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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI A K GARODIA
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A K GARODIA, ACCOUNTANT MEMBER
ITA Nos. 1724 to 1726/Bang/2018 Assessment years: 2009-10, 2011-12 & 2010-11
M/s. Sha Thanmal Sukharajji & Co., Vs. The Additional Commissioner APMC Yard, of Income Tax, Ranebennur – 581 115. TDS Range, TAN: BLRS 14875A Hubballi. APPELLANT RESPONDENT
Appellant by : Smt. Suman Lunkar, CA Respondent by : Shri K.R. Narayana, Jt. CIT(DR)(ITAT) Bengaluru.
Date of hearing : 29.11.2019 Date of Pronouncement : 13.12.2019 O R D E R Per N.V. Vasudevan, Vice President These are appeals by the Assessee directed against a common order dated 5.3.2018 of Commissioner of Income Tax (Appeals), Davanagere confirming the order of the Assessing Officer (AO) imposing penalty on the Assessee u/s. 271C of the Income Tax Act, 1961( the Act), in relation to assessment years 2009-10 to 2011-12.
The Assessee is an individual engaged in the business of trading in cotton, Kappas and cotton seeds. He made payment of various expenses
ITA Nos. 1724 to 1726/Bang/2018 Page 2 of 14 without deduction of tax at source at the time of making payment. The payments were admittedly covered either u/s.194C (Payment made to a contract for carrying out any work) Sec.194-H (Commission) etc. Orders were passed by the ITO, TDS ward, Davangere dated 11.2.2013 holding the Assessee as an Assessee in default for not deducting tax at source u/s.201(1) of the Act and also levying interest on tax not deducted at source from the date on which tax ought to have paid to the credit of the Central Government till the date on which the payments are made u/s. 201(1A) of the Act. In the aforesaid orders, the ITO, TDS Ward, Davangere observed that penalty proceedings u/s. 271C will be initiated separately. The following were the relevant observations of the ITO, TDS Ward, Davangere:-
“8. Penalty proceedings u/s.271C for failure to deduct the whole or any part of tax at source as required under chapter XVII-B will be initiated separately.” The AO has also mentioned in the said order as follows:-
“Penalty notice u/s.271-C is issued separately.” 3. Section 271C of the Act provides for Penalty for failure to deduct tax at source and it lays down as follows:-
“271C. (1) If any person fails to— (a ) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or (b ) pay the whole or any part of the tax as required by or under— (i) sub-section (2) of section 115-O; or (ii) the second proviso to section 194B,
ITA Nos. 1724 to 1726/Bang/2018 Page 3 of 14 then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid.] (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.” 4. Sec.273B of the Act provides that no penalty shall be imposed u/s.271-C of the Act if the Assessee proves that there was a reasonable cause for the failure to deduct tax at source. The Assessee in response to the show cause notice before imposing penalty u/s.271C of the Act took a plea that it was a small trader in cotton, kappas and seeds at Ranebennur, which is a small town. The Assessee lacks knowledge of TDS provisions and there are no qualified professionals who could advise the Assessee regarding compliance of TDS provisions. It is only when the Survey was conducted u/s.133A of the Act by the ITO, TDS that it came to know about its obligation to deduct tax at source.
The Assessee also took a plea that the order imposing penalty u/s.271C of the Act is barred by time. Section 275(1)(c) of the Act reads thus:-
“275. (1) No order imposing a penalty under this Chapter shall be passed (a).... (b)..... (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.”
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It was the submission of the Assessee that the order u/s.201(1) of the Act was passed on 11.2.2013 and became final and therefore in terms of first part of Sec.275(1)(c) of the Act the starting point of limitation will be 11.2.2013 and end point will be 31.3.2013 i.e., end of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated are completed. As far as the second part of Sec.275(1)(c) of the Act is concerned, it was the plea of the Assessee that though in the order dated 11.2.2013, it is mentioned that action for imposition of penalty u/s. 271C will be initiated separately because the ITO, TDS, Davangere, who passed the said order was not competent to levy penalty because the provisions of Sec.271C(2) lays down that penalty can be imposed only by Joint Commissioner of Income Tax, the date of initiation of penalty u/s.271C should be regarded as the date of passing of the order u/s.201(1) of the Act dated 11.2.2013 as in the said order there has been an observation that penalty notice u/s. 271C is issued separately. It was the plea of the Assessee before CIT(A) that in terms of Section 275(1)(c) of the Act, the penalty order could have only been passed on or before 31st August, 2013 and since the order imposing penalty u/s.271C was passed on 25.7.2016, the penalty order was barred by limitation.
