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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI G.S. PANNU & SHRI SAKTIJIT DEY
PER SAKTIJIT DEY, J.M.
These are bunch of three appeals and one cross objection. Appeals by the assessee are against two separate orders passed by the learned Commissioner (Appeals)–12, Mumbai, arising out of proceedings under section 201 of the Income Tax Act, 1961 (for short “the Act”) pertaining to assessment years 2010–11 and 2011–12. Whereas, appeal by the Revenue and cross objection by the assessee are arising out of penalty proceedings under section 271C of the Act for the assessment year 2011–12.
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ITA no.4117/Mum./2014 ITA no.4118/Mum./2014
These appeals by the assessee are against the confirmation of order passed under section 201(1) and 201(1A) of the Act.
Brief facts are, the assessee a company is engaged in the business of freight forwarding, logistics and transportation by air, road and sea. To verify assessee’s compliance to Tax Deduction at Source (TDS) on various payments made, a survey under section 133A was conducted on the assessee and on the basis of information obtained during the survey the Assessing Officer found that the assessee has not deducted tax at source on payments made during the year towards handling fees for air exports, air imports, ocean exports, ocean imports and customs clearance. Accordingly, he initiated proceedings under section 201(1)/201(1A) by issuing a show cause notice on 17.02.2012. As observed by the Assessing Officer, after initial noncompliance the assessee finally submitted its reply on 27.03.2012 furnishing some details alongwith sample copies of Form 16A evidencing TDS. The Assessing Officer, however, found the details furnished by the assessee insufficient. Thus, he finally concluded that the assessee has failed to deduct tax at source on payment of handling fees of `36,88,76,120/– on which the assessee was liable to deduct tax at source @2% as per section 194C of the Act. Therefore, he
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worked out the default for non deduction of tax at `73,77,522/– and raised a demand under section 201(1) along with interest under section 201(1A) amounting to `26,55,908/– for assessment year 2010–11. Similarly, demand of `82,70,796/– under section 201(1) along with interest of `19,84,967/– under section 201(1A) for assessment year 2011–12 was also raised by the Assessing Officer. Being aggrieved of the orders passed under section 201(1)/201(1A) of the Act, assessee preferred appeals before the Commissioner (Appeals).
At the time of hearing of appeals learned Commissioner (Appeals) found that there was a delay of almost seven months in filing the appeals by the assessee. He, therefore, called upon the assessee to explain the cause of delay for entertaining the appeals. Though, the assessee filed an application for condonation of delay and also made submissions before the Commissioner (Appeals), however, learned Commissioner (Appeals), found the reasons shown by the assessee for delay in filing the appeals unsatisfactory. Relying upon certain judicial precedents learned Commissioner (Appeals) ultimately dismissed assessee’s appeals in limine without condoning delay. Being aggrieved of the aforesaid orders of the Commissioner (Appeals) assessee is in appeal before us. The learned Authorized Reprentative(A.R.) reiterating the submissions made before the First
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Appellate Authority for explaining the reasons for the delay in filing the appeals submitted that the employee who was in charge of the tax affairs of the company was preoccupied with closure of books of account, statutory audit, tax audit, compliances under other legislations. He further submitted, the concerned employee in charge due to his inexperience was unable to comprehend the significance of the orders passed under section 201(1)/201(1A) by the Assessing Officer and the further steps to be taken for filing appeals against those orders. The learned A.R. submitted, learned Commissioner (Appeals) under a misconception that the assessee was represented by a professional Chartered Accountant firm, i.e. Price Water House Cooper Pvt. Ltd. (PWC) has refused to condone delay. The learned A.R. submitted, PWC has only audited the accounts of the company and never represented the assessee before the Assessing Officer. He submitted, in the proceedings before the Assessing Officer assessee was represented through its employees only. The learned A.R. submitted, by not filing the appeals in time the assessee has not gained any advantage, rather, it has been put to a disadvantageous position. He submitted, the expression ‘sufficient cause’ has to be interpreted liberally to subserve the cause of justice. In support of his contention the learned A.R. relied upon the decision of the Hon’ble
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Supreme Court in the case of N. Balakrishnan v/s. M. Krishnamoorthy in judgement dated 03.09.1998.
The learned Departmental Representative(D.R.) supporting the order of the CIT(A) submitted, the assessee having not shown reasonable cause for delay in filing the appeals the First Appellate Authority was justified in dismissing assessee’s appeals on the ground of delay.
