Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, BANGALORE BENCH C, BANGALORE
Before: SHRI VIJAY PAL RAO
PER S. JAYARAMAN, ACCOUNTANT MEMBER :
This is an appeal filed by the Revenue against the order of the
CIT(A)-13, Bengaluru, dt.14.08.2015, for the assessment year
2013-14.
The assessee , a company engaged in civil construction, was
subjected to survey on 25/7/2013, was noticed that though it had
ITA.1303/Bang/2015 Page - 2
deducted taxes amounting to Rs.2.05 crores from salary, contract
payments, professional fees etc during the year ending 31/3/2012,
it had failed to remit such deducted taxes to the account of the
Central Government within the time stipulated in the Act.
According to the A O , the taxes deducted at sources during
the financial year 2012-13 (AY 2013-14) varied from
Rs.4,02,769/- in April 2012 to Rs. 59,60,557/- in March 2013 in
total Rs.2.05 crores. On such failure, the AO passed an order u/s
201(1)/201(1A) on 30/7/2013 raising the demand and treating
the assessee as an 'assessee-in-default'. Thereafter, the
assessee had remitted the entire TDS and the interest and did
not file an appeal against that order. Subsequently, the AO
initiated proceedings u/s 221 for levy of penalty for the failure on
the part of the assessee to remit the TDS in time, heard the
assessee , found from the assesee's books of account, inter alia,
that its statement that faced financial crunch was bogus and, on
the other hand, it had consciously avoided remitting the tax
deducted at source in time and made the remittance only when
it was visited with a survey, it had deliberately delayed the
remittance of the TDS amounting to Rs.2.05 crores etc and then
levied penalty at Rs.77,95,155/-, @ 5% pm on the defaulted TDS.
Aggrieved, the assessee filed an appeal before the CIT(A)-13, Bengaluru. The CIT(A) held , inter alia, that consequent to the order passed u/s 201(1), the assessee was served with a demand notice
ITA.1303/Bang/2015 Page - 3
u/s 156 dated 30/7/2013 providing 30 days time to make the payment and it paid the said tax within four days from the date of demand notice, perusal of the assessee's submissions along with its balance sheet and other financial statements show that it had faced genuine financial difficulties during the said period, since the assessee had subsequently remitted the TDS along with interest u/s 201(1A) @ 1.5 % per month, the penalty levied @ 5% per month u/s 221 is not justifiable and therefore directed to be deleted. Aggrieved against the CIT(A) order, the Revenue filed this appeal raising the following grounds :
ITA.1303/Bang/2015 Page - 4
The DR relying on the case laws mentioned in the grounds of appeal
submitted that levy of penalty u/s 221 is proper. The AO examined the
assessee’s books of accounts raising certain questions viz 1) Whether the
assessee did not receive any money from the clients during the
year ended 31.03.2012 ?, 2) Whether all payments made by the
assessee. during the period when it remained unpaid, were towards
keeping the business going? and 3) Whether the assessee had cleared
other statutory dues ? etc., and found that the assessee did not have good
and sufficient reasons. Further, he submitted that this is a case of serious
violation of the trust reposed by the Government on the deductor. By such
defiance of law, the assessee has caused problems to the payees from
whom tax was deducted as they were not getting credit for the tax paid by
them by way of TDS, etc.,
The Ld. AR submitted that consequent to the order u/s.201
/201(1A), the AO sent the demand notice dt 30.7.2013 u/s.156 in Form
no.7 . Under sub-section (1) of Section 220, any amount otherwise than by
way of advance tax, specified as payable in a notice of demand u/s.156
shall be paid within thirty days of the service of the notice at the place and
to the person mentioned in the notice. As per para (2) of Form No 7 also,
the assessee was given 30 days time to pay the demand. However, it paid
within four days of the demand notice . He sought our attention to para
(4) and (5) of the Form No7 which read as under :
(4) If you do not pay the amount of the tax within the period specified above, penalty (which may be as much as the amount of tax in arrear) may be imposed upon you after giving you a
ITA.1303/Bang/2015 Page - 5
reasonable opportunity of being heard in accordance with section 221. (5) If you do not pay the amount within the period specified above, proceedings for the recovery thereof will be taken in accordance with sections [(222 to 227, 229 and 232] of the Income-tax Act, 1961.
