JCIT, COIMBATORE vs. CHROMA PRINT INDIA PVT . LTD., COIMBATORE

आयकर अपील�य अ�धकरण, ’बी’ �यायपीठ, चे�नई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी संजय अरोड़ा, लेखा सद�य एवं �ी धु�वु� आर.एल रे�डी, �या�यक सद�य के सम� Before Shri Sanjay Arora, Accountant Member & Shri Duvvuru RL Reddy, Judicial Member आयकर अपील सं./I T.A. No.2083/Mds/2016 �नधा�रण वष�/Assessment Year:2012-13 The Joint Commissioner of M/s. Chroma Print India Pvt. Ltd., Income Tax, TDS Range, Vs. P.B. No. 5316, 53, Ganesh Nagar, Coimbatore. G.N. Mills Post, MTP Road, Coimbatore. [PAN:AACCC6021A] (अपीलाथ� /Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से / Appellant by : Ms. Veni Raj, JCIT ��यथ� क� ओर से/Respondent by : Shri T.N. Seetharaman, Advocate सुनवाई क� तार�ख/ Date of hearing : 03.08.2017 घोषणा क� तार�ख /Date of Pronouncement : 13.10.2017 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 2, Coimbatore dated 30.03.2016 relevant to the assessment year 2012-13. The Revenue has raised the following grounds in its appeal: “1. The order of learned CIT(A) is opposed to the facts and circumstances of the case. 2. The ld CIT(A) has erred in holding that no penalty is leviable on the non deduction of TDS on payment of labour Charges worth

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1,71,873/-,Audit Fees worth 56,180/- ,Interest Payment worth 11,69,750/-,and Commission on Profit worth 64,30,000/-. 3. The ld CIT(A) has erred in holding that in order to levy penalty it should be shown that there was continuous and repeated defaults. 4. The ld CIT(A) has erred in overlooking the fact that the only ground on which the Penal provision u/s 273 B is not attracted is for the assessee to show that there is reasonable cause for the failure to deduct Tax at source. The Assessee had failed to show that there was reasonable cause to account for the failure to deduct tax. 5. The ld CIT(A) has erred in holding that the amount of penalty levied is harsh as he has failed to consider the fact that as per Section 271C, the minimum penalty leviable is equivalent to the Tax not deducted which cannot be termed as harsh. 6. The ld CIT(A) has erred in holding that the subsequent payment of the tax by the assessee has caused no loss of revenue to the Department .The main ingredient that attracts the levy of penalty under Section271C is whether or not there is a failure to deduct tax as per law. Once this is proved, subsequent payment of tax does not obliterate the infraction of law that calls for levy of penalty. 7. The ld CIT(A) has erred in not considering the fact that the assessee has not disputed the liability to deduct tax and its failure to deduct tax in time. 8. For the above and any other reasons that might be adduced at the time of hearing, it is prayed that the order of the ld CIT(A) may be set aside and that of the AO restored.” 2. Brief facts of the case are that the assessee is engaged in the business of offset printing, mainly labels for IMFL. During the course of inspection carried out at the assessee’s premises on 16.10.2012, the TDS Officer notied that the assessee failed to deduct tax on certain payments and

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thereafter passed order under section 201(1) and 201(A) of the Income Tax Act, 1961 [“Act” in short] holding that the assessee is “an assessee in default” in respect of tax ought to have been deducted. Upon receiving intimation from the TDS Officer regarding the defaults and order passed under section 201(1) and 201(1A) of the Act, the JCIT, TDS Range initiated proceedings under section 271C of the Act by issuing show cause notice. Having not received any response to the notice and observing non- compliance to further opportunities granted, the JCIT proceeded to pass order under section 271C of the Act imposing penalty equivalent to the tax not deducted on the ground that the assessee failed to establish any reasonable cause for not deducting tax at source.

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the books of accounts for the financial year 2011-12, the Assessing Officer has noticed that out of total labour charges of ₹.51,50,089/- paid during the year, the assessee did not deduct tax on ₹.1,71,873/-. Similarly, against payment of audit fees of ₹.1,68,540/-, the assessee has not deducted tax on ₹.56,180/- and moreover, towards interest payment of ₹.18,27,500/-, non deduction of tax was ₹.11,69,750/-. Accordingly, the Assessing Officer passed order under section 201(1) and 201(1A) of the Act holding that the assessee “as an assessee in default”. Accordingly, the JCIT initiated proceedings under section 271C of the Act by issuing show cause notice. Since there was no response from assessee, the JCIT levied penalty under section 271C of the Act. After considering the submissions of the assessee, the ld. CIT(A) deleted the penalty by observing as under: “4.2 In Ground No. 7, the appellant found fault with the penalty levied on non deduction of tax on labour charges, audit fees and interest payments. From the details of defaults in this regard, it is seen that these are not major defaults. However, the appellant has substantially complied with the TDS provisions. These defaults could be accepted as clerical mistakes. The appellant has subsequently corrected the mistakes by remitting the TDS. In any case, the TDS officer had raised the demand which would have been later on collected. As these are not major defaults and having been subsequently corrected by the appellant, the levy of penalty of equivalent amount of TDS appears to be harsh. Further, the JCIT has not pointed out any continuous and repeated defaults justifying levy of penalty. Therefore, I am inclined to hold that the penalty levied u/s 271C, in so far as these defaults are concerned, is not called for and delete portion of the penalty pertaining to these defaults. Accordingly, this ground is allowed.” 5.1 The substance of the issue is whether the assessee is in default and liable for penal proceedings. Admittedly, the assessee has not deducted TDS on the expenditures as detailed hereinabove. The Income Tax Act