We have considered the rival submissions and perused the materials on record in the light of the decision relied upon. Undisputedly, as per assessee’s own admission there was a delay of 217 days in filing the appeals before the Commissioner (Appeals). The cause of delay as explained by the assessee before Commissioner (Appeals) as well as before us through an affidavit filed and also in the submissions made is, due to the fact that the concerned employee in charge of tax affairs was preoccupied with the closure of books of accounts, audit, compliances, etc. and further due to his inexperience he was unable to comprehend the importance of filing of appeals against the orders passed by the Assessing Officer. Learned Commissioner (Appeals) has found the aforesaid reasons shown by the assessee unacceptable basically on the reasoning that the assessee was getting professional advice and was represented by a Chartered
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Accountant firm. In our view, dismissal of assessee’s appeal in limine without accepting the prayer for condonaton of delay on aforesaid reasoning is improper. The assessee’s claim that the Chartered Accountant firm was only entrusted with audit work and it never represented the assessee before the Assessing Officer has not been found to be false or untrue. Moreover, by not filing the appeals in time the assessee has not derived any benefit, on the contrary, the turn of events due to nonfiling of appeals in time has been proved to be detrimental to the interest of the assessee, since, assessee’s appeals were dismissed in limine without getting decided on merits. It is well settled proposition of law, the expression ‘sufficient cause’ has to be interpreted liberally. A litigant having a genuine grievance should not suffer on the ground of delay if such delay is for bonafide reasons. When technicalities and substantial justice are pitted against each other, efforts should be made to lean towards justice by deciding the issue on merits. A litigant should not be turned away at the threshold on technical grounds, unless of course there is deliberate negligence on the part of the litigant in approaching the court in time. In aforesaid view of the matter, we are of the considered opinion that the Commissioner (Appeals) was not justified in dismissing the appeals of the assessee on the ground of delay without deciding the issues on merits. At the same time, in our opinion, the assessee should have
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been more vigilant and should not have left such important matters to the total discretion of the employee, who, in assessee’s own admission, was an inexperienced person. At least, the assessee is expected to put such important tasks in charge of some experienced persons who are capable of handling such matters and further, assessee is required to keep track of the follow up action taken in such matters. Not doing so reveals laxity on the part of the assessee, to some extent, for which the opposite party (Revenue) should not suffer, as, again it has go through the rigmarole of the same judicial process resulting in wastage of valuable time. For the aforesaid laxity on the part of the assessee, the Revenue has to be compensated. In this context, we refer to the jugement of the Hon'ble Supreme Court in the case N. Balakrishnan V/s. M. Kirshanmoorty (supra) cited before us by the learned A.R. In view of the aforesaid, though, we are inclined to condone the delay of 217 days in filing the appeals before the CIT(A), however, we direct the assessee to pay cost of `10,000/– for each of the appeals to the Revenue. On payment of cost as directed above and furnishing the proof before the concerned authority, assessee’s appeals shall be taken up for hearing by the learned Commissioner (Appeals) and decided on merit after due opportunity of being heard to the assessee. Since, we are remitting the matters back to the Commissioner (Appeals), all issues on merits are kept open to be
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raised before the CIT(A) for adjudication. Grounds are allowed for statistical purposes.
In the result, both these appeals are allowed for statistical purposes.
ITA No. 2359/Mum/2015 & CO No. 22/Mum/2016
The appeal by the Department is against the order of the CIT(A) in deleing penalty imposed under section 271C of the Act for A.Y. 2011–12. As discussed in earlier part of the order, pursuant to a survey conducted under section 133A of the Act to verify TDS compliance by the assessee, the Assessing Officer initiated proceedings under section 201 of the Act and ultimately passed orders raising demands under section 201(1)/201(1A) for assessment years 2010–11 and 2011–12. Further, for default committed by the assessee in deducting tax at source the Assessing Officer initiated proceedings only for assessment year 2011–12. In response to the show cause notice issued for imposition of penalty, as observed by the Assessing Officer, the assessee vide letter dated 12.09.2012 requested the Assessing Officer not to impose penalty as demand raised under section 201(1)/201(1A) was disputed by the assessee. The Assessing Officer, however, did not find merit in the aforesaid submission of the assessee and proceeded to pass an order imposing penalty of
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`1,02,55,663/– under section 271C of the Act. Assessee challenged the imposition of penalty before the CIT(A). Learned CIT(A) after considering the nature of assessee’s default in respect of each of the payments made without complying to the TDS provisions, ultimately restricted the penalty under section 271C of the Act to `10,57,155/–. In the present appeal the Department has restricted its challenge in respect of imposition of penalty under section 271C in so far as it relates to payment `10,45,82,003/– being made to overseas entities. 9. The learned Departmental Representative submitted, during assessment proceedings the assessee has not produced any evidence with regard to the nature of payment made to the overseas group entities. Further, learned Departmental Representative submitted, the first Appellate Authority has deleted penalty on the aforesaid payment on the basis of evidences furnished before her which were not produced before the Assessing Officer. Therefore, learned Departmental Representative submitted, penalty imposed on such payment should be restored.