The AO rejected the plea of existence of reasonable cause for failure to deduct tax at source and also rejected the plea of the Assessee that the order imposing penalty is barred by limitation u/s.275(1)(c) of the Act. The AO held that Assessee accepted the default and paid taxes and that itself showed that the Assessee was well versed with the relevant statutory provisions. On the plea of limitation, the AO held that penalty proceedings were initiated by issue of notice u/s.274 of the Act dated 22.1.2016 and the order imposing penalty could be passed within 6 months from the end of the month in which the proceedings for imposing penalty are initiated. Therefore the AO held that the order imposing penalty u/s.
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271C of the Act (which was dated 25.7.2016 ) was passed within the period of limitation contemplated by sec.275(1)(c) of the Act. The CIT(A) confirmed the order of the AO.
Aggrieved by the orders of the CIT(Appeals), the Assessee is in appeal before the Tribunal. In the original grounds of appeal, the Assessee has not raised any specific ground relating to the orders of the AO imposing penalty u/s. 271C of the Act being invalid because it was passed beyond the period of limitation prescribed u/s. 271(1)(c) of the Act. However an application to raise the aforesaid ground on limitation was filed by way of additional ground on the ground that the said ground was inadvertently omitted to be taken in the original grounds of appeal. We are of the view that the plea of limitation being a legal plea which can be adjudicated on facts already available on record and which arises out of the impugned order, should be admitted for adjudication. We accordingly admit the additional ground for adjudication.
The learned counsel for the Assessee reiterated the plea put forth before the AO and further placed reliance on decision of Hon’ble Rajasthan High Court in the case of CIT Vs. Hissaria Bros., 291 ITR 244 (Raj) for the proposition that when the subject matter of the quantum proceedings was the non-compliance with Section 269T of the Act, there was no need for the appeal against the said order in the quantum proceedings to be disposed of before the penalty proceedings could be initiated. In other words, the initiation of penalty proceedings did not hinge on the completion of the appellate quantum proceedings and therefore clause (c) of Sec.275(1) would govern the period of limitation for passing such orders imposing penalty u/s.271D and 271E of the Act. He also relied on the decision of the Hon’ble Delhi High court in the case of Pr.CIT Vs. Mahesh Wood products Pvt.Ltd. 394 ITR 312 (Del) & CIT Vs. JKD Capital
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& Finlease Ltd. 378 ITR 614(Del) wherein it was held that date on which the AO informs the Officer competent to impose penalty u/s.271E of the Act, would be date of initiation of penalty proceedings u/s.271E of the Act for the purpose of computing period of limitation in terms of Sec.275(1)(c) of the Act. Reliance was also placed on the decision of the ITAT Bangalore ‘B” Bench in the case of Kanakara Rajendra Prasad Reddy Vs. JCIT ITA No.1962/Bang/2017 order dated 2.8.2019 wherein it was held that date on which the default for which penalty is levied u/s. 271C of the Act is noticed, would be the starting point of time for limitation purpose under the second part of Sec.275(1)(c) of the Act. It was further held that the fact that the order noticing the default is not competent to initiate penalty proceedings and therefore the argument of the revenue that the date of issue of show cause by the competent officer should be reckoned as date of initiation of penalty proceedings for the purpose of Sec.275(1)(c) of the Act was not acceptable.
The learned DR submitted that the proceedings were not barred by time. He submitted that in the order u/s. 201(1) of the Act dated 11.2.2013, the AO has not initiated penalty proceedings u/s.271C of the Act and has merely made an observation that penalty proceedings u/s. 271C of the Act would be initiated separately. It was submitted by him that the JCIT issued show cause notice to the Assessee u/s. 271C of the Act dated 22.1.2016 and that was the date of initiation, according to him. Six months from the end of the month in which proceedings were initiated would therefore be 31.7.2016 and since the impugned order was passed on 25.7.2016, the order passed was well within time. His further submission was that the decisions cited by the learned counsel for the Assessee are in relation to default u/s.269E and 269T of the Act and those proceedings stand on a different footing than the proceedings u/s.201(1) of the Act based on which penalty proceedings were initiated u/s.271C of the Act, in the present case.
