Unreasonable penalty shakes confidence reduces voluntary compliance by the taxpayers. Revenue officials should be careful and reasonable in levying penalty- ITAT

Unreasonable penalty shakes confidence reduces voluntary compliance by the taxpayers. Revenue officials should be careful and reasonable in levying penalty- ITAT

ABCAUS Case Law Citation:
ABCAUS 1142 (2017) (02) ITAT

The Grievance:
The present appeal was filed by the assessee against the order of CIT(Appeals) sustaining the penalty order of the Assessing Officer (AO) u/s 221(1) r.w.s. 140A(3) of the Income tax Act, 1961 (“the Act”). 

Assessment Year : 2010-11
Date/Month of Pronouncement: February, 2017

Brief Facts of the Case:
There was delay in deposit of self assessment tax by the assessee. The AO imposed a penalty u/s 221(1) read with section 140A(3) which was confirmed by the CIT(A).

Contentions of the Appellant assessee:
The assessee stated that detailed submissions were made before the lower authorities wherein reasons were explained in detail causing delay in payment of self assessment tax by the assessee. But without discussing or dealing with the reasons narrated by the assessee penalty was levied by the AO and confirmed by Ld. CIT(A). It was also submitted that assessee deposited the entire amount of tax along with the interest as per law voluntarily. There was no malafide intention on the part of the assessee for making late deposit of tax. Under these circumstances, the AO ought not to have levied the penalty.

Observations made by the Tribunal:
The Tribunal noted that the assessee had deposited the entire tax voluntarily along with the statutory interest.

It was further observed that as per the submission of the assessee made before AO and CIT(A), due to heavy rains and strike of Transporters there was delay in shipments causing delay in recovery of revenue by the assessee which led to liquidity crisis. The assessee had to approach Bank to obtain credit facilities and after obtaining the credit facilities only assessee could make the payment of tax. The assessee had also furnished various evidences in support of these facts and the lower authorities could not contradict any of those evidences.

According to the Tribunal, the verification of all these facts by both the authorities was very much feasible but none of the authorities chose to make verification of these facts. In fact, CIT(A) confirmed the penalty without making any discussion at all and by simply stating that in his view AO was justified in levying the penalty. Thus, the reasons explained by the assessee remain uncontroverted.

The Tribunal opined that the approach followed by the AO in levying penalty and by CIT(A) in confirming the same was highly unfair and unjustified. It was noted that first proviso to section 221 provides that before levying penalty u/s 221, the assessee shall be given a reasonable opportunity of being heard. Further, second proviso provides that where the assessee proves to the satisfaction of the AO that the default was for good and sufficient reasons, no penalty shall be levied under this section. Thus, AO was duty bound to consider the material brought on record by the assessee on objective basis. Before levying the penalty, it was also obligatory on the part of lower authorities to arrive at the conclusion that there were no good and sufficient reasons for the default. However, the Tribunal found that no such exercise was done by either of the lower authorities making levy of penalty illegal per se.

The Tribunal opined that the object of bringing penal provisions on the statute was to bring a deterrent effect. The intention of the legislature is not to mop up additional resources through penal provisions. Therefore, levy of penalty by invoking penal provisions even in those cases, where the default occurred due to reasons beyond the control of the assessee would cause avoidable hardships to the taxpayers without achieving the objective of the legislature.  

The ITAT found that both the AO and the CIT(A) were highly unreasonable and misdirected in their approach which should be avoided as it shakes the confidence of the taxpayer upon the system and working mechanism of the income-tax department which may, in turn, reduce voluntary compliance by the taxpayers. Therefore, the Revenue officials should be more careful and reasonable while levying penalty in such cases.

Held:
The penalty was deleted.