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Income Tax Appellate Tribunal, AGRA (SMC
Before: SHRI A. D. JAIN
IN THE INCOME TAX APPELLATE TRIBUNAL AGRA (SMC) BENCH: AGRA
BEFORE SHRI A. D. JAIN, JUDICIAL MEMBER
I.T.A Nos. 65& 66/Agra/2017 (ASSESSMENT YEARs-2012-13 & 2013-14)
State Bank of India, Addl. CIT-(TDS), Kanpur. Vrindavan, Mathura. PAN No.AGRS11846C (Assessee) (Revenue)
Assessee by Ms. Prarthna Jalan, & Shri Chanchal Jain, ARs Revenue by Shri Waseem Arshad, Sr.DR.
Date of Hearing 11.12.2017 Date of Pronouncement 25.01.2018
ORDER ITA No. 65/Agra/2017 This is assessee’s appeal for assessment year 2012-13, taking the following grounds: “1. On the facts and in the circumstances of the case and- in law the CIT(A) erred in confirming the penalty of Rs.4,25,420 under section 271C of the Act and not appreciating the fact there was a reasonable cause which prevented the assessee to act like a man of average intelligence and ordinary prudence under normal circumstances. 2. On the facts and in the circumstances of the case and in law the Assessing Officer and the CIT(A) erred in
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arriving at calculating the penalty on the amounts paid as interest on FDR without appreciating the fact that there exists a reasonable cause as contemplated under section 273B, for the short deduction/ non deduction and there was no malafide intention for such a failure. 3. On the facts and in the circumstances of the case and in law the Assessing Officer and the CIT(A) erred in not appreciating the fact that the assessee has voluntarily deposited the amount of short deduction /non-deduction / lower deduction as soon as it came to its notice that the compliance was not done in accordance with the Act. 4. On the facts and in the circumstances of the case and in law the Assessing Officer and the CIT(A) erred in not appreciating the fact that the assessee has deducted and deposited the amount of tax before the finalization of the order and has suo-moto made all the compliances. 5. On the facts and in the circumstances of the case and in law the Assessing Officer and the CIT(A) erred in appreciating the fact that the assessee being a branch of a banking company has no reason to deduct the tax at lower or NIL rate and hence the penalty levied is without any application of mind and is unjustified and bad in law.” 2. The AO levied penalty of Rs.4,25,420/- on the assessee u/s 271C of the IT Act, as the assessee had failed to deduct TDS on interest paid on FDRs and to deposit the same. The ld. CIT(A) has confirmed the penalty.
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The ld. Counsel for the assessee has contended that in the circumstances of the case and in law the CIT(A) erred in confirming the penalty of Rs.4,25,420/- under section 271C of the Act, not appreciating the fact that there was a reasonable cause which prevented the assessee to act like a man of average intelligence and ordinary prudence under normal circumstances; that in the circumstances of the case and in law, the Assessing Officer and the CIT(A) erred in arriving at calculating the penalty on the amounts paid as interest on FDR, without appreciating the fact that there exists a reasonable cause as contemplated under section 273B, for the short deduction/ non deduction and there was no malafide intention for such a failure; that the Assessing Officer and the CIT(A) erred in not appreciating the fact that the assessee voluntarily deposited the amount of short deduction /non-deduction / lower deduction as soon as it came to its notice that the compliance was not done in accordance with the Act; that the Assessing Officer and the CIT(A) erred in not appreciating the fact that the assessee has deducted and deposited the amount of tax before the finalization of the order and has suo-moto made all the compliances; and that the Assessing Officer and the CIT(A) erred in not appreciating the fact that the assessee, being a Branch of a banking company, has no reason to deduct the tax at lower or NIL rate and hence, the penalty levied is without any application of mind and is unjustified and bad in law.
