THE issue before the Bench is - Whether payment of admitted tax liability at the time of filing revised return, would obliterate the lapse committed in non-payment of such liability at the time of filing original return, so that the consequences of earlier lapse will not be visited with penal consequences. NO is the answer of the Special Bench.
Facts of the case:
The Assessee, a public company, had filed its return declaring a taxable income of Rs 44,69,33,790. It was declared by Assessee that TDS was Rs 26,91,930/- and the remaining amount of Rs 16,84,01,690/- was paid as self-assessment tax u/s 140A. This claim was however rejected and the AO informed that though Assessee had shown payment of self-assessment tax of Rs 16,57,09,760 but such payment was not being reflected in the income tax department software. The assessee was thus requested to furnish proof of payment of Rs 16,57,09,760 immediately. In response, the Assessee accepted such defect and stated that 'on account of the financial stringency and liquidity crunch, at the time of filing return', the company could not make payment of self-assessment tax. Subsequently, the assessee filed revised return declaring total income of Rs 37,57,13,110/- and paid the admitted self-assessment tax liability thereon which was Rs 14,76,22,910/- in respect of income tax and Rs 19,58,090/- in respect of fringe benefit tax. On these facts, the AO imposed penalty of Rs 50,00,000/- on account of non-payment of self-assessment tax liability u/s 140A. The Assessee then approached the Division Bench of the Tribunal, relying upon the upon a decision of another Division bench, in the case of ACIT Vs Shri Shakti Credits Limited, in which it was held that "Provisions of Section 140A(3) could only be invoked where the assessee had not paid admitted tax liability while filing the return u/s 139." Since Division Bench had reservations on correctness of this approach, and it was of the view that this aspect of the matter needs to be reconsidered by a larger bench, accepting this recommendation, the ITAT President constituted Special Bench.
Special Bench ITAT held that,
++ the counsel for Assessee urged before the Bench to deal with entire appeal and not be limited to the question framed for consideration as to validity of levy of penalty u/s 221(1) on non-payment of self assessment tax in case of reasonable cause. However, the Bench expressed its disopinion stating that there is no point in enlarging the scope of issue before the Special Bench and extending it to areas on which there are no differences in the approach of the Division Benches. A plain reading of statutory provisions shows that lapse referred to u/s 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 u/s 221(1) are the lapses in respect of "default in making a payment of tax". The default triggering the penal liability u/s 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. Viewed thus, default is committed at the point of time when a return of income is filed without making payment of the admitted tax liability. Clearly, therefore, the assessee committed a default in not paying admitted tax liability when it filed the original income tax return;
++ the question then arises as to what is the impact of filing a revised income tax return. To the extent it pertains to the assessment proceedings, undoubtedly inasmuch as it is the validly revised return 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. There were variations between the claims made in the original income tax return vis-à-vis the revised returns. 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 purposes of adjudication on claims made in the income tax return, does not mean that revised 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. That will be a wholly superfluous approach, if adopted;
++ the question before the Special Bench is, 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. What has been stated in the context of computation or assessment of income, does not really hold good in respect of lapse committed at the time of filing of the original income tax return, which is required to be visited with penal consequences u/s 221(1). The assessee has undoubtedly committed the default in not making payment of admitted tax liability u/s 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 u/s 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 payment of admitted tax liability, while filing revised return of income u/s 139(5), does not affect the lapse committed at the time of filing the original return, even though claims made in such original return stand supplanted by the claims made in the revised income tax return;
++ the assessee is, in principle, covered by the scope of the penalty u/s 221(1) in a case in which though the assessee has not paid the admitted tax liability u/s 140A, while filing the original return, the assessee subsequently pays the tax on the revised return of income. We, therefore, answer the question referred to the special bench in affirmative and against the assessee. However, whether the penalty u/s 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 this Bench is not really concerned at this stage due to inherently limited scope of the question before the special bench. The matter shall now go back to the Division bench for giving effect to our above observations and for deciding the matter afresh in the light of, inter alia, the above stated legal position.
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