THE COMMISSIONER OF INCOME TAX, TVM. vs. M/S.MUTHOOR BANKERS (ARYASALA), TVM.

ITA/57/2007HC KeralaKLHC01025051200706 June 2016Author: HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU,HONOURABLE MR.JUSTICE ANTONY DOMINIC7 pages
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What were the facts?

The Revenue, Commissioner of Income Tax, has appealed against an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, for the assessment year 1998-1999. The ITAT had upheld the order of the Commissioner of Income Tax (Appeals) which cancelled a penalty levied under Section 271C of the Income Tax Act. The assessee, M/s. Muthoot Bankers (Aryasala), a money lending firm, failed to deduct tax at source under Section 194A on interest payments made to its sister concerns. The Joint Commissioner initially levied a penalty of Rs. 10,45,000/-. The Commissioner (Appeals) cancelled this penalty, and the ITAT confirmed the cancellation. The Revenue contends that the lower authorities erred in cancelling the penalty.

What did the High Court hold?

The High Court held that when there is a failure to deduct tax at source in violation of Section 194A, the penalty provisions of Section 271C are attracted. The only recourse for the assessee is to invoke Section 273B by establishing a reasonable cause for the failure. The Court referred to its own judgment in ITA 139/2013, stating that the burden under Section 273B lies entirely on the assessee, and only a cause beyond the assessee's control, preventing a reasonable person from acting prudently without negligence or mala fides, constitutes reasonable cause. The Court noted that the Joint Commissioner's order indicated the assessee failed to produce evidence. However, the Commissioner (Appeals) decided by placing the burden on the Revenue, which was incorrect. The Tribunal's order was based on surmises and assumptions, not on materials provided by the assessee. Therefore, the assessee had not established a reasonable cause under Section 273B. The Court concluded that the Commissioner (Appeals) and the Tribunal acted illegally in cancelling the penalty. The questions of law were answered in favour of the Revenue.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and fact in upholding the cancellation of the penalty order by the Commissioner of Income Tax (Appeals). 2. Whether, on the facts and in the circumstances of the case, the assessee discharged the burden of proof that lay on it and proved that there was a reasonable cause for the failure to deduct tax at source. 3. Whether, while considering the cause for "reasonable cause" under Section 273B, the Tribunal should have confined itself to the causes urged before the assessing officer/Commissioner of Income Tax (Appeals), and if considering new reasons without jurisdiction is illegal. 4. Whether the reasons urged in support of "reasonable cause" under Section 273B, considered and relied on by the CIT(A), were militating against each other and thus baseless, making the Tribunal's confirmation of the CIT(A)'s order unjustified. 5. Whether the order of the Tribunal was against law and facts, against the principle laid down in the judgment of the Delhi High Court (253 ITR 745), and whether the Tribunal was justified in confirming the order of the CIT(A) and interfering with the order of the Joint Commissioner. Assessee's Contentions: The assessee admitted its lapse in not deducting tax at source and requested a lenient view for a technical lapse. The Commissioner (Appeals) found that the Assessing Officer had not established the absence of reasonable cause and that the assessee committed a bonafide mistake. Revenue's Contentions: The Revenue argued that the assessee failed to produce evidence to substantiate its claims for reasonable cause. The Commissioner (Appeals) wrongly placed the burden of proof on the Revenue. The Tribunal's reasons were surmises and assumptions not based on materials provided by the assessee. The assessee had not established a reasonable cause under Section 273B to resist the penalty under Section 271C.

Which sections of the Income-tax Act were involved?

Section 271C,Section 194A,Section 273B

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU MONDAY, THE 6TH DAY OF JUNE 2016/16TH JYAISHTA, 1938 --------------------------- AGAINST THE ORDER IN ITA 398/2002 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28-10-2005 APPELLANT/APPELLANT: - ---------------------------------------- THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM.

BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: - ------------------------------------------- M/S.MUTHOOT BANKERS (ARYASALA), THIRUVANANTHAPURAM.

BY ADV. SRI.C.M.STEPHEN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 06-06-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

APPENDIX APPELLANT'S ANNEXURE : ANNEXURE A :OF THE ORDER U/s 271C OF THE JOINT COMMISSIONER OF INCOME TAX DATED 28.09.2001. ANNEXURE B :OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ITA No. 121T/2001-02 DATED 05.06.2002. ANNEXURE C : COPY OF THE ORDER OF THE INCOME TAX APPELLATE TR

The order continues below.

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