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The ld. DR, on the other hand, has placed strong reliance on the impugned order. Besides, the following decisions have been relied on: ‘CIT vs. M/s PVS Memorial Hospital’, order dated 20.07.2015, i. passed by the Hon’ble Kerala High Court in ITA Nos. 2/2012 and 16/2014. ‘M/s Hindustan Coco Cola Beverage Pvt. Ltd. vs. CIT’, judgment ii. dated 16.08.2007 rendered by the Hon’ble Supreme Court in Civil Appeal No.3765/2007. ‘M/s US Technologies vs. CIT’, order of the Hon’ble Kerala High iii. Court, dated 16.06.2009, in ITA No. 3/2009. ‘DCIT vs. M/s Pfizer Ltd’, order dated 25.05.2016 passed by the iv. Mumbai Tribunal in ITA Nos. 5053 to 5057/Mum/2013, for A.Ys. 2004-05 to 2006-07, 2008-09 and 2009-10. And ‘Pfizer Ltd. vs. ITO (TDS)’ and ‘ITO (TDS) vs. Pfizer Ltd.’, order v. dated 31.10.2012 passed by the Mumbai Tribunal in ITA Nos. 1667 and 1765/Mum/2010, for A.Y. 2007-08. Copies of these decisions have been placed on record. 5. I have heard the parties and have perused the material on record. The ld. CIT(A), while confirming the penalty, has observed as follows: “During the proceedings under section 271C, a show cause notice was issued to the appellant on 31.07.2014 and it was
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followed by two letters/notices dated 29.08.2014 and 03.03.2015. The only compliance made by the appellant to the three notices/letters was in the form of a letter dated 16.09.2014 duly signed by the Chief Manager, SBI, Mathura received by the A.O. apparently by post. The A.O., after considering the appellant's submission given in the aforementioned letter dated 16.09.2014, completed the proceedings and levied the impugned penalty on 30.03.2015. Before me, the appellant has given more than one arguments in support of its contention against the imposition of the penalty under section 271C. The first argument is that there was no willful default on its part in not deducting or in short- deducting the TDS from the payments of interest to some of its customers. It has explained that due to an updation error in its software, caused, in turn, by some human errors, PANs of some of its customers remained to be considered for deduction of TDS and that was the reason for the default. The provisions of section 273B of the Act have been referred to by it stating that it had a reasonable cause for not deducting the TDS and so the impugned penalty should be deleted. The second argument of the appellant is that it should be absolved of the penal liability because it had voluntarily deposited the shortfall in TDS as soon as this fact was brought to its notice by the department. The third argument of the appellant is that majority of the customers, in whose case TDS not deducted, or deducted at a lower rate, are charitable organization having section 12AA and section 80G registration and hence not liable to pay tax, and so it should not be treated as an assessee in default. Many
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judicial precedents have been cited by the appellant in support of each of the above arguments. It is important to note that the appellant's default of not complying with the provisions of section 194A is undisputed. Keeping in mind the language of the provisions of section 271C of the Act, I am of the opinion that under such circumstances, the only way the appellant can escape the penal provisions laid down under that section, is to prove that it had a reasonable cause for the default. It is not only important but also interesting to note that despite getting three distinct opportunities given to it by the A.O., the appellant did not point out even one reasonable cause of its failure to deduct TDS. Its only submission dated 16.09.2014 does not talk about the alleged updation error in its software, caused in turn by some human errors, which allowed PANs of some of its customers escape consideration for the purpose of deduction of TDS. Also, I find that no evidence whatsoever has been produced even during the present proceedings which could prove that the alleged reasonable cause indeed existed and contributed to its failure to deduct TDS as per the provisions of section 194A of the Act. In my opinion, the appellant has grossly failed to prove that there existed a reasonable cause for its failure to comply with the provisions of section 194A. The alleged reasonable cause for its failure to deduct TDS as per law, appears to be an afterthought and not genuine. Therefore, with due respect to the cited judicial precedents, I hold that the appellant's case is distinguishable on facts, the provisions of section 273B are not attracted to it, and the appellant is liable to be penalized under section 271C of the Act. Penalty of Rs.
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4,25,420/- is accordingly confirmed. Grounds no. 1 to 5 are dismissed. 7. In the result, the appeal is dismissed.” 6. Thus, as per the ld. CIT(A), the assessee did not produce any evidence that these occurred some error in the assessee’s software, caused by any human error, which resulted in the PANs of some of the assessee’s customers to escape consideration for the purpose of TDS. These existed, therefore, according to the ld. CIT(A), no reasonable cause for the assessee not to have deducted and deposited the TDS. 7. In this regard, the case of the assessee is that there is no definition for the term ‘reasonable cause’ and it has to be decided on the facts of each case. The Hon'ble Delhi High Court, in the case of ‘Woodward Governors India (P) Ltd. Vs. CIT’, (2002) 253 ITR 0745, has explained the term ‘reasonable cause’ as under:-
“6. Levy of penalty under section 271C is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision the same was without a reasonable cause. The initial burden is on the assessed to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessed or the person, as the case may be, as regards the reason for failure, was on account of reasonable
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cause. "Reasonable cause" as applied to human act/on is that which would constrain a person of average Intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences follow.” 8. The Hyderabad Tribunal in the case of ‘M/s. Good Health Plan’, in ITA No. 155/Hyd/2013, pronounced on 22.01.2014, has held:
“When the AO himself treated the assessee as an assessee not in default in respect of the amounts of TDS to be deducted, then there cannot be any scope for levying penalty u/s. 271C of the Act. As in this case the amount of tax has been paid by the recipient of the income. Being so, the provisions of section 271C cannot be applied to the assessee's case as these provisions dearly state that if any person fails to deduct whole or any part of the tax as required under the provisions of Chapter XVII-B, then such person shall be liable to pay by way of penalty an amount equal to the amount of tax which such person failed to deduct or pay as above said. Being so, in the present case the assessee being not in default in respect of the amount of tax itself, there cannot be any levy of penalty u/s.
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271C, more so, where there was a reasonable cause for not deducting the TDS on the payment made by the assessee. Considering the cumulative effect of all the facts and circumstances of the case, we are inclined to confirm deletion of penalty by the CIT(A).
