M/S Kudos Chemie Limited, Chandigarh v. Commissioner Of Income Tax, Chandigarhand Another

Income Tax Appeal No.134 of 2014 1 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. Income Tax Appeal No.134 of 2014 Date of Decision: 16.1.2015 M/s Kudos Chemie Limited, Chandigarh ..Appellant versus Commissioner of Income Tax, Chandigarhand another ..Respondents CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE B.S.WALIA Present:Ms. Radhika Suri, Senior Advocatewith Ms. Rinku Dahiya, Advocate,for the appellant (in ITA Nos.134 and 135 of 2014) Ms. Urvashi Dhugga, Advocate,for the appellant (in ITA Nos.95 and 119 of 2014) Mr. Rajesh Sethi, Advocate,for the respondents ( ITA Nos.134 and 135 of 2014) RAJIVE BHALLA, J(ORAL) By way of this order, we shall decide ITA Nos. 134,and 135 of 2014 filed by the assessee and ITA Nos. 95 and 119of 2014 filed by the revenue. Both the assessee and the revenue are aggrieved byorder dated 02.08.2013 passed by the Income Tax AppellateTribunal, Chandigarh (for short “the Tribunal”). Income Tax Appeal No.134 of 2014 2 Counsel for the assessee states that she hasinstructions to state that the assessee gives up challenge to theassessee's exigibility to penalty but confines her argument to aplea that the quantum of penalty has been rightly determined bythe Tribunal and in case it is proposed to remit the matter to theTribunal on the quantum of penalty, the assessee's argumentthat penalty can be lower than the Rs. 10 lacs, assessed by theTribunal, may be left open. Counsel for the revenue submits that though theTribunal has rightly held that the assessee is liable to paypenalty but while doing so, has arbitrarily and without assigningany reason, reduced the penalty from Rs.66 lacs to Rs.10 lacs ineach assessment year. The impugned order is bereft of anyreason, much less any factor that persuaded the Tribunal toreduce the penalty to Rs.10 lacs. The order being perverseand arbitrary, may be set aside. A brief narrative of the facts, would be appropriate.The Assessing Officer issued notices for assessment years2008-09 and 2009-10, requiring the assessee to show causewhy penalty under section 140-A(3) of the Act, read with section221 of the Act be not imposed as the assessee did not deposittaxes before filing the return. In response, the assesseepleaded paucity of funds for its inability to deposit tax by the duedate. The Assessing Officer imposed a penalty of Rs.65,71,450/- Income Tax Appeal No.134 of 2014 3 for assessment year 2009-10 and Rs.66 lacs for assessmentyear 2008-09. Aggrieved by this order, the assessee filed anappeal. The CIT (Appeals) set aside the order in its entirety byholding that paucity of funds prevented the assessee fordepositing tax by the due date. Aggrieved by this order, therevenue filed an appeal. The Tribunal accepted the revenue'scontention that the assessee was liable to pay penalty butreduced the penalty to Rs.10 lacs for each year. A relevantextract from the order passed by the Tribunal reads as follows:- “ The issue arising before us is in relation to levy ofpenalty under section 140A(3) of the Act with section221(1) of the Act for non deposit of the taxes beforefiling the return of income. The Courts have time andagain laid down the proposition that liberalinterpretation should be given to the provisions ofsection 140A(3) with section 221(1) of the Act. Thelist of cases have been referred by the CIT (Appeals).There is no dispute regarding the said issue.However, the perusal of the financial statements ofthe assessee company for the financial year 2007-08and 2008-09 reflect the availability of the funds withthe assessee which in-turn have been utilized forexpansion purposes. The assessee had alsoborrowed funds from the banks as is apparent from Income Tax Appeal No.134 of 2014 4 Income Tax Appeal No.134 of 2014 4 the perusal of the balance sheet for the two financialyears. However, in the totality of the facts andcircumstances of the case, we find the assessee tohave not discharged its onus vis-a-vis payment oftaxes due. We are of the view that the ends of justicewould be