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Income Tax Appellate Tribunal, DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’, NEW DELHI BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH. SANJAY GARG, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCING) ITA No.2208/Del/2018 (Assessment Year : 2009-10) ACIT Vs. TV 18 Broadcast Ltd., Circle – 76(1) 414,1st Floor, Empire New Delhi Complex, Lower Parel Mumbai, Murtijapur, Maharashtra – 110 001 PAN : AACCG 3666 M (APPELLANT) (RESPONDENT) Assessee by Shri Ved Jain, C.A. Revenue by Shri Jagdish Singh, Sr. D.R. Date of hearing: 07.10.2021 Date of Pronouncement: 11.11.2021 ORDER PER ANIL CHATURVEDI, AM:
This appeal filed by the Revenue is directed against the order dated 01.01.2018 of the Commissioner of Income Tax (Appeals)-41, New Delhi relating to Assessment Year 2009-10.
The relevant facts as culled from the material on records are as under :
A reference was sent by DCIT, Circle 25(1), New Delhi to JCIT for imposition of penalty u/s 271C of the Act on account of failure on the part of assessee to deduct TDS under provisions of Chapter – XVII-B of the Act. It was stated that for the period relevant to F.Y. 2008-09 in Form 3CD report, assessee had itself disallowed and added back expenditure of Rs.7,09,06,524/- as no TDS was deducted from those payments and thus there was failure on the part of assessee to deduct TDS. Thus proceedings were initiated by JCIT for imposition of penalty u/s 271C of the Act vide show cause notice dated 05.05.2015. Assessee, to the show cause notice inter alia submitted that the aforesaid amount represented provision on estimated basis. It was further submitted that the amount reported in the Tax Audit Report in respect of Section 40(a) of the Act was out of abundant caution and no income has been credited to the account of the payee. It was further submitted that the condition of identifying the payee and the amount payable to them were not met at the time of recording the year-end provisions for expenses under various account-heads. The submissions of the assessee was not found acceptable. The JCIT was of the view that the liability to deduct tax at source persists even when the amount in question is credited to a “suspense Account” or any other account which includes “Provision” created in the books of accounts. JCIT therefore held that since there was no failure to deduct tax at source, the provision of Section 271C of the Act were attracted. JCIT was further of the view that the TDS default highlighted in
the Tax Audit Report clearly indicated that the expenditure were chargeable to tax in the hands of the payee and obligation of deducting tax at source arose for the assessee. He was further of the view that once the assessee has made suo moto disallowances u/s 40(a)(ia) of the Act, it was not possible to argue that there was no liability to deduct tax at source. JCIT therefore vide order dated 09.05.2016 held that assessee was liable for penalty u/s 271C of the Act to the tune of Rs.58,26,193/- being the amount equal to the amount of tax which the assessee has failed to deduct in accordance with the provisions of Chapter XVII-B. He accordingly levied penalty of Rs.58,26,193/- u/s 271C of the Act. Aggrieved by the order of AO, assessee carried the matter before the CIT(A). CIT(A) vide order dated 01.01.2018 in Appeal No.287/2016-17/CIT(A)-41/A.Y.2009-10 deleted the levy of penalty by observing as under:
4.5.1 “The appellant has contended that at the year end provisions aggregating Rs.7,09,06,524/- were made under various heads of expenses as per its consistently followed accounting policies under the companies Act. The appellant has contended that since these amounts were mere provisions not related any particular payee no tax was deducted and accordingly the said provision has been added back in the computation of total income as same being not an allowable expenditure under the Act. As regard, the reporting of amount of provision in the tax audit report the appellant has submitted that the same was reported by the auditors as a matter of abundant caution. 4.5.2 In this regard, after going through the allegations of the JCIT and submissions of the appellant, it is noticed that appellant has admittedly made provision of Rs.7,09,06,524/- under various
