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Facts
The assessee, a nodal agency of the Himachal Pradesh Government, faced a penalty under Section 271C of the Income-tax Act for alleged failure to deduct tax at source. The penalty stemmed from funds routed through the assessee to HPSIDC for industrial development works. The CIT(A) had initially dismissed the assessee's appeal due to a delay in filing, which the assessee attributed to administrative reasons.
Held
The tribunal upheld the penalty, ruling that the assessee was statutorily obligated to deduct tax at source under Section 194C, even as a mere channel for funds. It found no conclusive evidence that HPSIDC had deducted the tax or that the responsibility was legally transferred. The tribunal also rejected the assessee's plea of bona fide belief or reasonable cause under Section 273B, stating that administrative convenience or ignorance of the law does not justify non-compliance.
Key Issues
Whether a nodal government agency is liable for TDS deduction on funds routed to another government undertaking for works contracts; and if the failure to deduct tax warrants a penalty under Section 271C despite claims of administrative reasons or bona fide belief.
Sections Cited
Section 271C, Section 201, Section 273B, Section 194C, Section 200, Chapter XVII-B
AI-generated summary — verify with the full judgment below
Order PER LALIET KUMAR, J.M: This appeal is directed against the order dated 21.05.2024 passed by the Ld. CIT(A), NFAC, Delhi for the Assessment Year 2017-18. 2. In the present appeal Assessee has raised the following grounds:
1. 1. 1. 1. 1. That in the facts and circumstances of the case, the Ld. CIT(A), is not justified in passing an ex-parte order and thereby dismissing the appeal of the assessee / appellant by treating the same and maintainable.
2. That in the facts and circumstances of the case, the learned Authorities below are not justified in treating the assessee in default and thereby creating a demand of Rs. 86,74,688/- against the assessee and also not allowing the benefit of the provision to the section 201 of the Income Tax Act, 1961.
3. That the order of the Ld. CIT(A) is bad in law and facts.
4. That in the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals), is not justified in not conducting the delay in filing of the appeal. The non-condoning of the delay is bad in law and facts.
3. Briefly stated, the facts are that the assessee is a nodal agency of the Government of Himachal Pradesh. Penalty under section 271C of the Income-tax Act, 1961 was levied for alleged failure to deduct tax at source. The appeal filed 2 before the Ld. CIT(A) came to be dismissed without adjudication on merits, primarily on the ground that there was delay in filing of the appeal and that the assessee failed to respond to the notices issued by the Ld. CIT(A).
4. At the outset, the Ld. Senior Counsel for the assessee submitted that the delay was due to administrative reasons, a lack of knowledge of the passing of the impugned order, and internal governmental approval procedures. It was submitted that the delay was neither intentional nor deliberate and that substantial justice deserves to be preferred over technical considerations. The Ld. DR, on the other hand, relied upon the order of the Ld. CIT(A).
Ld. DR, on the other hand, opposed the condition of appeal.
We have considered the rival submissions and perused the material available on record. It is a settled proposition of law that while considering an application for condonation of delay, a liberal approach is to be adopted so as to advance substantial justice, particularly where no mala fide intention is attributable to the assessee. The Hon’ble Supreme Court has repeatedly held that the expression “sufficient cause” should receive a liberal construction.
In the present case, the assessee is a Government department and the explanation furnished indicates that the delay occurred on account of procedural and administrative reasons. There is nothing on record to suggest that the delay was deliberate or with an intention to gain undue advantage. In our considered view, the explanation constitutes sufficient cause. In view of thereof the dismissal of the appeal merely on the ground of delay was not correct.
Now the assessee is before us.
The Ld. Counsel for the assessee submitted that the assessee is a nodal department of the Government of Himachal Pradesh and that the amounts in question were released to Himachal Pradesh State Industrial Development Corporation (HPSIDC), a wholly Government-owned undertaking, for execution of industrial infrastructure and development works. It was contended that the assessee merely acted as a channel for release of Government funds and did not enter into any contractual relationship with the contractors executing the works.
It was submitted that HPSIDC independently floated tenders, awarded contracts and made payments to contractors after deducting tax at source 3 wherever applicable. The assessee neither made any direct payment to contractors nor claimed any expenditure in its own books so as to attract the provisions of section 194C of the Act.
The Ld. Counsel further submitted that taxes, including TDS on payments made to contractors, were duly deducted and deposited by HPSIDC and the same stood reflected in its returns of income. Therefore, the assessee could not be treated as an assessee in default under section 201(1) of the Act.
Without prejudice, it was argued that even assuming there was a technical default, a penalty under section 271C is not automatic and can be levied only if there is a willful and contumacious failure to deduct tax. In the present case, the assessee acted under a bona fide belief supported by Government practice, and there was reasonable cause within the meaning of section 273B of the Act. It was submitted that the case has not been decided by the Ld. CIT(A) on merits and therefore it should be remitted back to the file of the CIT(A)/Assessing Officer for fresh adjudication.
The Ld. DR supported the orders of the Assessing Officer and the Ld. CIT(A). It was submitted that the assessee was the deductor responsible for ensuring compliance with the provisions of Chapter XVII-B of the Act. According to the Revenue, the survey conducted by the TDS authorities revealed that substantial payments were made for works contracts without deduction of tax at source.
The Ld. DR contended that the mere fact that HPSIDC is a Government undertaking does not absolve the assessee from its statutory obligation to deduct tax at source. It was argued that the assessee failed to demonstrate that tax had been deducted on the impugned payments in accordance with law.
It was further submitted that the penalty under section 271C was levied after due opportunity and the assessee failed to establish reasonable cause for non- deduction of tax. Hence, the orders passed by the lower authorities deserved to be upheld.
We have heard the rival submissions on merits and perused the material available on record. Though the Ld. AR had prayed for restoration of the matter to the file of the lower authorities, we observe that the entire record relevant for adjudication of the penalty proceedings is available before us. In these 4 circumstances, we do not find it necessary to remit the issue back. Accordingly, we deem it appropriate to adjudicate the appeal on merits and proceed to decide the same accordingly.
It is an undisputed fact that the assessee was entrusted with Government funds for the execution of industrial development works and was the nodal authority for the release of such funds. The mere routing of payments through another Government agency does not absolve the assessee of its statutory obligation under the Act if the assessee is otherwise responsible for ensuring the deduction of tax at source.
It is admitted that the assessee was statutorily bound to deduct tax at source under section 194C of the Income-tax Act, 1961 on the entire amount credited to the account of the contractor and ought not to have waited for the actual disbursement of the amount. The statutory mandate is unambiguous that tax is required to be deducted at the time of credit of such sum to the account of the payee or at the time of payment thereof, whichever is earlier, and the obligation to deposit such tax arises under section 200 of the Act. Failure to deduct tax at source attracts the consequences prescribed under section 201, treating the assessee as an assessee in default. Consequently, the plea that there was no personal liability, or that the assessee acted under administrative confusion or a mistaken understanding of procedure, is wholly untenable in law and does not constitute a valid defence. In the absence of any reasonable cause as contemplated under section 273B, the levy of penalty under section 271C is justified.
The assessee has failed to place on record any conclusive evidence to demonstrate that tax was deducted on the impugned payments strictly in accordance with the provisions of the Act or that such responsibility was legally transferred to HPSIDC. No documentary evidence, such as agreements, statutory notifications, or confirmations substantiating the complete discharge of TDS liability by HPSIDC, has been produced.
The plea of bona fide belief and reasonable cause under section 273B is also not supported by any cogent material. Ignorance of the law or administrative convenience cannot be treated as a reasonable cause for failure to comply with mandatory provisions of tax deduction at source.
5 21. Penalty under section 271C is leviable where failure to deduct tax is established and no reasonable cause is shown. In the present case, the assessee has not been able to rebut the findings of the Assessing Officer with credible evidence.
Therefore, we find no infirmity in the action of the Assessing Officer in levying penalty under section 271C, nor do we find any reason to interfere with the order passed by the Ld. CIT(A).
In view of the above discussion, the appeal filed by the assessee is dismissed on merits.