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mandates that a specified percentage of tax is required to be deducted by the payer at the time of making certain payments to the payee. The requirement to deduct tax is there for payments, such as, payment of commission, interest, salary, royalty, contract payment, brokerage etc. The tax deducted has to be deposited by the payer to the revenue department on behalf of the payee within the time stipulated in the Act. In case the payer is failed to deduct the tax at source, the payer is liable to pay penalty under section 271C of the Act. 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 XVIIB; 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, 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. 5.2 However, section 273B of the Act provides that in case the assessee proves that there was some reasonable cause for the failure to deduct tax, then the penalty under section 271C of the Act is waived off. Section 273B - Penalty not to be imposed in certain cases, can be read as follows: 273B. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section

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271CA, section 271D, section 271E, section 271F, section 271FA, section 271FB, section 271G, section 271H, clause (c) or clause (d) of sub section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 272B or subsection (1) or subsection (1A) of section 272BB or sub-section (1) of section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of subsection (2) of section 273,no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. 5.3 There is no definition for the term “reasonable cause” and it has to be decided upon the facts of each case. During the course of penalty proceedings under section 271C of the Act, the assessee, neither responded to the show-cause notices nor filed any explanation towards non-deduction of TDS. The only argument of the assessee before the ld. CIT(A) was that non-deduction of TDS is unintentional and a clerical error. It is not the case of the assessee that the assessee was not aware of the TDS provision, but failed to deduct TDS on the payments in full. If the Department has not inspected the books of accounts of the assessee, the non-deduction of TDS would not have come to light. In view of the above provisions and considering the facts and circumstances, we are of the opinion that non- deduction of TDS is, nothing but ignorance and ignorance of law is not an excuse and thus, the JCIT has rightly levied penalty under section 271C of the Act. Accordingly, we reverse the findings of the ld. CIT(A) on this issue and allow the ground raised by the Revenue.

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6.1 On appeal, the ld. CIT(A) deleted the penalty on the ground that the TDS was made in the subsequent year and remitted into the Government account and moreover, the directors also offered the same to tax in their returns.

6.2 We have heard rival contentions. In this case, it is not the case of the assessee that profit commission was determined after closure of the accounts and subsequently paid to the directors attracting the TDS provisions of section 194H of the Act. The assessee has, very well, made a provision for commission on profit and claimed it as a deduction by way of debiting the same to the profit and loss account. In the current account of the directors, the assessee has credited with, in the name of “profit commission” of ₹.64,30,000/- on 31.03.2012 without deducting TDS. The payment made to the directors, by whatever the name called, has to be treated as salary

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and TDS should have been deducted as provided under section 192 of the Act. Once the commission was released on 31.03.2012, the assessee should have paid the TDS by 30.04.2012, but, in this case, out of the total TDS liability of ₹.19,29,000/-, ₹.17,68,415/- was paid on 26.10.2012 and the balance TDS liability was found, not paid, during the course of inspection.

6.3 We have perused the case relied on by the assessee in the case of CIT v. R. Lakshmi Narayanan in TCA No. 1344 of 2005, the purport of the decision is that the commission payable to assessee by the company having been approved in the board meeting only in the following year which is relevant to assessment year 1997-98, the same is taxable in that assessment year and not in the earlier assessment year. Similar was the situation in the case of Sanjib Kumar Agarwal v. CIT 310 ITR 295 (Cal). In both the cases, the TDS provisions of section 194H of the Act applies and the above case law have no application to the facts of the present case. In the present case, the commission payment, though it is in different name, being salary and covered under the TDS provisions of section 192 of the Act, the TDS should have been paid before closure of the financial year. Subsequent payment of TDS does not obliterate as to whether the assessee has caused any loss to the Revenue. The ingredient that attracts the levy of the penalty under section 271C of the Act is whether or not there was a failure to deduct tax as per law. Admittedly, TDS was not effected on the

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commission payment in the relevant financial year. Therefore, we are of the considered opinion that the ld. CIT(A) was legally not correct to delete the penalty levied under section 271C of the Act and accordingly, the same stands reversed and allowed the ground raised by the Revenue.

Sd/- Sd/- (SANJAY ARORA) (DUVVURU RL REDDY) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 13.10.2017 Vm/- आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant, 2.��यथ�/ Respondent, 3. आयकर आयु�त (अपील)/CIT(A), 4. आयकर आयु�त/CIT, 5. �वभागीय ��त�न�ध/DR & 6. गाड� फाईल/GF.