Since the assessee did not violate the conditions in paras 4 and 5
in Form no.7, above, he pleaded that the levy of penalty u/s.221 is not in
accordance with the Act. Further, he submitted that as per the sub-section
(4) of section 220, if the amount is not paid within the time limited under
sub-section (1) of section 220 only the assessee shall be deemed to be in
default. In its case , since it paid within four days of the demand notice ,
the AO cannot treat it as an assessee in default and relied on the CIT (A)
order.
In his rejoinder, the Ld. DR submitted that the assessee is in default
as per section 201(1) and its case is clearly covered within the scope of
Explanation to Section 221.
We have perused the materials and heard the rival contentions. The
facts are that (a) the assessee has deducted the tax at the time of making
the payment of salaries, dividends, interest as also on the payment made to
contractors. (b) it has delayed in depositing the amounts of tax deducted in
(a) above with the Revenue ;(c) There is no dispute about the quantum of
tax deducted which has been deposited late with the Revenue ; and (d) the
quantum of tax deducted has been deposited with the Revenue along with
the interest by the assessee within four days of receipt of order u/s 201(1) /
201(1A) after it was declared to be an assessee to be in default by the
ITA.1303/Bang/2015 Page - 6
Revenue. Therefore , the assessee is in default. The Bombay High Court in
the case of Relience industries Ltd v CIT & others in 377 ITR 74 held ,inter
alia , in para 20 to 25 as under (relevant portion only extracted) :
“20 ........................... In the present case, there is no dispute that the assessee is in default. Moreover, in terms of section 221 of the Act, the only condition precedent to impose of penalty upon the assessee is that it should be in default or deemed to be in default. In the present facts this position is not disputed. De hors, the above, one more feature to be noticed is that section 201(1) of the Act itself provides that where there is failure of an assessee to deduct tax and pay to the Revenue, such an assessee is deemed to be in default. The failure to deposit in time is accepted/ admitted position. There is no dispute about the questions. Thus, the appellant is deemed to be in default. Therefore, it cannot be said that the penalty proceedings are without jurisdiction under section 221 of the Act...................
It was next submitted on behalf of the appellant that penalty under section 221 of the Act would be payable only when the same is in addition to the arrears of payment of tax deducted. This, according to them, is the plain reading of the words. We do not find so. Parliament has specifically provided for the words "in addition to the amount of arrears along with the amount of interest payable be liable for penalty" only with a view of qualifying that the payment of the amount of arrears and the interest payable would by itself not wipe away the liability to penalty under section 221 of the Act. The aforesaid submission on behalf of the appellant also stands negatived by the Explanation added to section 221(1) of the Act. This Explanation clarifies that an assessee shall continue to be liable to penalty even if the tax has been paid before levy of penalty.
It was next contended that in view of the proviso to section 201(1) of the Act, invocation of section 221 of the Act is barred where the Assessing Officer is satisfied that failure to deduct and pay tax was without good and sufficient reasons. The words "failed to deduct and pay tax" of the proviso is contrasted with the words "fails to pay the tax as required by or under this Act" found in section 201(1) as well as section 201(1A) of the Act. In view of this difference in the language, it is submitted that the proviso would have no application where an assessee has paid the tax even if the same is paid beyond the period provided under the Act. This is contested by the Revenue on the ground that the proviso applies only in case of a person who has failed to satisfy both the condition therein, i.e., fails to deduct and also fails to pay the tax. This
ITA.1303/Bang/2015 Page - 7
interpretation is also supported by the words found in sub-section (1) of section 201 of the Act which provides ". . . principal officer of the company does not deduct or after deducting fails to pay the tax as required by or under this Act". In this case, the tax has been deducted but there is a failure in depositing the tax with the Revenue. Parliament treats a person who has deducted the tax and fails to pay it to the Revenue as a class different from a person who has not deducted the tax and also not deposited the tax with the Revenue. This is for the reason that in the first class of cases the assessee concerned after deducting the tax, keep the money so deducted which belongs to another person for its own use. In the second class of cases, the assessee concerned does not take any advantage as he pays the entire amount to the payee without deducting any tax and does not enrich itself at the cost of the Government. Therefore, although penalty is also imposable in the second class of cases, yet in view of the proviso to section 201(1) of the Act, it is open to such assessee to satisfy the Assessing Officer that as they have good and sufficient reasons no penalty is imposable. It is in the above view that in the first class of assessees, Parliament has provided for prosecution under section 276B of the Act for failing the pay the tax deducted at source. Therefore, the first class of assessee to which the appellant belongs would be liable for prosecution. Thus, the proviso would only apply in respect of the second class of assessee, i.e., such class of assessee who have not deducted the tax and, consequently, failed to pay the tax.
