THE JOINT COMMISSIONER OF INCOME TAX (TDS), DEHRADUN vs. THE DIRECTOR, HIGHER EDUCATION, NANITAL

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ITA 18/DDN/2020Status: DisposedITAT Dehradun27 July 2023AY 2014-20156 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to delete the penalty, finding that the assessee acted on a bonafide belief and lacked contumacious conduct. The Tribunal agreed that ignorance of law, coupled with a lack of malafide intention, was a reasonable cause for not deducting TDS.

What were the facts?

The assessee, a government department, failed to deduct TDS on payments made to contractors and professionals due to ignorance of tax laws and a shortage of qualified staff. The Assessing Officer imposed penalties under Section 271C for these defaults.

What were the issues?

Whether penalty under Section 271C is leviable when the failure to deduct TDS is due to bonafide belief and ignorance of law, without any malafide intention.

Which sections of the Income-tax Act were involved?

Section 271C,Section 201(1A)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

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Income Tax Appellate Tribunal, DEHRADUN BENCH ‘DDN’ : DEHRADUN

For Respondent: Smt. Poonam Sharma, Addl. CIT DR
Hearing: 27.07.2023

PER SHAMIM YAHYA, ACCOUNTANT MEMBER : These are appeals filed by the Revenue against the respective orders of ld. CIT (A) for the concerned assessment years. 2. Since the issues are common and connected and the appeals were heard together, these are being consolidated for the sake of convenience. The grounds are common in all the appeals. For the sake of reference, we are referring to grounds of appeal for AY 2014-15 which read as under:-

1.

2 to 20/Del./2020 “1. That the Ld. CIT(A) Haldwani has erred in law and on facts in allowing the appeals of the assessee deleting the penalty orders passing u/s 271 C of the Income Tax Act, 1961 amounting to Rs.1,11,40,171/- without appreciating that assessee (deductor ) itself accepted that it had not deducted TDS and failed to offer any justified explanation with regard to the same and, therefore, the assessee was treated as assessee in default.

2.

That the Ld. CIT(Appeals), Haldwani has erred in law and on facts in allowing the appeals of the assessee deleting the penalty orders passed u/s 271C of the Income Tax Act, 1961 amounting to Rs.1, 11 ,40, 171/- without considering the fact that the quantum appeal in this case is still sub-judice before the Hon'ble ITAT.

3. That the Ld. CIT(Appeals), Haldwani be set aside that of the AO be restored.”

3.

Facts of the case are that the assessee (deductor) was engaged with Uttarakhand State Infrastructure Development Corporation, UP Rajkiya Nirman Nigam and Peyjal Sansadhan & Vikas Nigam for various works.

The assessee was also engaged in making payments to contactors, professionals and other services which attracted TDS/TCS. A TDS survey/ verification proceedings had been carried out in the case of the assessee on 24.12.2016. In the course of the verification, it was noticed that the deductor assessee had failed to deduct tax of Rs.73,31,520/-; Rs.67,87,880/-; Rs. 1,30,77,320/- and Rs.36,71,920/- for the A.Ys. 2014- 15; 2015-16; 2016-17 and 2017-18 respectively. Therefore, the assessee was found to be in default as per section 201(1A) of the Income Tax Act.

Penalty proceedings u/s 271C of the Act were also initiated against the assessee for above defaults. During the course of penalty proceeding u/s 271C, in response to the show cause notice issued by the A.O., the assessee submitted that due to ignorance of the provisions of the Income making any TDS. Hence, due to genuine and bonafide reasons, the assessee failed to deduct TDS. Therefore, under the circumstances, it was not liable for penal action u/s 271C of the Income-tax Act, 1961 (for short 'the Act'). However, this plea of the assessee was out-rightly rejected by the assessing officer on the premise that ignorance of law is not an excuse. Accordingly, penalty was imposed as under :-

AY 2014-15 AY 2015-16 AY 2016-17 AY 2017-18 Amount of Rs.1,11,40,171 Rs.1,07,25,951 Rs.1,54,08,859 Rs.40,84,119 Penalty

4.

Upon assessee’s appeal, ld. CIT (A) deleted the penalty and held that the assessee conduct was bonafide and there was no malafide intention. The order of ld. CIT (A) in this regard can be gainfully referred to as under :-

14. It is an admitted fact that Uttrakhand Government was transferring funds to the account of the assessee for various infrastructure development related projects to be ultimately undertaken by different government project executing agencies viz. U.P. Rajkiya Nirman Nigam Ltd., Uttarakh and Payjal Vikas Nigam & Rajya Avasthapana Vikas Nigam. It is also noted that the assessee was not even a signatory to these projects and there was nothing more than to release the funds in favour of these Executing Agencies". The assessee had no choice but to transfer the funds received from the State Government to the executing agency. The assessee had no control over the functioning of these executing agencies. Hence, as rightly contended by the assessee, there was no malafide intention on the part of the assessee in not deducting TDS on the payments made to the Executive Agencies.

15.

The case laws relied upon by the assessee are found to justify the stand taken by the assessee that there was no malafide intention which 4 to 20/Del./2020 would have attracted the provisions of section 271C of the Act In the case of Woodward Governor India P. Ltd. Vs. CIT (2001) 168 CTR 394 the Hon'ble High court has held that there should be a "reasonable cause” for any action to be taken against the assessee and that reasonable cause as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. The assessee has also rightly relied on the judgment of the Hon'ble ITAT Delhi in the case of District Education officer Vs. ITOmin ITA No- 277/Del/2012 for A.Y. 2008-09 wherein, in similar set of facts, it has been held, as a reasonable cause as the bona fide belief is borne out from the fact that as soon as the said fact was pointed out to the assessee, the position was corrected" Further, reliance can also be placed on the decisions in the case of Birla Cement Works vs. C.B.D.T. & Others 248 ITR 201 page 217 and Associated Cement Co. ltd. Vs. CIT (1993) 111 CTR 165 (1993) 67 Taxman 346, (1993) 201 ITR 435, 439 (SC) wherein it has been observed that the following conditions have to be satisfied for attracting section 194(C) No.1 : there must be a contract between the person responsible for making payment & the contractors. In the present case of the assessee, as confirmed by the appellant, there was no such agreements or contracts with the executing agencies. Further, reliance can also be placed on the decision of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) wherein the Apex Court held that if there is no any malafide intention then the penalty should not be levied.

16.

On a consideration of the above stated facts of the case, I am of the view that in the case of the appellant assessee there was bona fide belief under which the assessee operated that it was not required to deduct TDS. Also it needs to be considered that the assessee was running short of adequately qualified staff to look into such technical issues of the Income Tax Act. Accordingly, in the afore-mentioned peculiar facts and circumstances of the case and also relying upon the above discussed case laws, I am of the considered opinion that the provisions of section 271 C of the Act do not attract to the present cases of the appellant assessee. Hence, the penalty orders passed u/s 271 C of the Income Tax Act are deleted.”

5.

Against the above order, Revenue is in appeal before us. We have heard the ld. DR for the Revenue. None appeared on behalf of the assessee. Hence, we are disposing off the appeals by hearing the ld. DR for the Revenue and perusing the records.

5 to 20/Del./2020 6. We find that the assessee in this case is a Government functionary. Ld. CIT (A)’s finding is correct that it was bonafide belief under which the assessee operated that it was not required to deduct TDS. Also assessee was running short of adequately qualified staff to look into the technical issues of income-tax. In these circumstances, the assessee does not deserve to be visited with the rigours of penalty. The case laws referred by the ld. CIT (A) are germane and supported the case of the assessee. It is also noted that Larger Bench of the Hon’ble Apex Court in the case of Hindustan Steel Ltd vs State Of Orissa 83 ITR 26 held that penalty may not be levied if the conduct of the assessee is not contumacious. In the present case, we find that the conduct of the assessee is not contumacious. Hence, we do not find any infirmity in the order of the ld. CIT (A) deleting the penalty and affirm the same. Our above order applies mutatis mutandis to all the assessment 7. years in appeals.

8.

In the result, all the Revenue’s appeals are dismissed. Order pronounced in the open court on this 27th day of July, 2023 after the conclusion of the hearing.

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