Act in a case in which the though the assessee has not paid the admitted tax liability under section 140A, while filing the original return of income, the assessee subsequently pays the tax on the revised return of income, at the time of filing the revised return of income.
The Bench answered the question referred in affirmative and against the assessee. However, whether the penalty under section 221(1) r.w.s. 140A(1) is actually leviable on the facts of a particular case or not will depend on the facts of that case and depending on, inter alia, the factual finding as to whether or not the default of the assessee was for good and sufficient reasons- something with which the Bench was not really concerned at this stage due to inherently limited scope of the question before it.
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