met by restricting the levy of penalty undersection 140A(3) read with section 221(1) of the Act toRs.10 lacs for each of the year, i.e., assessment year2008-09 and 2009-10. Thus applying the liberalinterpretation, we restrict the levy of penalty in thecase to Rs.10 lacs each for the financial year 2007-08and 2008-09. Accordingly, we direct the AssessingOfficer to restrict the penalty levied under section140A(3) read with section 221(1) of the Act at Rs.10lacs each. The grounds of appeal, thus, raised by therevenue are partly allowed.” The assessee has, as recorded in the openingparagraph of the judgment, given up a challenge to exigibility topenalty and, therefore, the questions, as agreed by counsel forthe parties, that require an answer are (a) whether quantum ofpenalty can be determined without referring to relevant factorsand assigning adequate reasons? (b) whether quantum ofpenalty determined is not perverse and arbitrary? and (c) factorsto be considered while determining quantum of penalty, under Income Tax Appeal No.134 of 2014 5 section 221 of the Income Tax Act, 1961 ( hereinafter referred toas “the Act”). The questions are being answered together. A perusal of the aforesaid extract reveals that theTribunal has restored the assessee's exigibility to penalty, butwhile doing so, has reduced the quantum of penalty to Rs.10lacs for each financial year without assigning any reason otherthan holding that “the ends of justice” and a “liberalinterpretation” require that the penalty be reduced. The words “ends of justice” and “applying a liberalinterpretation” are meaningless if they do not refer to relevantfacts or factors that underline “the ends of justice” and “ a liberalinterpretation”. The mere use of the words “the ends of justice”and “a liberal interpretation” while reducing penalty from Rs.66lacs to Rs.10 lacs each, particularly when the Tribunal hadaccepted that the assessee has not discharged onus to explainits default, are insufficient to infer a legal exercise of discretionto determine the quantum of penalty. The impugned order,therefore, does not meet the parameters of a judicial, much lessa quasi judicial determination. While exercising the power todetermine the quantum of penalty, whether in original orappellate proceedings, the discretion so conferred has to beexercised by reference to relevant facts, followed by aperceptible process of reasoning, leading to a fair and justconclusion. A few factors which, in our considered opinion, may Income Tax Appeal No.134 of 2014 6 be relevant, though not be exhaustive of the circumstances thatmay be taken into consideration are:- (a) the period of default;(b) the reasons for default; (c) the recurring nature of the default;(d) conduct of the assessee and (e) any extenuatingcircumstances putforth by the assessee. The Tribunal did nottake into consideration any relevant fact or factor but by merelyusing a few legal phrases, reduced the penalty from 66/60 to 10lacs each. The discretion conferred to determine the quantum ofpenalty, is judicial in nature and may if the facts and factors sowarrant, be more or less than the Rs.10 lacs determined bythe Tribunal or the Rs.66 lacs determined by the AssessingOfficer. The Tribunal having determined the quantum of penaltywithout assigning any tangible reason or by referring to anyrelevant fact or factor, has arbitrarily reduced penalty to Rs.10lacs. The Tribunal would, therefore, be required to reconsiderthe quantum of penalty liable to be paid by the assessee. Thequestions of law are answered in favour of the revenueaccordingly. The appeals are, therefore, partly allowed, theassessee's exigibility to penalty is affirmed but the quantum ofpenalty determined by the Tribunal is set aside and the appealsare restored to the Tribunal for adjudication afresh and inaccordance with law so as to determine the quantum of penaltyto be imposed upon the appellants. Income Tax Appeal No.134 of 2014 7 Parties are directed to appear before the Income Tax Appellate Tribunal, Chandigarh, on 18.2.2015. ( RAJIVE BHALLA ) JUDGE 16.1.2015VK ( B.S.WALIA ) JUDGE