Section 140A(3) and 221 – AO was not justified in levying penalty u/s. 140A(3) r.w.s. 221(1) for failure to pay self-assessment tax as per the provisions of section 140A(3) as amended w.e.f. 1st April, 1989 as the amended section 140A(3) does not envisage any penalty for non-payment of self-assessment tax

10.  [2018] 195 TTJ 536
(Mumbai – Trib.)

Heddle Knowledge P (Ltd) vs. ITO

ITA No.: 7509/Mum/2011

A. Y.: 2009-10.                                   

Dated: 19^th January, 2018.

Section 140A(3) and 221 – AO was not justified in levying penalty
u/s. 140A(3) r.w.s. 221(1) for failure to pay self-assessment tax as per the
provisions of section 140A(3) as amended w.e.f. 1^st April, 1989 as
the amended section 140A(3) does not envisage any penalty for non-payment of
self-assessment tax 

FACTS

The assessee filed its return for the relevant year which was not
accompanied by proof of payment of self-assessment tax. In response to
show-cause notice issued by AO, assessee raised a plea of financial stringency.
The AO did not find the reason advanced by the assessee to be satisfactory to
mitigate the levy of penalty.

He took a view that the assessee had defaulted in payment of self-assessment
tax within the stipulated period and was thus liable to be treated as
‘assessee-in-default’ as per the provisions of section 140A(3) r.w.s. 221(1) of
the Act. Accordingly, penalty order was passed for delayed payment of
self-assessment tax.

Aggrieved by the assessment order,
the assessee preferred an appeal to the CIT(A). The CIT(A) confirmed the
penalty order.

HELD

The Tribunal held that in terms of
the provisions of section 140A(3) as existing till 31-3-1989, the Assessing
Officer was empowered to levy penalty in cases where assessee had failed to pay
the self-assessment tax. The section was then amended by inserting Explanation
to it with effect from 1-4-1989. The amended section along with the explanatory
notes to the amendment conjointly made it clear that the earlier provision
prescribing for levy of penalty for default outlined in sub-section (1) of
section 140A(3) had yielded place to mandatory charging of interest for such
default. The aforesaid legislative intent also got strength by the fact that
simultaneously the legislature prescribed for mandatory charging of interest
u/s. 234B of the Act for default in payment of self-assessment tax with effect
from 01-04-1989 onwards.

However, a contrary position was
taken by the revenue to the effect that for having defaulted in payment of
self-assessment tax within the stipulated period, assessee qualified to be an
“assessee-in-default” as prescribed in the amended section 140A(3).
Section 221(1) of the Act prescribed for penalty when assessee was in default
in making the payment of tax. Once section 140A(3) had been amended with effect
from 01-04-1989, there was no amendment of section 221 and it continued to
remain the same. Furthermore, the intention of the legislature at the time of
insertion of the amended section 140A(3) made it clear that the old provisions
of section 140A(3) prescribing for levy of penalty for non-payment of
self-assessment tax was no longer found necessary because the said default
would henceforth invite mandatory charging of interest. Ostensibly, the
legislature did not envisage that consequent to the amendment, the default in
payment of self-assessment tax would hitherto be covered by the scope of
section 221(1).

The consequence of the aforesaid
two expressions contained in section 140A(3) were also not of the type sought
to be understood by the revenue, and rather the assessee was to be treated as
an “assessee-in-default” for the limited purpose of enabling the AO
to make recovery of the amount of tax and interest due and not for levy of
penalty, an aspect which had been specifically done away in the new provision.
Therefore, the Tribunal concluded that the fact that the amended section
140A(3) with effect from 01-04-1989 did not envisage any penalty for
non-payment of self-assessment tax, the AO was not justified in levying the
penalty by making recourse to section 221(1) of the Act. It may again be
emphasised that section 221 remained unchanged, both during the pre and post
amended section 140A(3) of the Act and even in the pre-amended situation,
penalty u/s. 221 of the Act was not attracted for default in payment of
self-assessment tax, which was expressly covered in pre 01-04-1989 prevailing
section 140A(3). In the result, the Tribunal directed the AO to delete the
penalty.