ITA Nos. 1724 to 1726/Bang/2018 Page 7 of 14 In support of his contention that the date of initiation would be date on which JCIT issues show cause notice to the Assessee u/s. 274 of the Act read with Sec.271C of the Act, i.e., 22.1.2016 would be the date of initiation of penalty proceedings and reckoned from that date, the order imposing penalty has been passed well within the period of limitation. He placed reliance on a decision of the ITAT Jaipur Bench in the case of Jaipur National University Vs. JCIT ITA No.870/JP/2018 order dated 6.2.2019. In that case the order u/s.201(1) was passed on 31.10.2012. The officer who passed the order u/s.201(1) of the Act was not competent to initiate and pass order imposing penalty u/s.271C of the Act. On 22.1.2013, he made a reference to the competent officer for imposing penalty proceedings u/s.271C of the Act. The Officer competent to impose penalty i.e., the JCIT issued show cause notice dated 11.2.2013. The order imposing penalty was passed on 29.8.2013. On the above facts, the Tribunal held as follows:-
“9. On perusal of the order passed by the AO U/s 201(1) r.w.s. 201(1A) dated 31.10.2012, it is clear that a reference was being made to the JCIT (TDS) for initiation of penalty proceeding U/s 271C of the Act and the said reference was actually made vide AO’s letter dated 22.01.2013 to JCIT(TDS). Thereafter, the JCIT(TDS) initiated the penalty proceedings u/s 271C by way of issuance of notice dated 11.02.2013 to the assessee and the penalty order u/s 271C was thereafter passed on 29.08.2013 which is well within the limitation period prescribed U/s 275(1)(C) of the Act. The ld AR’s contention that the AO while passing the order U/s 201(1) r.w.s. 201(1A) has initiated the penalty proceedings is not found factually correct as there is no notice which has been issued by the AO to the assessee. Secondly, the contention of the ld AR that the initiation of the penalty proceedings should be reckoned from the date when the reference was made by the AO to JCIT(TDS) cannot again be accepted as the initiation of such proceedings have to be by way of issuance of a notice to the assessee and not by mere reference from the AO to JCIT(TDS). The decision of the Hon’ble
ITA Nos. 1724 to 1726/Bang/2018 Page 8 of 14 Supreme Court in case of Hissaria Brothers is in context of applicability of clause (c) to sub-section (1) to section 275 which is not in dispute as far as present case is concerned. Further, the decision of Coordinate Bench in case of Subhash Pareta doesn’t support the case of the assessee as in that case also, the AO didn’t initiate the penalty proceedings and the first notice was issued by Add. CIT only initiating the penalty proceedings and thereafter, the order was passed within the prescribed limitation period. In light of above discussions, we are of the considered view that the impugned order is not barred by limitation and the contentions so advanced by the ld AR in this regard are not found acceptable.” 11. Reliance was also placed by him on a decision of ITAT Mumbai “G” Bench in the case of Mrs.Sonal Shah Vs. JCIT ITA No.6462/Mum/2018 (AY 2009-10) order dated 25.2.2019 wherein following the decisions of Hon’ble Allahabad High Court in the case of CIT Vs. Gupta Mills stores (2009) 184 Taxman 230 (All) and Hon’ble Kerala High Court in the case of Grihalakshmi Vision Vs. Addl.CIT (2015) 63 taxmann.com 196 (Ker.), the Tribunal took the view that the date on which the JCIT issues notice u/s.271-C should be reckoned as the date of initiation of penalty proceedings for the purpose of the second part of Sec.275(1)(c) of the Act.
We have considered the rival submissions. There is no dispute that the period of limitation is required to be examined in the light of the provisions of Sec.275(1)(c) of the Act. The decision of the Hon’ble Rajasthan High Court in the case of CIT Vs. Hissaria Bros (supra) which was confirmed by the Hon’ble Supreme Court clearly lays down that the period of limitation for penalties that are to be imposed which are not dependent upon outcome in quantum appeals should be governed by the provisions of Sec.275(1)(c) of the Act. The issue in the present case is as what is the starting point of time u/s.275(1)(c) of the Act in the present case. As far as applicability of the first part of sec.275(1)(c) of the Act is concerned viz., “after the expiry of the financial year in which the
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proceedings, in the course of which action for the imposition of penalty has been initiated, are completed,”. In the present case, at the level of the AO, the proceedings u/s.201(1) of the Act was completed on 11.2.2013 and the Assessee accepted the said order passed u/s. 201(1) of the Act and did not prefer any further appeal. Going by this date, the penalty order could not have been passed later than 31.8.2013.
