M/S.US TECHNOLOGIES INTERNATIONAL PVT.LT vs. THE COMMISSIONER OF INCOME TAX,TRIVANDR

ITA/3/2009HC KeralaKLHC01024764200916 June 2009Author: HONOURABLE MR.JUSTICE C.K.ABDUL REHIM,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR10 pages
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What were the facts?

The assessee, M/s. US Technologies International Pvt. Ltd., a software company, is in appeal before the High Court against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had upheld the penalty levied under Section 271C of the Income Tax Act, 1961, by the Assessing Officer (AO), which was confirmed by the Commissioner of Income Tax (Appeals). This penalty was for the financial year 2002-2003 (Assessment Year 2003-2004) for failure to deduct and pay tax at source (TDS). A survey under Section 133A on March 10, 2003, revealed that out of Rs. 1,10,41,898/- collected as TDS, only Rs. 38,94,687/- was remitted. The balance was remitted after the survey. The AO noted a similar delay in the preceding year and levied penalty equal to the withheld amount. The CIT(Appeals) found the delay deliberate, citing fund utilization for investments and payments, and rejected the assessee's plea of paucity of funds.

What did the High Court hold?

The High Court upheld the Tribunal's finding that penalty is leviable under Section 271C for failure to pay tax deducted at source. The Court interpreted Section 271C(1)(b) to include failure to pay tax deducted under Chapter XVIIB, thus rejecting the assessee's contention that penalty for non-remittance under this chapter was unauthorized. The Court found that the first part of clause (b) read with clause (a) covers both failure to deduct and failure to remit recovered tax. Regarding the quantum of penalty and the plea of reasonable cause, the Court acknowledged that the Tribunal might not have detailed this aspect extensively. However, the Court held that diverting tax recovered for the government towards working capital or other purposes cannot be a justifiable circumstance under Section 273B. Nevertheless, the Court directed the Assessing Officer to reconsider the quantum of penalty, granting the assessee an opportunity to furnish facts in light of the Court's observations. The Court noted that recovery and remittance with interest before detection, or full payment with interest before penalty levy, could be mitigating circumstances for reduction. The appeal was disposed of upholding the levy of penalty but remanding the quantum for reconsideration.

What were the issues?

1. Whether penalty can be levied under Section 271C of the Income Tax Act, 1961, for failure to pay tax deducted at source, as opposed to failure to deduct it. - Assessee's argument: Section 271C(1)(a) covers failure to deduct, and Section 271C(1)(b) covers non-payment only for specific provisions (Section 115-O(2) or Section 194B proviso). Since the deductions were made under Chapter XVIIB, penalty for non-remittance under this chapter is unauthorized. - Revenue's argument: Section 271C(1)(b) covers both failure to deduct and failure to remit recovered tax under Chapter XVIIB. 2. Whether the assessee had reasonable cause for the delayed remittance of tax deducted at source, warranting waiver or reduction of penalty under Section 273B. - Assessee's argument: There was a reasonable cause for the delay in remittance (though not explicitly detailed in the judgment for this specific appeal, the plea was raised before lower authorities). - Revenue's argument: The findings on cash flow and fund utilization demonstrate no reasonable cause. The delay was deliberate, and the assessee had a history of belated payments.

Which sections of the Income-tax Act were involved?

Section 271C,Section 115-O,Section 194B,Section 273B,Section 133A,Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM TUE AY, THE 16TH JUNE 2009 / 26TH JYAISHTA 1931 ITA.No. 3 of 2009() ------------------- ITA.276/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT: ----------------------------- M/S.US TECHNOLOGIES INTERNATIONAL PVT ' LTD, 721, NILA, TECHNOPARK, TRIVANDRUM 695 581, REPRESENTED BY ITS DIRECTOR, SHRI ALEXANDER VARGHESE. BY ADV. SRI.T.M.SREEDHARAN SRI.V.P.NARAYANAN RESPONDENT(S): --------------- THE COMMISSIONER OF INCOME TAX AAYAKAR BHAVAN, KAWDIAR, THIRUVANANTHAPURAM. ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COM

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