The learned Authorized Represnetative submitted, imposition of penalty under section 271C is not automatic as it has to be levied in consonance with the provision contained under section 273B of the Act. He submitted, the assessee has been in this business for more than a decade and such payments have been made to the overseas
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group entities from the very inception of its business. He submitted, the service fees were paid to overseas group entities for transportation of goods carried outside India. Therefore, such income in the hands of the overseas group entities accrues/arises outside India. Since, the overseas entities have no Permanent Establishment in India, their income is not taxable in India. The learned Authorized Representative submitted before making such payment the assessee has obtained a certificate from an independent Chartered Accountant in Form no. 15CB wherein it was certified that such payments do not require deduction of tax at source and relying upon such certificate assessee has not deducted tax at source on the payment made. Further, learned Authorized Representative submitted, though, in past years the assessee has made similar payments to overseas group entities without deducting tax at source, the department never passed any orders under section 201(1) or disallowed such payments under section 40(a)(i) of the Act. He submitted, even in the impugned assessment year also there is no disallowance under section 40(a)(i). Further, he submitted, even in A.Y. 2010–11 for which proceedings under section 201 were taken up simultaneously by the Assessing Officer, no proceedings for imposition of penalty under section 271C was initiated by the Assessing Officer. He submitted, for the foretasted reasons the assessee being under a bona fide belief that there was no
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requirement for deduction of tax at source on such payment has not deducted tax at source. In support of such contention the learned A.R. relied upon the following decisions: –
i) CIT v/s Eli Lilly & Co. India Pvt. Ltd. & Ors., [2009] 312 ITR 225 (SC); ii) Aishwarya Rai Bachchan v/s ACIT, [2016] TTJ 643 (Mum.); iii) Balmer Lawrie & Co. Ltd. v/s ITO, [2016] 68 taxmann.com 384 (Kol.)
We have heard the rival contentions and perused the materials on record in the light of the decisions relied upon. Section 271C empowers the Assessing Officer to impose penalty for failure of the assessee to deduct tax at source. However, as per section 273B no such penalty shall be imposed on a person if he proves that there was reasonable cause for failure to deduct tax at source. Therefore, keeping in view the aforesaid statutory provision it is necessary to examine whether the assessee has made out sufficient cause for non deduction of tax at source on the payment of `10,45,82,003/– to overseas group entities. As could be seen from the facts on record, such payment was made to the overseas group entities for transportation of goods by them outside India and in their respective countries. Thus, as per the claim of the assessee, not only payments were made to persons outside the territory of India, but, also for services rendered outside the territory of India. It is also the claim of
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the assessee that the overseas entities have absolutely no presence in India. The aforesaid contentions of the assessee remains uncontroverted even before us as the department has not brought any material on record to prove the contrary. Furthermore, the assessee has obtained a certificate from an independent Charted Accountant in Form No. 15CB, wherein, the concerned Chartered Accountant has opined that TDS is not required to be made on such payment. Furthermore, it is a fact on record that, though, the assessee has made payment of identical nature to overseas group entities in past several years without deducting tax at source, no proceedings has been initiated by the Department under section 201(1), except assessment years 2010–11 and 2011–12. In as much as, no disallowance under section 40(i)(a) has ever been made. Even though, similar payment was made in A.Y. 2010–11 and facts for both the assessment years are identical, the Assessing Officer has not initiated proceedings for imposition of penalty under section 271C of the Act for A.Y. 2010–11. Thus, on a conspectus of aforesaid facts, without entering into the controversy as to whether TDS provisions are applicable or not to such payment, one can reasonably conclude that the failure on the part of the assessee to deduct tax at source while making such payment was for bona fide reasons, hence, in terms of section 273B of the Act there being a reasonable cause for such
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failure, no penalty can be imposed under section 271C of the Act. Accordingly, we uphold the order of the CIT(A) on this issue by dismissing the grounds raised.
In view of our aforesaid decision in Department’s appeal, the Cross Objection having become infructuous is dismissed.
In the result, both Department’s appeal and assessee’s cross objection are dismissed. Order pronounced in the open Court on 31.10.2017
Sd/- Sd/- SAKTIJIT DEY G.S. PANNU ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 31.10.2017 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
(Dy./Asstt. Registrar) ITAT, Mumbai