heads of expenses as reported in form 3CD which was added back in the computation of total income by the appellant suo moto. The assessment of the appellant for the AY 2009-10 was completed under section 143(3) vide order dated 25.03.2013, wherein there is no adverse remark in this regard. The only basis of reference by the successor of the AO to JCIT is the reporting of amount in the form of 3CD. It is noticed that the JCIT has treated the reporting of amount of provision of Rs.7,09,06,524/- under section 40(a) as admission on the part of the appellant of failure to deduct tax. The view taken by the JCIT is not justified as the amount provision of Rs.7,09,06,524/- has not been reported by the appellant rather the auditor of the appellant, accordingly, it cannot be said to be admission on the part of the appellant. It is further noticed that the auditor has simply quoted the amounts of provisions under various head of expenses; however, he has not identified any payee in this regard. Accordingly, the reporting done by the auditor appears to be mere precaution on his part so that the amount of provisions does not get ignored. The another ground taken by the JCIT for levy of penalty and treating the appellant in default that credit to any account whether called suspense account or by any name in the books of accounts shall be deemed to be credit of such income to the account of the payee. The JCIT in his order at para 18 has quoted relevant extracts of provisions of section 194C, 194J and 194H for the view formed by him. In this regard, it is noticed that the JCIT was not justified in levy of penalty on the said basis as in all the sections referred by him the words "credit of such income to the account of the payee" have been used. The use of such word itself proves that for the purpose of deduction of withholding tax (TDS) identification of payee is mandatory. Unless the payee is identified who if the beneficiary of a credit of tax deduction at source, mechanism of Chapter XVII-B cannot be put in service. In the case of the appellant, there is no material or evidence or record which could identify the payee against the provisions created by the appellant. Even, the statutory auditor has not identified any payee to whom the amount is to be credited. These facts clearly
leads to the bonafide/genuineness of the claim of the appellant that the amount of Rs.7,09,06,524/- is mere provisions not related to any specific party/ payee and no deduction has been claimed in this regard. It is also important to note here that the appellant has not been held as assessee in default under section 201(1)/201(1A). Further, there is also no adverse inference by the AO in the assessment order passed under section 143(3) for the relevant AY 2009-10. Even though the passing of order under section 201(1)/201(1A) is not a pre condition for levy of penalty under section 271C, the said fact and the view taken by the AO in the assessment order adds to the genuineness of the claim of the appellant. It is also important to note that as per the scheme of TDS under chapter XVII-B of section 199, the credit for the TDS is to be given to the deductee. Thus, the identification of the person from whose account income tax was deducted at source is a pre requisite condition so as to make the provision chapter XVII-B workable. Further section 203(1) lays down that for all deductions at source, the tax deductor has to furnish a certificate to the person to whose account such credit is to be given (payee). Since, the payees are not identified in the case of the appellant the machinery of these provisions cannot be put in service and accordingly there is no liability on the part of the appellant to deduct tax on the amount of provision of Rs.7,09,06,524/-. Hence, the JCIT was not justified in levying the penalty under section 271C as there is not default on the part of the appellant to deduct tax. Even otherwise, if it is held that there has been default on the part of the appellant in deduction of tax, it has to be seen whether there was any reasonable cause on the part of appellant for such non deduction as per provisions of section 273B. The penalty cannot be imposed simply because it is lawful to do so. It is the discretion of the authority which has to be exercised where there is a contumacious conduct on the part of the appellant. In the present case of the appellant, it has been argued by the appellant that since the payees were not identified at the time of making of provisions, it was under bonafide belief that there is
no liability to deduct tax at source. The appellant further submitted that no deduction claimed by it in its return of income with respect to the said provision. Accordingly, there was no deliberate attempt on its part to avoid TDS provisions. In view of above discussion, I am of the considered view that the appellant has given fair reason for non deduction of tax as the provision being not related to any specific payee. Accordingly, it is reasonable to conclude that the appellant had reasonable cause with the meaning of section 273B for non deduction of tax Further the JCIT was also not able to put forward any evidence which could lead to the identification of the payee which adds to the bonafide of the reasonable cause given by the appellant. Accordingly, the penalty under section 271C is not imposable as there is no deliberate attempt on the part of the appellant to avoid TDS provisions.
