Chandak Krishnagopal Motilal., ... vs Department Of Income Tax

ITO, Ward-1, Ahmednagar .. Appellant

Vs.

Shri Chandak Krishnagopal Motilal, 3302, Adate Bazaar, Ahmednagar .. Respondent PAN No.ABAPC7514Q

Appellant by : Shri S.N. Doshi Department by : Shri A.K. Modi, CIT Date of Hearing : 15-06-2015 Date of Pronouncement : 17-06-2015

ORDER

PER R.K. PANDA, AM :

This appeal filed by the Revenue is directed against the

order dated 30-07-2012 of the CIT(A)-I, Pune relating to

Assessment Year 2006-07.

2. Deletion of penalty of Rs.42,16,773/- levied by the

Assessing Officer u/s.140A(3) of the I.T. Act by admitting

additional evidences is the only issue raised by the Revenue in

the grounds of appeal.

3. Facts of the case, in brief, are that the assessee filed his

return of income on 30-03-2008 declaring total income of

Rs.6,27,99,405/-. The source of income is mainly from

capital gain out of share transactions. Although the tax

payable on the returned income was Rs.53,17,680/-, however,

the assessee while filing the return of income has paid only

Rs.11,00,887/- leaving the short payment of Rs.42,16,773/-. 2

Since the assessee failed to pay self-assessment tax u/s.140A

at the time of filing of return, the Assessing Officer issued a

show cause notice asking the assessee to inform whether the

above demand has been paid by him and, if so, to file the copy

of the challan. The Assessing Officer further asked the

assessee if the amount has not been paid, then to explain as

to why penalty u/s.221 of the Act should not be levied. Since

the assessee did not reply to the show cause notice the

Assessing Officer again issued similar notices asking the

assessee to explain. In absence of any reply from the assessee

despite opportunities given, the Assessing Officer levied

penalty of Rs.42,16,773/- u/s.140A(3) r.w.s. 221 of the I.T.

Act.

4. Before CIT(A) the assessee submitted that his father was

looking after the taxation matters who was not feeling well

from June to September 2006 for which he decided that the

returns will be filed in a month or so but suddenly the mother

of the assessee fell sick and after a brief illness she expired on

05-10-2006. Subsequently, his father was also admitted to

hospital on 10-10-2006 and he expired on 25-10-2006.

Thereafter, the assessee's wife also suffered from low blood

pressure who was admitted to hospital. It was submitted that

since the assessee was facing problems one after another the

landlord took advantage of the situation and tried to take

possession of the godown of the assessee. He along with

around 200 persons forcibly attacked the godown and

destroyed the same. Unfortunately this event took a

communal colour, i.e. Hindu-Muslim conflict and the matter

is now subjudice before the court.

3

5. The assessee further gave a chronology of events such

as the fall in the stock market and attachment of bank

account, demat account etc. The relevant portion of the

submission by the assessee before the CIT(A) reads as under :

"The stock market fell heavily in January 2008 putting assessee to heavy losses. With no business in hand assessee survives his family by withdrawing from their PPF account. In spite of this assessee has filed his Return of Income on 31/03/2008 vide acknowledgement receipt No. 551, Sir. Due to market position became worst and worst day by day hence assessee could not pay self assessment taxes before filing of Return of Income. Assessee always Co-Operative with the Department. Thereafter the Assessing officer has taken very harsh action for Recovery of demand i.e., Bank a/c attachment, D-Mat A/c attachment, etc. The Income Tax Officer sold assesses valuable shares at a very low price without any information to assessee. Sir, Assessing Officer has in letter dt. 17/08/20010 to Networth Capital Written that assessee has holding shares of Rs. 29,15,601/- on that day which may sale and deposit that amount in Income Tax Office, Ahmednagar, but as against the same the Assessing Officer has recovered only of Rs.9,87,530/-. Sir, in that letter dt. 17/08/2010 Assessing Officer has written to Networth Capital that.

"It is further informed by you that M/s Ravisha Financial Services Pvt. Ltd. have to receive an amount of Rs.19,17,560/- from Shri Chandak Krishnagopal Motilal. In the said letter permission was requested from this office so that the security can be sold and from the sale consideration, after recovering the amount of due to M/s. Ravisha Financial Services Pvt. Ltd., balance can be made to the Income Tax Department, Ahmednagar for its outstanding" Sir, for the same I am very regret to say that the assessee was not payable single paisa to said M/s Ravisha Financial Services Pvt. Ltd. and the Assessing Officer has not informed or asked to assessee before granting permission to recover the amount of Rs 19,17,560/-. Sir, it was his moral/Legal responsibility on account of Income Tax Department as well as Assessee. Sir, Assessing Officer has no right to give permission of third party recovery. Sir, due to issue of this letter by the Assessing Officer, Assesses source of to deposit Self Asst. Tax was closed and the Income Tax Department has recovered Tax Rs.9,87,530/- as against sale consideration of shares of Rs.29,90,549/-.