Now, undoubtedly, as contended, in reply dated 16.09.2014 (page no. 38-39 of the paper book), as also mentioned by the CIT(A) in his order, it was stated that the appellant had clarified the reasons of such errors to the Assessing Officer and then the assessing officer accepted the justifications and accordingly dropped the tax liabilities on such non- deductions and found that there was no concealment of income and the mistake was bonafide and there was no loss to the Government. The appellant was referring to the letters/explanations which it had submitted before the ITO (TDS), Agra, wherein it had explained all the reasons due to which the non deduction of TDS happened in a few cases (copies enclosed at page 40-44 of the paper book). On page no 43 of paper book, at point nos. 3 and 4 of the reply to AO, it was stated about the updation error in its software caused in turn by some human errors, which allowed PANs of some of its customers to escape consideration for the purpose of deduction of TDS.
Moreover, in ‘US Technologies’ (supra), it has been held that deposit of tax 10. before detection is a mitigating circumstances qua penalty. Herein, as on date, there is no outstanding demand.
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Thus, in view of this background, the assessee cannot be considered as having done willful neglect for non-compliance of the TDS provisions. This is just a technical mistake and, accordingly, the assessee cannot be held to be an assessee in default and no penalty can be imposed. This is clear from the fact that the moment this descrepancy was highlighted by the AO, the assessee immediately deposited the short deducted amount with the Revenue.
From the above, it is evident that the assessee was visited with reasonable cause beyond its control leading to the alleged default. The mistake occurred because of a software updation error, the Revenue is compensated by paying the interest as well as due taxes by the payee. Therefore, there is no loss to the Revenue in the matter. Moreover, the Branch Manager will personally have no interest in non-deduction/ short deduction/ lower deduction of some of the customers of the Branch. Hence, this is an unintentional mistake and, accordingly, no penalty provisions should get attracted.
In these facts of the case, the case laws sought to relied on by the Department are not applicable. 14. Accordingly, the assessee is found to have had reasonable cause for not deducting the tax at source. The penalty levied is, accordingly, deleted. ITA No. 66/Agra/2017 This is assessee’s appeal for assessment year 2013-14, taking the following 15. grounds:
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“1. On the facts and in the circumstances of the case the CIT(A) erred in confirming the demand of Rs.2,54,335/- for the purpose of the section 201(1) and 201(1A) of the Act.
On the facts and in the circumstances of the case and in law the Assessing Officer and the CIT(A) erred in arriving at the short deduction on the amounts paid as interest on for without appreciating the fact that the parties on whom short deduction has been worked out have already considered the same as income at the time finalizing their accounts.
On the facts and in the circumstances of the case and in law the Assessing Officer and the CIT(A) erred in not appreciating the fact that if the payee has discharged its tax liabilities then the payer of the income tax need not be held as assessee in default for the tax amount.
On the facts and in the circumstances of the case and in law the Assessing Officer and the CIT(A) erred in not appreciating the fact that if the payee has produced certificate of non-deduction then in such cases the payer is under statutory obligation for not deducting tax.
On the facts and in the circumstances of the case and in law the Assessing Officer and the CIT(A) erred in not appreciating the fact that if the payee has discharged its tax liabilities then the payer of the income tax need not be held as assessee in default for the interest amount.”
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A survey u/s 133A of the IT Act was conducted on assessee on 11.01.2013. During the course of the survey, the department found that the assessee had not deducted TDS u/s 194A in respect of interest on FDR paid to trust. On 19.03.2015- order under section 201(1)/ 201(1A) of the Income Tax Act, was passed and a demand of Rs. 7,32,951/- was raised.
Appeal was filed before the Commissioner of Income-tax (Appeals)-l, Agra who has decided the appeal partly in favor of the assessee by giving relief in five cases out of eight cases and has sustained the addition only in the case of ISKON, as the necessary documents were not submitted at the time of hearing before the CIT(A).
The ld. CIT(A) has confirmed the demand u/s 201/201(1) in case of only ISKON accounts, which are as follows[Para 6.4 page no. 15 to 16 of CIT (Appeal) order dated 21.11.2016]:
a. ISKON Foreign A/c.
b. ISKON Samadhi A/c.
c. ISKON Sri Lila Prabhu Path Sadh.
Before this Bench, the assessee has filed the following additional evidence: “Page no. 1 of additional evidence paper book we have attached the certificate of 12A of ISKON. On pages no. 2 to 3 of additional evidence paper book exemption document from the income tax site is attached.
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On page no. 7 the acknowledgement of income tax return is attached of ISKON. On page no. 8 to 17 depict the financial statements of ISKON.” 20. This additional evidence, it is seen, goes to the root of the matter and the
matter requires to be decided in the light thereof. Accordingly, in the interest of
justice, it is remitted to the file of the ld. CIT(A), to be decided afresh in
accordance with law on considering the said evidence, by affording adequate and
due opportunity of hearing to the assessee. The assessee, no doubt, shall co-operate
in the fresh proceedings before the ld. CIT(A). All pleas available under the law
shall remain so available to the assessee. Ordered accordingly.
In the result, ITA No. 65/Agra/2017 is allowed, whereas ITA
No.66/Agra/2017 is treated as allowed for statistical purposes.
Order pronounced in the open court on 25/01/2018.
Sd/- (A.D. JAIN) JUDICIAL MEMBER Dated 25/01/2018 *AKV* Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR