Case Note & Summary
The case involves an appeal by the Revenue (Commissioner of Income Tax-8) against the order of the Income Tax Appellate Tribunal (ITAT) partly allowing the Revenue's appeal against the Commissioner of Income Tax (Appeals) [CIT(A)] order. The respondent-assessee, M/s. Oryx Finance and Investment Pvt. Ltd., had its income tax return processed under Section 143(1) of the Income Tax Act, 1961, resulting in a demand of Rs.1,64,90,573/- and a penalty of Rs.1,19,30,677/- imposed by the Assessing Officer under Section 221(1) for default in payment of the demand. The assessee appealed to the CIT(A), who deleted the penalty on the ground that interest component must be excluded while levying penalty under Section 221(1), and since the penalty exceeded the tax component, the penalty order was set aside. The Revenue appealed to the ITAT, which held that while levying penalty under Section 221(1), the interest component is not to be considered, and remitted the matter to the Assessing Officer to quantify the penalty in accordance with Section 221(1). The Revenue then appealed to the High Court, framing two substantial questions of law: whether the ITAT was justified in holding that penalty under Section 221(1) is to be imposed only on tax excluding interest under Sections 234A, 234B, and 234C, without appreciating that Section 221(1) does not contain such a condition; and whether the ITAT was justified in remitting the matter to the Assessing Officer. The High Court, after hearing both sides, dismissed the appeal, holding that the ITAT's order was correct and that penalty under Section 221(1) is leviable only on the tax amount, excluding interest. The Court found no substantial question of law arose and upheld the ITAT's order.
Headnote
A) Income Tax - Penalty under Section 221(1) - Scope of Default Amount - The issue was whether penalty under Section 221(1) of the Income Tax Act, 1961 can be levied on the entire demand including interest under Sections 234A, 234B, and 234C, or only on the tax component. The Court held that the penalty under Section 221(1) is leviable only on the tax amount, excluding interest, as the section does not include interest in the default amount. The Tribunal's order remitting the matter to the Assessing Officer to quantify penalty in accordance with law was upheld. (Paras 1-4)
Issue of Consideration
Whether penalty under Section 221(1) of the Income Tax Act, 1961 can be imposed on the total demand including interest under Sections 234A, 234B, and 234C, or only on the tax component.
Final Decision
The High Court dismissed the appeal, holding that no substantial question of law arises. The ITAT's order was correct that penalty under Section 221(1) is leviable only on the tax amount, excluding interest under Sections 234A, 234B, and 234C. The matter was remitted to the Assessing Officer to quantify penalty in accordance with law.
Law Points
- Penalty under Section 221(1) of the Income Tax Act
- 1961 is leviable only on the tax amount
- excluding interest components under Sections 234A
- 234B
- and 234C
- the section does not provide for penalty on interest
- the Assessing Officer must quantify penalty in accordance with law.