Sir, thereafter assessee has no source no banker are ready to give loan. Sir, assesses previous Tax Consultant has guided assessee that to pay self taxes first then we should file appeal. Sir assessee was not in position to pay of taxes, There was no alternative for payment of taxes except to borrow money. Sir, ENAR STAR TRADE LTD has given unsecured loan to assessee hence he can paid the balance of Self Asst. Tax. Sir, here we are producing all the documents for your honors kind verification and out of the same some copies of such documents are submitting on record.

4 Sir, in all these matters assessee cannot understand that what he has to do first. Due to some other family problems and financial crises assessee could not file appeal in time. Considering the fact here we also request to your honor that the delay for filing appeal may please be condoned.

Sir, Assessing Officer has taken survey action at business place of the assesses wife, but the survey authority has not found any discrepancy at business premises, but they had got knowledge about that the assessee is not in position to pay self assessment tax.

6. The assessee also brought to the notice of the CIT(A) the

observation of the Hon'ble Finance Minister in the Lok Sabha

in his reply to debate on clause by clause consideration of the

Finance Bill, 1964. Referring to the provisions of section

140A(3) and the CBDT Circular dated 22-04-1971, the

decision of the Hon'ble Calcutta High Court in the case of CIT

Vs. Wesman Engineering Company Pvt. Ltd. reported in 104

ITR 650 and the decision of the Hon'ble Karnataka High

Court in the case of Ramchandra Pesticides Pvt. Ltd. Vs. CIT

reported in 285 ITR 45 the assessee argued that penalty levied

by the AO should be deleted.

7. Based on the arguments advanced by the assessee the

Ld.CIT(A) cancelled the penalty so levied u/s.140A(3) of the

I.T. Act by observing as under :

"4.3. I have carefully considered the facts of the case and the law as are apparent from the record. The problems faced by the appellant have been amply demonstrated. The fact that the return was filed showing Short Term Capital Gains of Rs.4,73,30,889/- and Long Term Capital Gains of Rs. 1,53,11,448/- along with salary income is not in dispute. The tax payable on the returned income was at Rs.53,17,680/-. However, the appellant paid Rs.11,00,887/- only and the balance of Rs.42,16,773/- remained to be paid. The AO after processing the return raised a demand of Rs.62,07,590/- alongwith interest. The case was further selected for scrutiny and the assessment was completed u/s 143(3) on 4/12/2008 by treating the share transactions as assessable under the head 'business'. As a result of this, demand of Rs.3,19,30,835/- was raised. However, the AO after noticing the contravention of sec. 140A, treated the assessee in default u/s 140A(3) and levied , the penalty of Rs.42,16,773/- u/s. 221 of the I.T. Act @ of 100% of the tax 5

payable as per return filed. The perusal of the penalty order clearly shows that the AO gave many opportunities to the appellant to explain the circumstances for non-payment before levying the penalty u/s 221 though the same were not availed. Since the appellant has been able to explain with evidences the reasons for not being able to pay the taxes fully on the returned income as well as for not being able to appear before the AO, the penalty levied can be deleted for the successful demonstration of good and sufficient reasons for the aforesaid defaults. In view of the discussions made above, ground No.1 is allowed."

8. Aggrieved with such order of the CIT(A) the Revenue is

in appeal before us.

9. The Ld. Departmental Representative strongly

challenged the order of the CIT(A) in deleting the penalty

levied by the Assessing Officer u/s.140A(3) of the I.T .Act. He

submitted that the Ld.CIT(A) without affording any

opportunity to the Assessing Officer deleted the penalty. He

submitted that despite repeated opportunities given by the

Assessing Officer the assessee did not bother to appear before

the Assessing Officer to substantiate the financial hardship, if

any. Therefore, the assessee should not be given any

premium for non-attendance before the Assessing Officer.