As far as the second part of Sec.275(1)( c ) of the Act is concerned, the same relates to “expiry of six months from the month in which the penalty proceedings were initiated”. The conclusion of the CIT(A) was that in the order u/s.201(1) of the Act dated 11.2.2013, the AO has not initiated penalty proceedings u/s.271C of the Act and has merely made an observation that there is a default attracting penalty u/s.271C of the Act. We however find that the Hon’ble Delhi High Court in the case of JKD Capital & Finlease Ltd. (supra) has taken a different view. The facts in the case decided by the Hon’ble Delhi High Court in the case of JKD Capital and Finlease Ltd. (supra) was that while finalising the assessment order dated 28th December 2007 the Assessing Officer ['AO'] in the concluding paragraph issued a direction to initiate proceedings against the Assessee under Section 271E of the Act. Admittedly, under section 271E of the Act, any penalty under Section 271E(1) can be imposed only by the Joint Commissioner of Income Tax ['Joint CIT']. Consequently, the AO referred the matter to the competent officer. The competent officer issued show- cause notice dated 12.3.2012 initiating penalty proceedings under Section 271E. By order dated 20.3.2012 penalty was levied u/s.271E of the Act. The CIT (A) deleted the above penalty inter alia on the ground that, in terms of Section 275(1)(c) of the Act, the penalty order could have only been passed on or before 30th June 2008 reckoning the period of limitation from the date of AO’s order i.e., 28.12.2007 and therefore, the penalty order passed on 20th March 2012 was barred by limitation. The Tribunal
ITA Nos. 1724 to 1726/Bang/2018 Page 10 of 14 upheld the order of CIT(A). On further appeal by the Revenue, the Hon’ble Delhi High Court held as follows:
“11. In fact, when the AO recommended the initiation of penalty proceedings the AO appeared to be conscious of the fact that he did not have the power to issue notice as far as the penalty proceedings under Section 271-E was concerned. He, therefore, referred the matter concerning penalty proceedings under Section 271-E to the Additional CIT. For some reason, the Additional CIT did not issue a show cause notice to the Assessee under Section 271-E (1) till 20th March 2012. There is no explanation whatsoever for the delay of nearly five years after the assessment order in the Additional CIT issuing notice under Section 271-E of the Act. The Additional CIT ought to have been conscious of the limitation under Section 275 (1) (c), i.e., that no order of penalty could have been passed under Section 271-E after the expiry of the financial year in which the quantum proceedings were completed or beyond six months after the month in which they were initiated, whichever was later. In a case where the proceedings stood initiated with the order passed by the AO, by delaying the issuance of the notice under Section 271- E beyond 30th June 2008, the Additional CIT defeated the very object of Section 275 (1) (c).’ 14. The ITAT Jaipur Bench in the case of Jaipur National University (supra) has however taken a contrary view holding that the date of initiation of penalty proceedings u/s.271C is when the officer competent to impose penalty issues show cause notice and not when the AO who passed order u/s.201(1) of the Act, makes a reference to the competent officer for imposition of penalty. The same view has been taken by the Hon’ble ITAT Mumbai “G” Bench in the case of Mrs.Sonal Shah (supra). The Mumbai ITAT in the case of Mrs.Sonal Shah (supra) has made reference to decisions of Hon’ble Allahabad High Court in the case of Gupta Mills Stores (supra) and the Hon’ble Kerala High Court in the case of Grihalakshmi Vision (supra) and has also noticed contrary view of the Delhi High Court in the case of Mahesh Wood Products (P) Ltd. (supra) and JKD Capital &
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Finlease Ltd. (supra). The Tribunal finally concluded on the issue by holding that majority of High Courts have taken a view that the date of initiation of penalty proceedings u/s.271C is when the officer competent to impose penalty issues show cause notice and not when the AO who passed order u/s.201(1) of the Act, makes a reference to the competent officer for imposition of penalty and therefore that view is preferable. We however notice that the Hon’ble Allahabad High Court did not express any such opinion and has in fact in paragraph-7 of its judgment held that it is not necessary to consider whether the period of six months should be calculated from the date of notice issued by the ITO or by the JCIT who was competent to levy penalty u/s.271-E of the Act.
