XCELLON EDUCATION LIMITED,,AHMEDABAD vs. ADDL. CIT, TDS,, AHMEDABAD

The facts relating to the issue, as noted in the order of the ld.CIT(A) ,is that the assessee is a company incorporated under the Companies Act, 1956 and is engaged in the profession of spreading higher education by running management institute. During the year under appeal, the assessee had incurred expenditure referred to in sections 194C, 194H, 194-I, 194J and 192B and defaulted in to 2681/Ahd/2017 (4 Appeals) 3 complying with the TDS provisions. A survey operation under section 133A of the Act was carried out at the business premises of the assessee on 30.11.2015 by the Income Tax Authority of TDS Range, Ahmedabad. During the course of survey, it was observed by the survey team that the assessee had defaulted in deposit of TDS amounting to the tune of Rs.26,33,867/- to the Government account. The DCIT(TDS), Ahmedabad passed an order under section 201(1)/201(1A) of the Act on 11.3.2016 whereby the assessee- company was treated as assessee-in-default for total sum of Rs.31,11,556/-, for the unpaid TDS amount of Rs.26,33,867/- and Rs.4,77,689/- being interest under section 201(1A) of the Act. After considering the payment already made by the assessee, a demand of Rs.9,72,910/- was raised for the said year. In the said order, the AO also initiated penalty proceedings both under section 271C of the Act for not paying TDS pertaining to the financial year 2014-15 within the stipulated time and under section 272A(2)(g) of the Act for failure to issue TDS certificate on time. Thereafter, orders were passed imposing penalty under section 271C of the Act of Rs.26,33,867/- for the alleged default of not paying TDS within stipulated time, and under section 272A(2)(g) of the Act of Rs.2,58,000/- for the alleged default of not filing quarterly statement in form no.24Q and 26Q for the financial year 2014-15 within stipulated time. Both the penalties were confirmed by the ld.CIT(A).

Aggrieved by the same, the assessee has come up in appeal before the Tribunal challenging levy of penalty under section 271C of the Act in its appeal in for Asst.Year 2015-16 raising the following grounds:

4. Your appellant being dissatisfied with the order passed by the Commissioner of Income Tax (Appeals)-S, Ahmedabad presents this appeal against the same on the following amongst other grounds.

The Order passed by CIT (Appeals) is bad in law and on facts and hence, it submitted that the same be cancelled and be suitably modified.

On the facts of the case as well as in law, learned CIT(A) grossly erred in confirming the impugned penalty order in utter disregard to the provisions of Section 273B of the Income Tax Act which provides that no penalty is Ieviable if the default is on account of good and sufficient reason. The appellant submits that | the default is attributable to reasonable cause to 2681/Ahd/2017 (4 Appeals) 5

During the course of hearing before us, the ld.counsel for the assessee raised common contentions against the levy of both the penalties and filed brief submission in writing in this regard, which are reproduced hereunder:

The ld.DR, however, heavily relied on the order of the ld.CIT(A).

We have heard contentions of both the parties. The issue for adjudication before us is relating to the levy of penalty under section 271C and 272A(2)(g) of the Act. The violation stated to be committed by the assessee for attracting the levy of penalty of the impugned penalties are – to 2681/Ahd/2017 (4 Appeals) 8 (i) 271C of the Act- for not depositing the TDS in prescribed time, and (ii) section 272A(2)(g) of the Act - for not filing quarterly statements of TDS in Form No.24Q and 26Q for the impugned year within the stipulated time in relation to the TDS which was not deposited in time by the assessee.

Since both the penalties arise on account of the act of delay in deposit of TDS by the assessee, we shall first deal with the basic penalty levied for the default of non-deposit of TDS within the time prescribed in law, under section 271C of the Act.

One of the contentions of the ld.counsel for the assessee before us was that, though, the assessee had argued before the ld.CIT(A) that section 271C of the Act levies penalty for non-deduction of tax at source and not for default in depositing TDS in time, the same was rejected by the ld.CIT(A) relying on the decision of the Hon’ble Kerala High Court in the case of US Technologies Vs. CIT, of 2009. He pointed out that both the AO and the ld.CIT(A) referred to this decision of the Hon’ble Kerala High Court for holding that section 271C of the Act attracts penalty for the default in the delay in deposit of TDS also, besides levying of penalty for non-deduction of TDS. The ld.counsel for the assessee pointed out that this decision of the Kerala High Court has since been reversed by the Hon’ble Supreme Court in its decision in US Technologies Vs. CIT, (2023) 453 ITR 644 (SC). Copy of the said decision was placed before us, and it was pointed from the same that the Hon’ble Apex Court had gone through the provisions of section 271C and categorically held that on true interpretation of section 271C there is no penalty leviable on a mere delay of remittance of TDS after deducting the same by the concerned assessee. to 2681/Ahd/2017 (4 Appeals) 9 13. The ld.DR though relied on the order of the ld.CIT(A) was unable to controvert the contentions of the ld.counsel of the assessee that the decision on which the ld.CIT(A) and the AO had relied for levy of penalty in the case of the assessee under section 271C of the Act in the case of US Technologies (supra), has since been reversed by the Hon’ble Apex Court. He was unable to point out any distinguishing facts in relation to the said decision before us.

We have heard both the parties and also gone through the orders of the Revenue authorities and also various decisions cited before us. As noted above, the issue for adjudication is the levy of penalty under section 271C of the Act and default for which the penalty has been levied, is delayed remittance of TDS deducted by the assessee. These facts are on record, and there is no dispute about the said two facts.

Having noted so and going through the decisions of the Hon’ble Apex Court in US Technologies (supra) we see no reason to disagree with the ld.counsel for the assessee that the Hon’ble Apex Court has categorically held that default for delayed remittance of TDS does not attract any penalty under section 271C of the Act. The issue before the Hon’ble Apex Court was identical, wherein it noted the question posed for consideration of the Court as to the meaning and scope of the word “failure to deduct” occurred in section 271C(1)(a), and whether any assessee who caused delay in remittance of TDS deducted by him, can be said a person who “fails to deduct TDS”. This question is noted at para 7.2 of its order. The Hon’ble Apex Court then went on to analyse the statutory provisions pertaining to sections 272A(2)(g), 271C, 273B and 276B of the Act. After analyzing the said provisions, the Hon’ble Apex Court observed that the language of section 271C of the Act is very clear and it attracts to 2681/Ahd/2017 (4 Appeals) 10 the levy of penalty only for the default to deduct tax at source. The Hon’ble Apex Court noted that it does not speak about the belated remittance of TDS and noting that penalty provisions are to be strictly and literally read, and nothing is to be added or taken out, the Hon’ble Court held that there could not be any penalty leviable on belated remittance of TDS after the same is deducted by the assessee, under section 271C of the Act. Thereafter, the Apex Court dealt with the provisions of section 271C(1)(b) of the Act and noted that as per the said section only a limited violation, relating to section 115-O or section 194B of the Act, would constitute an understanding where penalty could be imposed under section 271C(1)(b) on non-payment of TDS. The Hon’ble Apex Court further noted that the statute provides for the levy of penalty for the delayed remittances of TDS under section 201(1A) of the Act, which was compensatory in nature, and similarly about prosecution under section 276B of the Act on failure to pay TDS after deducting. The Hon’ble Apex Court also referred to CBDT Circular No.551 dated 23.1.1998 and noted that it talked about the levy of penalty on failure to deduct TDS and noted that even the CBDT has taken note of the fact that no penalty is envisaged under section 271C of the Act for belated remittance of TDS. Considering all of the above, the Hon’ble Apex Court categorically held that no penalty under section 271C of the Act is leviable for default of not depositing TDS deducted.

The issue before us, is therefore, as rightly pointed out by the Ld.Counsel for the assessee, squarely covered in favour of the assessee by the decision of the Hon’ble apex court in US Technologies (supra) following which we hold no penalty could have been levied under section 271C of the Act for the act of delayed remittance of to 2681/Ahd/2017 (4 Appeals) 11 TDS. The penalty therefore levied of Rs. 26,33,867/- u/s 271C of the Act is directed to be deleted. Appeal of the assessee in is accordingly allowed.

