COMMISSIONER OF INCOME TAX(TDS) vs. CTS DEVELOPERS PVT LTD

The Revenue has preferred the present appeal under section 260A of the Income Tax Act, 1961 to challenge the order dated 04.02.2011 of the Income Tax Appellate Tribunal, Ahmedabad Bench ‘C’ in ITA No.1886/Ahd/2009, proposing the following question as formulated in the memorandum of appeal as substantial question of law: “Whether the Appellate Tribunal is right in law and on facts in cancelling the penalty levied u/s. 271C of the Act?”

We have heard Ms. Mauna Bhatt, learned advocate for the appellant. We have gone through the relevant facts and the orders on record of the appeal.

The relevant facts involved in this appeal are that a survey under section 133A was carried out in the premises of the respondent-assessee company on 09.10.2007 with a view to verify the compliance of the provisions regarding payment of tax deducted at source (TDS) by the assessee. Therein it was found by the Assessing Officer that the assessee had paid interest of Rs.10 lacs to Gruh Finance Limited without deducting the tax at source. That was in respect of Assessment Year 2007-08. The Assessing Officer, therefore, raised demand for TDS with interest thereon by passing order under section 201 of the Act. The assessee subsequently paid the tax accepting its default of not deducting tax at source on said Rs.10 lacs. The officer raised demand of Rs.2,35,604/- towards penalty under section 271(1)(c).

1 It deserves to be mentioned that the said Gruh Finance Limited was a TAXAP/1025/2011 3/4 JUDGMENT subsidiary of HDFC Limited. The Central Government vide Notification SO No.124 dated 02.06.1980 has notified HDFC Ltd. for the purpose of sub- clause (1) of clause (iii) sub-section (3) of section 194A of the Act and HDFC Ltd. is accordingly exempt from deduction of tax at source.

2 The assessee went in appeal before the CIT(A), who allowed the same taking a view that when HDFC was covered under the Central Government notification, it was reasonable and rational for the assessee to believe that its subsidiary Gruh Finance Ltd. would also be exempt from deduction of tax at source more particularly when he found that the said Gruh Finance Limited used to mention the fact of it being subsidiary of HDFC on its letterhead used for correspondence with clients.

3 The view taken by the appellate Commissioner came to be confirmed by the Income Tax Appellate Tribunal while dismissing the appeal of the revenue. The Tribunal arrived its findings as under:- “It is not disputed by the Revenue that Gruh Finance Ltd. is a subsidiary of HDFC Ltd., and the HDFC has been notified by the Central Government for the purpose of payment of interest without deduction of tax vide notification S.O.No.1724 dated 2.6.1980. On the above facts if the assessee believed that the payment to subsidiary of HDFC Ltd. would also be covered by such notification, such a belief is a bona fide belief and would constitute a reasonable cause for non-deduction of tax at source on the payment to Gruh Finance Ltd. As soon as the assessee was pointed out that it is liable to deduct the tax, it has duly deducted the tax and deposited the same with the Central Government along with interest thereon.”

The finding arrived at by the Tribunal are proper in the facts of the case. It is reasonable conclusion that the assessee bonafide believed that Gruh Finance Ltd. being a subsidiary of the parent company which was TAXAP/1025/2011 4/4 JUDGMENT notified by the Central Government for the purpose of payment of interest without deducting the tax at source, the same would apply to the subsidiary company also. That the assessee acted in a bonafide belief is a finding of factual nature duly arrived at by the CIT(A) and finally by the Tribunal. The conduct of the assessee in paying up the tax with interest to the Central Government on being pointed out about its liability to pay such tax reinforced that in not deducting the tax at source, he had acted with bonafide belief. No substantial question of law, therefore, arises for consideration before this Court in this tax appeal.

The Appeal is accordingly dismissed. (V.M. SAHAI, J.) (N.V. ANJARIA, J.) (SN DEVU PPS)