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Income Tax Appellate Tribunal, DELHI BENCH “E”, NEW DELHI
Before: SH. N. K. SAINI & SMT. BEENA A. PILLAI
PER BEENA A. PILLAI, J.M :
The present appeals have been filed by assessee against separate orders each dated 03.03.2014 for relevant assessment years under consideration. It is observed from files placed before us that grounds raised for assessment year 2003-04, 2004-05, 2008-09 and 2009-10 are similarly worded which are as under: 1. The order passed by Ld. CIT (Appeals), Noida is bad in law. 2. The Ld. CIT (Appeals), Noida has erred in confirming the order passed by A.O. imposing
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penalty under Section 271C when there is a bonafide belief and reasonable cause for the default committed by the Appellant. 3. The Ld. CIT (Appeals) failed to consider the fact that there was no revenue loss and consequently no penalty u/s 271C can be imposed. 4. The Ld. CIT (Appeals) without appreciating the submissions on record erred in dismissing the ground no. 2 "order passed by Ld. A.O. imposing the Penalty under section 271C is barred by limitation". 5. The Ld. CIT (A) erred in not considering the following judicial pronouncements: (i) Eli Lilly & Co. (India) (P.) Ltd. [2009] 178 Taxman 505(SC) (ii) Commissioner of Income Tax Vs. Mitsui & Co. Ltd [2004] 140 TAXMAN 430 (DELHI) (iii) Dex Travel (P.) Ltd [2008] 172 TAXMAN 142 (DELHI) (iv) Cadbury India Ltd. [2011] 11 Taxmann.com 66 (Delhi) (v) CIT Vs. Canon India (P) Ltd. [2009] 2 DTLONLINE 32 (Delhi) (vi) Asian Hotels Ltd. [2007] 163 Taxman 243(Delhi) (vii) Jaslok Hospital & Research ITAT, Mumbai 6. The appellant craves leave to add, amend, alter, withdraw any ground of appeal anytime upto the hearing of this appeal.
Brief facts of the case are as under: A survey verification exercise was carried out by ACIT (TDS) Noida, on 28.07.2009, during which it was unearthed that assessee had not deducted TDS on payments made to M/s. U.P Jal Nigam, and M/s U.P Rajkiya Nirman Ltd, Noida, during assessment years under consideration. Ld. ACIT(TDS)
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passed orders for each of the assessment years under consideration, u/s. 201(1), on the even date, whereby he concluded that there was no deduction of TDS made under head contract charges payment to various units services of M/s. U.P Jal Nigam, and M/s U.P Rajkiya Nirman Ltd; Noida. It was observed by Ld. ACIT (TDS) that assessee failed to fulfill its liability to deduct tax at source under section 194C of the Act. He therefore, calculated short deduction on account of payment of contract charges in the following manner:
S. No. Assessment Paid to Contractual Short deduction year charges paid Computed by ACIT (TDS) 1. 2003-04 U.P Jal Nigam 13,85,14,000/- 28, 25, 685/- 2. 2004-05 U.P Jal Nigam 10,38,85,000/- 21, 81, 585/- 3. 2008-09 U.P Jal Nigam 19,94,30,000/- 46, 68, 372/- 4. 2009-10 U.P Jal Nigam 45,58,52,000/- 1,02,72,247/- 5. 2009-10 U.PRajkiya 150 crores 3,39,90,000/- Nirman Ltd
Subsequently, he initiated penalty proceedings under section 271C of the Act. Various submissions and arguments were recorded by Ld. ACIT (TDS). It was submitted before him that penalty proceedings may be kept in abeyance, as appeal against order passed under section 201 (1) of the Act has been filed before Ld. CIT(A). Assessee later on submitted copy of order dated 15.03.10 passed by Ld. CIT(A). Ld. ACIT(TDS) then passed penalty order and held as under: “In this regard of submission that the assessee filed an appeal before the Ld. CIT (A), it has been decided and order of the DCIT (TDS) Noida, has been confirmed on the issue of applicability of provision of section 194C vide Ld.CIT (A) order dated 15/03/10. It was concluded that AO, has been rightly observed
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the agreement executed by assessee to U P Jal Nigam, clearly shows that this is a civil contract work wherein provision of section 194C is clearly attracted. This view is also supported by the judicial pronouncements relied upon by the AO in his order under appeal. Since the assessee has failed to deduct tax at source on the payments made to U P Jal Nigam as per provisions of section 194C, it was held that AO has rightly charged short deduction of tax under section 201 (1) and interest under section 201 (A) upon the assessee. As far as the issue regarding verification of double taxation by AO whether the (Deductee)U.P Jal Nigam has paid due taxes on the payment received from the assessee. If on verification, it is found that U.P Jal Nigam (deductee) has paid due taxes on the payment received from the assessee then no demand should be charged under section 201 (1) on the assessee, (deductor). This issue has no concern regarding levy of penalty under section 271C on this stage because assessee was liable to pay or deduct the TDS at the payment of contractual charges which has already been proved by AOs order.”
Ld. ACIT (TDS) thus levied penalty under section 271C of the Act, by relying upon the decision of Hon’ble Supreme Court in the case of union of India vs Dharmendra Textile Processors reported in 295 ITR 244. He levied penalty as under: S. No. Assessment Year Penalty levied 1. 2003-04 28,25,685 2. 2004-05 21,81,585 3. 2008-09 46,68,372 4. 2009-10 1,02,72,274 5. 2009-10 3,39,90,000
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Against order by Ld. AO passed under section 271C of the Act, assessee preferred appeal before Ld. CIT(A), who confirmed penalty levied. 6. Aggrieved by order of Ld. CIT(A), assessee is in appeal before us now for all above assessment years. As the issue involved relates to payments made by assessee from time to time under same contract with U.P Jal Nigam Ltd., these years are being disposed of by way of a common order. 7. Ld. AR submitted that assessee entered into agreement for construction and design services with U.P Jal Nigam, for laying peripheral sever line along Noida-Greater Noida Expressway. She submitted that as per agreement dated 23.09.2002 assessee was to pay percentage at the rate of 4.4% of actual expenditure on the work to C & DS U.P. Jal Nigam which included expenses like salary, TA, conveyance allowance, staff welfare etc., and administrative expenses. She further submitted that assessee was also to make payment amounting to 75% of Centage alongwith progress of the work/expenses and remaining 25% will be made after work is completed. She placed her reliance upon clause 2 of the agreement placed in the paper book. However, no TDS was deducted on the amount of reimbursement of actual expenditure incurred by U. P Jal Nigam for execution of work, on behalf of assessee. Ld. AR submitted that UP Jal Nigam was deducting TDS on payments made to contractors under section 194C as principal contractor, and had produced challans to assessee and therefore, assessee was under a
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bona fides belief that it was only liable to deduct tax at source on the payment made for supervision of work to U.P Jal Nigam, under section 194J of the Act. 8. Ld. AR submitted that assessee deducted TDS u/s.194J, on payments which were towards consultancy for supervising work, considering same as payment made for professional services. She submitted that TDS deducted by assessee under section 194J, was duly deposited with government. It has also been submitted by assessee that there can be no charge of concealment that could be levied on assessee as assessee has not concealed any income. She submitted that, this is a normal practice between State Government and Central Government offices, where works are executed and there is a reimbursement of actual expenditure incurred for execution of work on which certain percentage of fees over and above the amount of actual expenditure is decided. Ld. AR submitted that it was the belief of assessee that tax is to be deducted only on payment made for consultancy services and not on amount which was reimbursed on actual expenditure. Ld. AR submitted that there was a reasonable cause for assessee to deduct tax under section 194C only on consultancy charges paid. She placed reliance upon letter dated 03.10.2002 placed at page 16 of paper book where letter has been written by office of U.P Jal Nigam to assessee, requesting them not to deduct any TDS in respect of mobilisation charges (being reimbursement of expenses) paid to them, as they were
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deducting TDS while making payments to the sub- contractors. 9. Ld. AR submitted that it was in light of these directions that no TDS was deducted on reimbursement of expenses. He submitted that there was bona fide belief for deducting TDS on centage charges under section 194C and that reasonable cause existed for not deducting TDS on reimbursement of expenses. 10. On the contrary Ld. Sr. DR submitted that assessee has not provided the bifurcation of payments made for centage and mobilisation expenses and therefore, it is very difficult to accept explanation offered. He submitted that agreement entered into between assessee and U.P Jal Nigam is very general in nature. He placed reliance upon orders passed by authorities below. 11. We have perused submissions advanced by both sides in the light of records placed before us. 12. On perusal of agreement placed at page 12-15 of paper book it is observed that percentage of centage being supervisory fees paid to U.P Jal Nigam is based on expenses incurred on actual’s towards payment of salary, TA, conveyance allowance, staff welfare etc. We do not agree with Ld. Sr. DR that payments have not been bifurcated, as percentage of actual expenses being reimbursed has been specifically mentioned in clause 2, 7 and 8 of agreement, which reads as under:
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Further on perusal of letter dated 03.10.2002 we agree with Ld. AR that U.P. Jal Nigam had requested not to deduct TDS on actual cost, being reimbursed by assessee and U.P Jal
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Nigam was deducting TDS on payments made to subcontractors.
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There is no material/evidences brought on record by the authorities below which was contrary to what has been stated in the letter dated 03.10.2002 and 17.03.2008. We are, therefore, of opinion that assessee had reasonable cause for not deducting TDS on mobilisation fees paid, being the reimbursement of expenses on actual cost. 13. It is also observed that Ld. DR has not disputed that no TDS has been deducted and deposited at all. The only dispute is that TDS has been deducted by assessee under 194J instead of section 194C as held by assessing officer in order passed under section 201(1) and 201(1A) of the Act. The penalty u/s 271C has been levied on entire amount paid by assessee to U.P Jal Nigam. In our considered view, levy of penalty under section 271C for failure to deduct tax at source is not automatic. In order to bring in application of section 271C in backdrop of overriding non obstante clause in section 273B, absence of reasonable cause, existence of which has to be established is sine qua non. No doubt initial burden is on the assessee to show that there existed reasonable cause to substantiate failure to deduct tax at source. Hon’ble Delhi High Court in the case of Woodward Governor India Pvt .Ltd. vs CIT, reported in (2002) 253 ITR 745 has held as under: “Reasonable cause” as applied to human action, is that which would constrain a person of average intelligence and ordinary prudence. 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 an ordinary,
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prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the 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, would the prescribed consequences follow.” 14. Considering the facts and circumstances discussed above, we are of considered view that there existed a reasonable cause for not deducting tax at source from payments made to U P Jal Nigam on the mobilisation fees paid (being reimbursement of expenses on actual cost) within meaning of section 273B, and accordingly no penalty under section 271C is exigible. Accordingly grounds 1,2,3,5 raised by assessee on merits stands allowed. 15. It is observed that in ground No. 4 for all assessment years assessee has raised legal issue regarding validity of order passed under section 271C, as it is barred by limitation. Since, we have dealt with issue on merits, we do not find it necessary to adjudicate this ground as it becomes academic in nature. 16. Ground No. 6 is general in nature and therefore, does not require any adjudication. In the result appeals filed by the assessee stand partly allowed. Order pronounced in the open court on 24th May, 2017.
Sd/- Sd/- (N. K. SAINI) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 24.05.2017 @m!t