10. The Ld. Counsel for the assessee on the other hand

heavily relied on the order of the CIT(A). He submitted that

although the assessee has not appeared before the Assessing

Officer during penalty proceedings, however, the assessee has

appeared before the Assessing Officer during scrutiny

assessment proceedings for the A.Y. 2006-07 wherein all

details were filed. Referring to paper book page 43 he

submitted that an amount of Rs.6,38,00,289.29 was payable

to Religare Securities Ltd., who is the broker for the assessee

for his share transaction business. Similarly, referring to

paper book page 57 he submitted that an amount of 6

Rs.4,62,97,093.37 was payable to Religare Finvest Ltd. as on

31-03-2007. Referring to paper book page 75 he submitted

that an amount of Rs.4,63,47,202.78 was payable to Religare

Finvest Ltd. as on 31-03-2008. Referring to bank statement

maintained with Nagar Urban Cooperative Bank, copies of

which are placed at paper book pages 76 to 80 he submitted

that the balance as on 31-03-2006 was Rs.49.75, balance as

on 31-03-2007 was Rs.6,093.30 and balance as on 31-03-

2008 was Rs.10,564.80 only. Referring to the bank account

maintained with HDFC Bank he submitted that the balance as

on 31-03-2008 was Rs.9,074.01 (placed at paper book page

80A). Referring to bank account maintained with

Ahmednagar Merchants Cooperative Bank Ltd. (a copy of

which is placed at paper book page 80B) he submitted that

the assessee had a liability of Rs.10,03,191.28 to the said

bank as on 31-03-2008. Referring to the cash credit account

with Nagar Urban Cooperative Bank Ltd., (a copy of which is

placed at paper book page 80C) he submitted that the

assessee has availed a loan of Rs.10 lakhs on 03-12-2007.

Referring to pages 76 & 77 of the paper book he submitted

that the balance with Ahmednagar Merchants Cooperative

Bank Ltd. as on 31-03-2006 was Rs.1,880/-, as on 31-03-

2007- Rs.1,998/- and as on 31-03-2008-Rs.2,069/-.

11. Referring to the Demat account, a copy of which is

placed at page 81 and 82 of the paper book he submitted that

the Demat account shows that the assessee has shares in

several companies and the price of all the shares had slashed

down. The assessee was holding 1,87,730 shares of J.K. Agro

Genetics Ltd. as on 31-03-2008. Although the prices of these 7

shares were hovering around Rs.280 to Rs.300 during March

2006, however, the prices of the said company came down due

to the scheme of merger which was against the interest of

minority shareholders. The prices fell down to Rs.150 just in

3 months. The assessee had to sell some of the shares at loss.

The matter travelled to the High Court challenging the scheme

of merger which continued for six years. Subsequently, the

shares became ill-liquid and the prices of those shares in

2008-09 went down to Rs.62. Similarly, the assessee had

1,49,336 in Rama Pulp Ltd., as on 31-03-2008. The prices of

those shares which were quoted between Rs.40 to Rs.50 came

down to Rs.20/- in March 2008 and subsequently to Rs.3 to

Rs.4. Similar is the case with various other shares which

were held by the assessee. All these facts show that the

assessee's default cannot be said to be wilful. Referring to

various decisions he submitted that if the default is not wilful

and there is sufficient reason to prove that due to financial

hardship the assessee could not pay self-assessment tax then

the burden shifts to the Revenue to establish that assessee

has not deposited tax without good and sufficient reason. If

the Revenue cannot prove that there was no sufficient reason

in not paying self-assessment tax, then in that case penalty

u/s.140A(3) cannot be levied.

12. The Ld. Counsel for the assessee further submitted that

after the assessment order was passed raising huge demand

the assessee preferred an appeal before the CIT(A) which was

dismissed by him u/s.249(4) for non payment of self-

assessment tax. Thereafter, the assessee could arrange the

loan and made the payment after about 1 ½ years and filed 8

the appeal before the Tribunal. Referring to the copy of the

order of the Tribunal vide ITA No.1721/PN/2012 order dated

28-10-2013 he submitted that the Tribunal allowed the appeal

filed by the assessee by directing the CIT(A) to admit the

appeal and decide the issue on merit. He accordingly

submitted that there was valid reason for non-payment of self-

assessment tax. Therefore, the order of the CIT(A) should be

upheld and the grounds raised by the Revenue should be

dismissed.

13. We have considered the rival arguments made by both

the sides, perused the orders of the Assessing Officer and the

CIT(A) and the Paper Book filed on behalf of the assessee. We

have also considered the various decisions cited before us.

The only dispute in the impugned appeal filed by the Revenue

is regarding the deletion of penalty levied u/s.140A(3) r.w.s.

