B.R. Baskaran ORDER
B.R. Baskaran, Member (A)
1. Both the appeals filed by the respective assessees are directed against the orders passed by Ld. CIT(A) in their respective hands confirming the demand raised by way of penalty u/s. 221(1) of the Income-tax Act, 1961 ['the Act' for short] for AY 2007-08. Since the issue urged in these appeals and the underlying facts are identical in nature, both the appeals were heard together and are being disposed of by this common order for the sake of convenience.
2. The Ld. A.R. appearing for the assessees submitted that the A.O. had reopened the assessment of both the assessees for AY 2007-08 and passed the assessment order in their respective hands u/s. 144 r.w.s. 147 of the Act by making disallowances u/s. 40(a)(ia) of the Act and also disallowing marketing expenditure. Accordingly, the A.O. raised a demand of Rs. 3.39 crores in the hands of M/s. Star Electricals and Rs. 5.09 crores in the hands of M/s. Yeshoda Electricals. Both the assessees did not pay the tax demanded by the AO. They challenged the assessment order by filing appeal before Ld. CIT(A) and then before ITAT. Before the Tribunal, both the assessees challenged the validity of reopening of assessment also.
3. In the mean time, the A.O. also passed penalty order in the hands of both the assessees by levying penalty u/s. 221(1) of the Act, since they have not paid taxes demanded in the assessment order. The AO levied penalty of Rs. 36.31 lakhs in the hands of M/s. Star Electricals and Rs. 55.06 lakhs in the hands of M/s. Yeshoda Electricals u/s. 221(1) of the Act. The appeals filed by the assessees challenging the above said levy of penalty before Ld. CIT(A) were dismissed and hence the assessees have filed these appeals before the Tribunal.
4. The Ld. A.R. submitted that the appeal filed by M/s. Star Electricals against quantum assessment orders before the Tribunal was numbered as 1177/Bang/2016 and that filed by M/s. Yeshoda Electricals was numbered as 1175/Bang/2016. He submitted that the Tribunal has since disposed of both the appeals by a common order dated 3.2.2021. In the above said common order, the Tribunal has held that the reassessment proceedings initiated in AY 2007-08 in the hands of both the assessees were invalid. Accordingly, the assessment orders passed in the hands of both the assessees have been quashed. The Ld. A.R. submitted that the tax demand raised in the assessment order shall become nil, as a result of the orders passed by the Tribunal. Since the impugned penalty has been levied u/s. 221(1) of the Act for non-payment of tax demanded in the assessment order and since the assessment order itself has been quashed in the hands of both the assessees, there will be no pending tax demand and consequently, the impugned penalty cannot stand on its own. Accordingly, the Ld. A.R prayed for quashing of impugned penalty orders.
5. We heard Ld. D.R and perused the record. In these two cases, the AO has levied penalty u/s. 221(1) of the Act. The provisions of sec. 221 read as under:-
"221. Penalty payable when tax in default.-(1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall in addition to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the assessing officer may direct, and in the........