Therefore, in our view, the proviso under section 201 would have no application to the facts of the present case. The Legislature did not provide for the words "by or under this Act" in the proviso as in the absence of deducting tax, the occasion to deposit it within time as provided in the Rules would not apply. This is so as the time begins to run from the date of the deducting of tax as is evident also from section 200 of the Act which provides that any person deducting any sum shall pay it within the prescribed time, the sum so deducted to the Central Government.
It was next submitted on behalf of the appellant that the Explanation below section 221 of the Act which clarifies that penalty will continue to be imposable even if the assessee has paid the tax before the levy of penalty would not apply to the present facts. This for the reason it is submitted the penalty would be imposable under section 221 of the Act only if the assessee is in default at the time of initiation of penalty proceedings. In the present case, it is submitted that the amounts deducted have been deposited long before the notice for penalty under section 221 of the Act was issued. This stand was also taken by the Commissioner of Income-tax (Appeals) while allowing the appellant's appeal. The construction sought to be put on section 221(1) of the Act commencing with the words "where
ITA.1303/Bang/2015 Page - 8
an assessee is in default or is deemed to be in default" cannot stand in the face of the Explanation which clarifies that merely because the tax has been paid/deposited before the levy of penalty, would also take in all acts, from the imposition of the charge up to/till the entire process of raising demand and collecting the same. The construction sought to be put on the Explanation does not allow full amplitude to the words "levy". Besides purposive interpretation also supports the above view as otherwise the construction as suggested by the appellant would enable an assessee to deduct tax at source from the payment being made and not deposit it with the Revenue within time prescribed. Therefore, utilise the amount in effect till such time just before the notice under section 221 of the Act is issued.
It must be borne in mind that the assessee continues to be in default in case the tax has not been deposited with Revenue within the time prescribed under the Act. Tax deposited, thereafter, but before penalty proceedings are initiated would not cleanse the assessee from being in default. The penalty is imposed upon the assessee under section 221 of the Act for the default in not having paid the tax deducted at source within the time provided under the Act. This default is not wiped away by the assessee depositing the tax after the prescribed time. ............................................................................................... ............................................................................................... .............................................................................. Thus, we find no merit in the appellant's above submission that no penalty can be imposed as there was no default at the time when penalty proceedings were initiated.”.
From the above, it is clear that the levy made under section 221 is in
accordance with law and hence the Department’s ground is sustained in
this regard.
The next question is whether, the appellant made out good and
sufficient reasons for not levy of penalty. In this regard, the AO’s findings
are briefly extracted as under :
1) Whether the assessee did not receive any money from the clients during the year ended 31.03.2012 ? Ans : Examination of the OD Account No.54037922670 with the State Bank of Mysore, Madhavnagar, Bengaluru showed that the amounts received and payments made
ITA.1303/Bang/2015 Page - 9
during the year ended 31.03.2012 amounted to Rs.159,01,93,866/- and Rs.161,33,36,880/-. The appellant had surplus of Rs.7,85,71,805/-. This disproved the appellant’s stand before the AO that it had received payments from its clients.
2) Whether all payments made by the assessee. during the period when it remained unpaid, were towards keeping the business going?