221 of the Act by the Ld.CIT(A) by admitting additional

evidences. There is no dispute to the fact that the assessee

while filing the return of income has not paid the self-

assessment tax. He has paid only Rs.11,00,887/- as against

the total tax liability of Rs.53,17,680/- leaving the short

payment of Rs.42,16,773/-. Despite opportunities given by

the Assessing Officer, the assessee did not appear before him

during the penalty proceedings initiated under the provisions

of section 140A(3) r.w.s.221. The Assessing Officer levied

penalty of Rs.42,16,773/- for non payment of self-assessment

tax of equal amount. We find before the CIT(A) the assessee

made elaborate arguments narrating the mishaps in the

family caused due to death of his parents and also financial

hardship due to fall in the share market price. The assessee 9

also brought to the notice of the CIT(A) about the forcible

eviction by the landlord from the business premises. The

assessee also brought to the notice of the Ld.CIT(A) the action

of the Assessing Officer by attaching the bank account, demat

account etc., The action of the Assessing Officer in selling

some shares held by the assessee at a very less price was also

brought to the notice of Ld.CIT(A). It is also a fact that against

the quantum addition made by the Assessing Officer the

assessee filed an appeal before the CIT(A) which was

dismissed by him as non maintainable in view of section

249(4)(a) of the I.T. Act on the ground that tax on the returned

income was not paid by the assessee in full before filing of the

appeal. Subsequently, the assessee paid self-assessment tax

and filed an appeal before the Tribunal against such order of

CIT(A). We find the Tribunal vide ITA No.1721/PN/2012 order

dated 28-10-2013 for A.Y. 2006-07 allowed the appeal filed by

the assessee by restoring the issue back to the file of the

CIT(A) with a direction to admit the appeal and decide the

issue on merit. All these facts show that there was some

bonafide reason on the part of the assessee for non payment

of self-assessment tax.

13.1 Under the provisions of section 140A(3) if any assessee

fails to pay the whole or any part of such tax or interest or

both in accordance with the provisions of sub section (1), he

shall, without prejudice to any other consequences which he

may incur, be deemed to be an assessee in default in respect

of the tax or interest or both remaining unpaid, and all the

provisions of this Act shall apply accordingly. Similarly,

under the provisions of section 221 the assessee is liable for 10

penalty when he is an assessee in default or is deemed to be

in default in making a payment of tax. However, as per the

second proviso to provisions of section 221(1) if the assessee

proves to the satisfaction of the Assessing Officer that the

default was for good and sufficient reasons no penalty should

be levied under this section.

13.2 In the instant case it is an undisputed fact that the

assessee did not appear before the Assessing Officer despite

repeated opportunities given by him. This act of assessee by

ignoring the Assessing Officer is highly deplorable. However,

considering the mishaps in the family caused due to the death

of his parents within a very short span and the subsequent

illness of his wife as stated before the CIT(A) and not

controverted by the Revenue we are taking a liberal view of

this action on the part of the assessee in not appearing before

the Assessing Officer. However, it is also an admitted fact that

the assessee before the CIT(A) has appeared and brought to

his notice the chronology of events, i.e. the attachment of the

accounts by the Assessing Officer and the sale of shares by

the Assessing Officer held by the assessee in his demat

accounts. From the various bank accounts produced by the

assessee we also find that there is negligible or insufficient

balances. Therefore, we find merit in the submission of the

Ld. Counsel for the assessee that there was a bonafide reason

on his part in not paying the self-assessment tax.

13.3 It has been held in various judicial decisions that levy of

penalty by the Assessing Officer u/s.221(1) is discretionary

and not automatic. Further, for levy of penalty u/s.221 such

default must be wilful and not merely accidental. In the 11

instant case, the assessee has proved beyond doubt that the

default by him in not paying the self-assessment tax is not

wilful and it was beyond his control as there was no sufficient

money available with him to pay the self-assessment tax

especially when the income is mainly from short term and

long term capital gain.

13.4 So far as the ground by the Revenue that CIT(A) has

accepted additional evidence is concerned we find all though

during penalty proceedings the assessee has not furnished the

documents such as bank statement and demat account etc.,

however, during assessment proceedings for the same

assessment year the assessee has produced various details as

called for by the Assessing Officer from time to time. Further,

the attachment of the bank account by the Assessing Officer

and sale of the shares by the Assessing Officer cannot be

treated as additional evidence. Considering the totality of the

facts of the case we find the CIT(A) has not contravened any of

the provisions by admitting any additional evidence. Further,

it is the settled proposition of law that the powers of the CIT(A)

are coterminous with that of the Assessing Officer. Since in

the instant case the various documents produced before the

CIT(A) were already before the Assessing Officer in the

quantum proceedings, therefore, these documents in our

opinion cannot per se be called as additional evidence.

Therefore, the ground raised by the Revenue on this issue is

dismissed.

13.5 Considering the totality of the facts of the case and in

view of our discussion in the preceding paragraphs, we are of

the considered opinion that the assessee has proved that the 12

default was for good and sufficient reasons. Therefore, in view

of the second proviso to section 221(1) this is not a fit case for

levy of penalty u/s.140A(3) r.w.s. 221 of the I.T. Act.

Accordingly, the order of the CIT(A) cancelling the penalty is

upheld and the grounds raised by the Revenue are dismissed.

14. In the result, the appeal filed by the Revenue is

dismissed.

Pronounced in the open court on 17-06-2015.

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER

satish Pune Dated: 17th June, 2015

Copy of the order forwarded to :

1. Assessee 2. Department 3. CIT(A)-I, Pune 4. CIT-I, Pune 5. The D.R, "B" Pune Bench 6. Guard File

By order // True Copy //

Senior Private Secretary ITAT, Pune Benches, Pune