In the case before the Hon’ble Allahabad High Court in the case of Gupta Mills Stores(supra), the facts were that ITO issued notice u/s.271-E on 1.8.2003 and the JCIT issued show cause notice u/s.271-E on 3.9.2004. The order imposing penalty u/s.271-E of the Act was passed by the JCIT on 29.3.2004 i.e., within 6 months from the end of the month in which the ITO issued notice u/s.271-E of the Act. Therefore it cannot be said that majority of High Courts have taken the view that initiation of penalty proceedings has to be reckoned from the date on which officer competent to impose penalty issue show cause notice and not when the AO who passed order u/s.201(1) of the Act, makes a reference to the competent officer for imposition of penalty. The Hon’ble Kerala High Court in the case of Grihalakshmi Vision (supra) took the view that initiation of penalty proceedings has to be reckoned from the date on which officer competent to impose penalty issue show cause notice.
Therefore there appears to be two conflicting decisions of High Courts i.e., the Hon’ble High Court of Kerala in the case of Grihalakshmi Vision (supra) and the Hon’ble Delhi High Court in the case of JKD Capital
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and Finlease Pvt.Ltd. (supra). There is no decision of Hon’ble jurisdictional High Court on this point. We are also of the view that the decision of the Hon’ble Rajasthan High Court in the case of Hissaria Brothers (supra) which was affirmed by the Hon’ble Supreme Court is not on the issue of what is the date of initiation when the officer noticing the default in one proceedings is not competent to impose penalty for the said default and therefore has to make reference to another officer competent to impose penalty. The said decision is authority for the proposition that time limit for proceedings for levy of penalty u/s.271-D and 271-E of the Act are governed by the provisions of Sec.275(1)(c) of the Act.
In the given facts and circumstances, we are of the view that we would prefer to decide this appeal on the question of reasonable cause for non-compliance with the provisions as envisaged u/s.273B of the Act rather than on the point of limitation. It is seen that the Assessee carries on business in Cotton, Kappas and seeds at Ranebennur a small town. He made payments for ginning and presses of Kappas and lint converting charges besides commission to Dalals. The total payments for which they Assessee was liable to deduct tax at source and the extent to which there was short deduction was as follows:
AY TDS deductible TDS deducted Short deduction 2009-10 Rs.2,12,573 Rs.1,56,056 Rs.56,517 2010-11 Rs.5,81,960 Rs.5,18,048 Rs.63,913 2011-12 Rs.56,107 Nil Rs.56,107 18. There was actually non-deduction of tax at source by the Assessee but the TDS deducted was given credit only on the basis that the payees have filed their returns of income showing the amounts received from the Assessee and hence the Assessee was given the benefit of TDS deducted to that extent as per the decision of the Hon’ble Supreme Court in the case of Hindustan Coco Cola Beverage Pvt.Ltd. 293 ITR 226(SC). The plea of
ITA Nos. 1724 to 1726/Bang/2018 Page 13 of 14 the Assessee that failure to deduct tax at source was unintentional and was under the bonafide belief that tax is not deductible on payments in question has to be accepted in the given facts and circumstances of the case. It is also not disputed that the default was noticed only at the time of Survey Proceedings. Taking into consideration the nature of business and small town in which the Assessee carries on business and other circumstances, we are of the view that this is not a fit case for levy of penalty u/s.271-C of the Act, as the circumstances pointed out above would be reasonable cause for the failure of the Assessee to deduct/short deduct tax at source. We therefore cancel the order imposing penalty u/s.271-C of the Act on this ground on the peculiar facts and circumstances of the case.
In the result, appeals by the Assessee are allowed.
Pronounced in the open court on this 13th day of December, 2019.
Sd/- Sd/-
( A K GARODIA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT
Bangalore, Dated, the 13th December, 2019.
/Desai S Murthy /
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Copy to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar ITAT, Bangalore.