Examination of the OD Account No.64020026621 with SBM, Hassan showed that it had made p a y m e n t s a g g r e g a t i n g Rs.3,28,08,516/- during the FY 2012-13 and the TDS liability was only Rs.2.05 crores. Besides, it was noticed that the appellant had 3 payments for purchase of sites, 3 payments for purchase of cars, 1 payment for investment and payments to 3 persons without the purpose being mentioned. Such p a y m e n t s a g g r e g a t e d Rs.44642214. The 3 cars costing Rs,99,00,000/- were purchased despite 4 cars having been purchased in the earlier year. The purpose of payments made to three persons(Shri Subba Raj, Shri Ashok Raju and Shri Syed Akram Jeelani) aggregating Rs.2,55,00,000/- cannot explain as t o w h a t k i n d o f b u s i n e s s expediency the appellant had in preference to the timely remittance of the taxes already deducted from amounts paid/payable to parties. The appellant was found to have received a sum of Rs.2.69 crores in April 2013, which could have been used for remitting the TDS but it had failed to do so.
3) Whether the assessee had cleared other statutory dues ?
The appellant had paid service tax amounting to Rs.83.75 lakhs out of Rs.91.96 lakhs collected by it and remitted PF of Rs.15-odd lakhs out of Rs.16.26 lakhs collected by it.
The AO submitted as under :
In the financial year the assessee had received funds to the tune of 159 crores. The claim of non-receipt of money from clients is not true. 2. The payments made to various parties to the extent of 164 crores disprove the claim of financial difficulty. 3. The payments made for investment in land/site, vehicles and as loans and advances to private parties without purpose and to
ITA.1303/Bang/2015 Page - 10
group concern, declare loudly and in unambiguous terms that the assessee had no financial difficulty whatsoever. 4. The assessee had cleared other statutory dues on regular basis, as it had no financial difficulty etc.
The assessee submitted inter alia as under :
(i) the payments towards acquisition of land, required for the business of the appellant were made in April, 2012, when no liability on account of TDS was existing (ii) major portion of payments made for acquiring vehicles, required for the business of the assessee were out of secured loans obtained specifically for such purpose. (iii) contractual payment made to a third person, for offering immovable property owned by him as collateral security for obtaining B. G. Limits of Rs.30 crores and Term loan limits of Rs.3 crores by the assessee company. Further, the payment made was out of the term loan obtained but not out of the business receipts of the assessee. (iv) payments made to meet operating expenses and other business compulsions, which were inevitable to ensure that the very survival of the company was not in danger.
We have perused the materials and heard the rival contentions. Non- payment of TDS in time is a serious violation of the Trust reposed by the Government on the deductor. Such an action causes serious problems to the payees as they were not getting credit for the tax paid by them by way of TDS. In fact the AO records that the Department received complaint from the assessee for not issuing TDS certificates despite repeated request. The delay in remittances are in the range of four months to fifteen months. The Hon’ble Bombay High Court in the decision relied on supra, inter alia held that “the obligation to deduct and pay tax upon the assessee is unconditional under the Act. It is the responsibility of the assessee to deduct taxes and to pay to the Revenue within the period provided under the Act. Financial stringency would not justify deducting tax from the amount paid to the payee and not paying it to the Revenue. Otherwise, it would amount to using somebody else's money for the purposes of one's
ITA.1303/Bang/2015 Page - 11
business. In such circumstances, the question of financial stringency, to our mind, hardly gives rise to a good and sufficient reason for not depositing tax which was an amount otherwise payable to the payee or on behalf of the payee to the Revenue.”
On the above facts and circumstances the assessee’s plea cannot be accepted as good and sufficient reason for not depositing tax within time. However we find that the levy made by the AO at the rate of 5% per month on the defaulted TDS is unreasonable. We consider that levy of penalty u/s.221 @ 10% on the unpaid TDS at Rs.2,05,55,731/- would meet the ends of justice. Hence the AO is directed to restrict the levy to Rs.20,55,573/- in the place of Rs.77,95,155/-. We hold accordingly.
In the result, appeal of the Revenue is partly allowed.
Order pronounced in the open court on 7th October, 2016.
Sd/- Sd/-
(VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN*
Copy to: 1. The assessee 2. The ACIT, TDS, Circle-2(1), Bengaluru 3. The Principal Commissioner of Income Tax, Bengaluru 4. The Commissioner of Income Tax (A)-13, Bengaluru 5. DR 6. GF, ITAT, Bangalore By Order
Assistant Registrar