In the result, the appeal is allowed.”
Aggrieved by the order of CIT(A), Revenue is now in appeal before us and has raised the following grounds: 1. “Whether on the facts and in the circumstances of the case and in law, the CIT(A) was justified in holding that the appellant had reasonable cause with the meaning of section 273B for non deduction of tax.? 2. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was justified in holding that the parties were not identifiable without factual exercise of verification which is considered as necessary for determination? 3. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was justified to ignored, the para no. 25 of the penalty order in which clearly discussed, how the parties are identifiable and deductor was failed to deduct the TDS on provision of expenses?
Whether on the facts and in the circumstances of the case and in law, the CIT(A) was justified in holding in placing reliance on the decision of the High Court in the case of M/s Mahesh Wood Products Pvt ltd and JKD Capital & Finlease Ltd., which is applicable to cases of penalty u/s 271D and 271E only and not to penalty u/s 271C of I.T.Act, 1961? 5. That the order of the CIT(A) being erroneous in law and on facts needs to be vacated and the order of the JCIT be restored. 6. That the appellant craves leave to add or amend any one or more of the ground of the appeal as stated above as and when need for doing so may arise.” 5. Before us, Learned DR took us to the penalty order of JCIT and submitted that the JCIT was fully justified in levying penalty u/s 271C of the Act and the CIT(A) should have upheld the levy of penalty.
Learned AR on the other hand reiterated the submissions made before the lower authorities and further submitted that the provision of Rs.7,09,06,524/- was created as per the relevant accounting standard and following mercantile accounting system and no TDS was deducted on the provisional expenses at that point of time as the payees was not known/ identifiable. On the basis of the observation in the Tax Audit Report, the assessee itself disallowed the provisional expenses while filing the return of income. During the course of assessment proceedings, AO observed the tax audit report and computation of income filed by the assessee disallowing the above provisions and referred the matter to Joint Commissioner of Income Tax for imposition of penalty under Section 271C of the Act and thereafter issued
show-cause notice for imposition of penalty u/s 271C of the Act. He further submitted that assessee was not treated as “assessee in default” u/s 201(1)/201(1A) of the Income tax Act and the year end provisions made by assessee was on estimated basis and there was no liability to deduct TDS on such provisions as the parties are not identifiable. He further submitted that assessee had voluntarily disallowed the amount in the return of income as per the observations of the Tax Auditors and there was sufficient reasonable cause for non-deduction of tax on such year-end provisions in the absence of unidentified parties. He submitted that AO has made the presumption that the parties are identifiable without bringing on record anything in relation to these un-identified parties in support of his allegation. He further submitted that identical issue arose before the Bangalore Bench of Tribunal in ITA No. 2865 & 2866/Bang/2018 dated 14.06.2021 wherein the Hon’ble Bench had deleted the penalty. He also placed reliance in the decision of Delhi Tribunal in the case of Apollo Tyres Ltd. v. Deputy Commissioner of Income- tax, TDS Circle, Gurgaon, [2017] 78 taxmann.com 195 (Delhi - Trib.) and other decisions. He further submitted that mere failure to deduct TDS does not result into penalty under section 271C of the Act and for the levy of penalty there must be contumacious conduct of the assessee in failure to deduct tax at source. He thus supported the order of CIT(A).
We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to penalty u/s 271C of the Act. We find that CIT(A) by a well reasoned order and for the reasons cited which are reproduced hereinabove has deleted the penalty levied u/s 271C of the Act. He has further opined that considering the totality of facts, it was reasonable to conclude that the assessee had reasonable cause within the meaning of Section 273B of the Act for non deduction of tax. Before us, no fallacy in the findings of CIT(A) has been pointed out by Revenue. Considering the aforesaid facts, we find no reason to interfere with the order of CIT(A). Thus the grounds of Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 11.11.2021
Sd/- Sd/- (SANJAY GARG) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:- 11.11.2021 PY* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI