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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’, NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANT
ORDER PER O.P. KANT, AM:
This appeal has arisen by the order dated 24.10.2019 of Hon’ble Delhi High Court, wherein the order of the Tribunal dated 29/11/2018 was set aside and the appeal is remanded back for re-hearing. This appeal was filed by the assessee against the order dated 20/07/16 passed by the Ld. Commissioner of Income-tax (Appeals)-41, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2008-09, raising following grounds: 1. That on facts and in law imposition of penalty under section 271C for Rs. 10,58,313/- is totally wrong, unjustified and illegal. The appellant company is not liable to penalty u/s 271C on the following grounds: i) That the Ld CIT (A) has not considered the various facts before passing the order. ii) That assessee had Bona fide reasons for not deducting TDS. iii) That the assessee had deposited TDS with interest where ever applicable and in another case the deductee has duly deposited due tax by offering full income in its income tax return and the assessment of deductee was completed u/s 143(3) of The Act. iv) That no order u/s 201(1) is passed in assessee’s case which shows that assessee is not in default for not deducting TDS. The same has not been adjudicated by the Ld CIT (A). Therefore the basis taken and method adopted by the assessing officer for imposing penalty u/s 271C for Rs. 10,58,313/- and confirmed by CIT (A) is totally wrong, unjustified and unwarranted and the same deserves to be deleted in full.
2. In the grounds raised
, the assessee is aggrieved by penalty levied under section 271C of the Income-tax Act, 1961 (in short ‘the Act’) for non-deduction of tax at source on certain payments.
3. Briefly stated facts of the case are that during assessment proceeding for assessment year 2008-09 corresponding to previous year 2007-08, it was noticed by the Assessing Officer that the assessee had not deducted tax at source on certain payments amounting to Rs.59,13,098/- which it was required to do under section 194C/194H of the Act. The Assessing Officer referred the matter to the Joint Commissioner of Income Tax for levy of penalty u/s 271C of the Act, who imposed a penalty amounting to Rs.11,50,20,144/- vide order dated 6/02/2015. On further appeal, the Ld. CIT(A) upheld the penalty holding that there was no reasonable cause for non-deduction of TDS. The ld. CIT(A) also rejected the contention of the assessee that it was a sick company and it had suo motu added back the amount on which tax had not been deducted. According to the Ld. CIT(A), even after adding back the amount under section 40(a)(ia) of the Act the assessee had shown loss and there was no tax payable and hence this action of adding suo motu disallowance under section 40(a)(ia) of the Act could not absolve the assessee from responsibility of deduction of tax at source. The Ld. CIT(A) also rejected the claim of the assessee that no penalty under section 271C is leviable in view of no order under section 201(1) of the Act holding it an assessee-in-default.
3. Before us, the learned counsel of the assessee submitted that there are three payments on which tax was not deducted during the financial year 2007-08. 3.1 He submitted that regarding first payment of Rs.8,44,879/-, tax on the amount was subsequently deducted in the period relevant to assessment year 2009-10 and was deposited in the government account. According to him, as far as this amount is concerned, penalty is not attracted as the assessee has already complied, though with slight delay, which does not prove any mala fide on the part of the assessee. 3.2 He further submitted that in respect of second payment of the commission of Rs.8,07,782/- for cane prices to various sugarcane societies, TDS of Rs.86,767/- had been provided in the books of account but the same was not deposited. It was claimed that the sugar mills had filed SLP before the Hon’ble Supreme Court and the Hon’ble Supreme Court had granted a stay in the matter. According to him, the expenditure was of contingent nature and same was reversed in the subsequent year and no TDS was deposited. 3.3 Regarding the third payment of interest of Rs.41,00,515/- to M/s Moderarte Leasing and Capital Services Ltd. on which tax of Rs.9,29,177/- was deductible, the assessee submitted that NIL deduction of tax certificate had been issued by the Department to the deductee on the opening balance. According to the assessee, it was under bonafide belief that no TDS was to be deducted in view of the certificate. It was submitted that the payee/deductee was regularly assessed to tax and interest received from the assessee had been offered to tax by the deductee and hence, there was no loss to Revenue. 3.4 In view of the facts and circumstances, the Ld. counsel submitted that there was a reasonable cause for non-deduction of tax at source and in view of the decision in the case of Sahara India Financial Corporation Ltd Vs CIT, (2009) 30 SOT 149 (Delhi) and Indo Nissin Foods Ltd Vs CIT (2004) 3 SOT 495 (Bang.), the penalty levied might be deleted 4. The Ld. DR, on the other hand, relied on the order of the lower authorities.
We have heard rival submission and perused the relevant material on record. We find that in respect of the three payments, the deduction at source was not made by the assessee in the relevant year. 5.1 In respect of the first amount of Rs.8,44,879/-, tax was deducted tax at source of Rs.93,831/- in the subsequent year and deposited the same into government account. The learned CIT(A) in para 5.6.2 of the impugned order has also deleted the penalty corresponding to this amount. 5.2 The learned CIT(A) has upheld penalty in respect of second payment of Rs.8,07,782/- of cane prices to various sugarcane societies on which TDS of Rs.86,767/- was provided in the books of accounts but due to reversal of the expenditure in the subsequent year, tax was not deducted by the assessee. It is the contention of the assessee that Sugar Mills had filed SLP before the Hon’ble Supreme Court and the Supreme Court had granted a stay in the matter. This contention of the assessee was not accepted by the Learned CIT(A) and according to him, the amount was not a contingent as once the payee and amount were identifiable. But we find that explanation of the assessee is bona fide and due to reversal of entries no tax was deducted in the subsequent year. The assessee has duly offered this amount for disallowance under section 40(a)(ia) suo motu without this default being brought to its notice by the Assessing Officer. 5.3 Regarding the third payment of interest of Rs.41,00,515/- to M/s Moderate Leasing and Capital Services Ltd., it has been explained by the assessee that, the deductee had filed non- deduction certificate, which though was found restricted only to the opening balance. This contention of the assessee was not accepted by the ld. CIT(A) on the ground that the fact of non- deduction certificate was only in respect of the opening balance which was within the knowledge of the assessee. We are of the view that the assessee is a corporate entity and non-examining the non-deduction certificate properly, might be genuine mistake on the part of the employees of the assessee and probability of happening of such a mistake cannot be denied in normal circumtances. The recipient has already paid taxes on the income corresponding to the payment in their hands. 5.4 We do not agree with the finding of the Ld. CIT(A) that no reasonable cause exist for non-deduction of tax at source.
5.5 We find that in the case of Indo Nissin Foods Ltd. (supra), the coordinate bench of the Tribunal has held that voluntary payment of tax and interest cannot be construed as an act of mala fide. The finding of the Tribunal is reproduced as under: “25. The issue relating to existence of reasonable cause, we hold in favour of the assessee by relying on the decision of the Delhi High Court in (2001) 252ITR 471 (Del) (supra), Tribunal Delhi Bench in (2002) 83 ITD 577 (Del) (supra) and Tribunal Bangalore Bench in & 834/Bang/2001. We find that the taxes were paid voluntarily before any detection by the department. Even the so- called notice under section 133(6) is only for a period of 2 years, i.e., financial years 1996-97 and 1997-98 and does not cover all the years. Issue of such notice clearly establishes that the department had no prior knowledge of the payment of remuneration in Japan. The voluntary payment of tax and interest, albeit with delay, cannot be construed as an act of mala fide or a proof of conduct contumacious or dishonest in nature. We are inclined to hold that there was a bona fide belief in this case by M/s. Nissin similar to other Japanese companies in whose cases the penalty has been dropped by the department as found in the decision of the Delhi High Court in (2001) 252 ITR 471 (Del) (supra). On this ground also, the penalty has to go.”
5.6 Further, the Tribunal (supra) has held that penalty under section 271C can be vacated on the ground that if no order under section 201(1) of the Act is passed. The relevant finding of the Tribunal is reproduced as under: “24. On the issue of not passing order under section 201(1) before initiation of proceedings under section 271C, we are inclined to agree with the assessees contention and rely on the decision of the Tribunal Delhi C Bench in Marubeni Corpn. (Liaison Office) v. Jt. CIT (2003) (2002) 83ITD 577 (Del) and the decision of Tribunal Bangalore Bench in to 140/Bang/2002, on this ground also, the order of penalty stands vacated.”
5.7 We note that in the instant case also no order u/s 201(1) has been passed by the Assessing Officer and disallowance under section 40(a)(ia) of the Act has been made voluntarily by the assessee. 5.8 In view of the above discussion, we cancel the penalty levied under section 271C on the ground of existence of the reasonable cause as well as due to not passing order under section 201(1) of the Act. The order of the penalty accordingly stands cancelled. The grounds of the appeal of the assessee accordingly allowed.
In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 17th January, 2020.