We shall now take up the issue of levy of penalty under section 272A(2)(g) of the Act challenged in ITA No.2678/Ahd/2017

The order levying penalty reveals that the penalty was levied for delayed filing of quarterly returns of TDS in Form No.24Q and 26Q for the financial year 2014-15, and the delayed returns pertained to TDS which the assessee had deducted, but failed to deposit with the Government in time, for which penalty u/s 271C of the Act was also levied and which has been dealt with by us in assessees appeal in above. The delay was noted to be of, in all, 2580 days, and as provided under section 272A(2)(g) of the Act, penalty of Rupees hundred per day, totaling to Rs.2,58,000/- was levied on the assessee.

It is pertinent to first consider the default, which attracts the levy of penalty in terms of section 272A(2)(g) of the Act. Therefore, it is relevant to reproduce the said sub-clause as under:

As per sub-clause (g) of section 272A(2), it is the non-furnishing of certificates as provided for under section 203 of the Act, which attracts levy of penalty. Section 203 refers to the furnishing of TDS certificates as under: 203. (1) Every person deducting tax in accordance with the foregoing provisions of this Chapter shall, within such period as may be prescribed from the time of credit or payment of the sum, or, as the case may be, from the time of issue of a cheque or warrant for payment of any dividend to a shareholder, furnish to the person to whose account such credit is given or to whom such payment is made or the cheque or warrant is issued, a certificate to the effect that tax has been deducted, and specifying the amount so deducted, the rate at which the tax has been deducted and such other particulars as may be prescribed.

Section 203 of the Act, as is evident from a bare perusal of the section mandates furnishing of TDS certificates within prescribed time. Thus, the default attracting penalty section 272A(2)(g) of the Act is that of non-furnishing of TDS certificates in time as specified u/s 203 of the Act .

Be that so, we have noted that sub-clause (k) of section 272(A)(2) deals with the levy of penalty for non-filing or delayed filing of the quarterly returns. The relevant sub-clause is reproduced hereunder:

It was further noted that the impugned default attracted penalty u/s 271H of the Act after 01-07-2012 and the quantum also was at variance. The provisions of section 271H of the Act read as under; 271H. (1) Without prejudice to the provisions of the Act, the Assessing Officer may direct that a person shall pay by way of penalty, if, he— (a) fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C; or (b) furnishes incorrect information in the statement which is required to be delivered or caused to be delivered under sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C. (2) The penalty referred to in sub-section (1) shall be a sum which shall not be less than ten thousand rupees but which may extend to one lakh rupees. to 2681/Ahd/2017 (4 Appeals) 14 (3) Notwithstanding anything contained in the foregoing provisions of this section, no penalty shall be levied for the failure referred to in clause (a) of sub- section (1), if the person proves that after paying tax deducted or collected along with the fee and interest, if any, to the credit of the Central Government, he had delivered or cause to be delivered the statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C before the expiry of a period of one 22[year] from the time prescribed for delivering or causing to be delivered such statement. (4) The provisions of this section shall apply to a statement referred to in sub- section (3) of section 200 or the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012.

Both the parties were confronted with this position of law and the case put up for seeking clarification if any from both the sides. The order sheet entry dated 06-02-2025 fixing the case for seeking the above clarification reads as under:

Thereafter when the matter was ultimately heard on 25th February 2025 both the parties admitted to the position of law noted by us that no penalty was leviable for the default in non/ delayed filing of TDS returns u/s 272A(2)(k) of the Act in the impugned year. That the same was leviable u/s 271H of the Act and the quantum of penalty also was at variance as against that provided u/s 272A(2)(g) of the Act. to 2681/Ahd/2017 (4 Appeals) 15 27. Accordingly, since admittedly the penalty for default in furnishing of quarterly returns has been levied by invoking the provision of law which was not applicable in the impugned year at all, the same, we hold, is not sustainable.

In effect, all the appeals of the assessee are allowed. Order pronounced in the Court on 7th March, 2025 at Ahmedabad.