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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: SHRI G.S.PANNU & SHRI RAVISH SOOD
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I”, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER
ITA No. 4045/Mum/2015 (Assessment Year : 2011-12) ITA No. 4046/Mum/2015 (Assessment Year : 2012-13) Kamlesh M. Kanungo HUF, C/o. D.C.Bothra & Co. (CA) 297, Tardeo Road, 1st Floor, Willie Mansion, Opp. Bank of India, Nana Chowk, Mumbai 400 007 PAN: AAEHK 4368K ..... Appellant Vs. Dy. CIT (TDS)-2(1), Dy.CIT(TDS)-2(1), 9th Floor, K.G.Mittal Bldg., Charni Road, Mumbai 400 012. .... Respondent Appellant by : Shri Rakesh Respondent by : Shri Javed Akhtar Date of hearing : 28/07/2016 Date of pronouncement : 19/08/2016
ORDER PER G.S.PANNU,A.M:
The captioned appeals relate to the same assessee for two assessment years and involves a common issue, therefore, they have been clubbed together and a consolidated order is being passed for the sake of convenience and brevity.
2 ITA No. 4045& 4046/Mum/2015 (Assessment Year : 2011-12& 2012-13) 2. ITA No.4045/Mum/2015 pertaining to assessment year 2011-12 is taken as the lead case, since it was a common point between the parties that facts and circumstances in both the years are similar.
ITA No.4045/Mum/2015:- This appeal is directed against an order passed by CIT(A)-59, Mumbai dated 17/04/2015, which in turn arises out of an order passed by the Assessing Officer under section 221(1) r.w.s. 201(1) of the Income Tax Act, 1961 (in short ‘the Act’) dated 29/05/2013. In this appeal, assessee has raised the following Ground of appeal.
“ 1. That on facts and circumstances of the case and in law the Id. CIT. (Appeals) has erred in confirming the penalty imposed u/s. 221(1) r.w.s. 201(1) at Rs. 5,10,000/- by the Id. Dy. CIT (TDS)- 2(1), Mumbai in an ex-partee appeal order without appreciating the valid adjournment application filed one day before seeking the adjournment of hearing fixed on 16-04-2015. Appellant prays that the alleged penalty imposed being wrong on facts and bad in law, therefore same may kindly be deleted.” 4. At the time of hearing, the only grievance raised by the assessee is with regard to merits of the action of the CIT(A) in sustaining penalty imposed under section 221(1) r.w.s. 201(1) of the Act at Rs.5,10,000/- and not with respect to the action of the CIT(A) in disposing of the appeal ex-parte.
4.1 In order to appreciate the controversy, the brief facts are that the appellant is a HUF and it was noticed that tax deducted under section 194A of the Act on interest payments was not deposited with the State exchequer within the prescribed period. At the time of hearing, Ld. Representative for the assessee pointed out that the period prescribed to deposit the TDS with the State exchequer was 31st May, 2011, whereas assessee deposited it on 30/6/2011, alongwith requisite
3 ITA No. 4045& 4046/Mum/2015 (Assessment Year : 2011-12& 2012-13) interest for late deposit. On 9/1/2013, the Assessing Officer issued a notice under section 221(1) r.w. 201(1) of the Act on the ground that assessee had not paid the requisite tax deducted of Rs.1,71,88,352/- into the Government treasury within the time allowed in accordance with the provisions of section 201(1) of the Act. In response to the show cause notice, assessee pointed out that the aforesaid TDS was made on the basis of an estimated provision made in the books of account as on 31/03/2011. It was explained that when actual estimation of expense was made, the requisite tax was deposited along with applicable interest. The assessee also pointed out that it did not have adequate liquidity at the relevant point of time, but the delayed deposit was made along with applicable interest. The Assessing Officer was not satisfied with the explanation rendered by the assessee and held that there was no reasonable and sufficient reason for delay in payment of the TDS. Accordingly, he levied a penalty of Rs.5,10,000/-, which was equivalent to around 3% of the defaulted amount of TDS. The said levy of penalty has been sustained by the CIT(A) by noticing that non-deposit of the requisite TDS to the Government Treasury was an admitted position. Against such a decision of the CIT(A), assessee is in further appeal before us.
Before us, the Ld. Representative for the assessee pointed out that there was a financial crunch and, therefore, the requisite TDS could not be deposited into the exchequer within the stipulated period, but was deposited within shortest time when the funds were available along with requisite interest. The Ld. Representative for the assessee
4 ITA No. 4045& 4046/Mum/2015 (Assessment Year : 2011-12& 2012-13) also pointed out that even the interest payable, which was subject to TDS, was also not paid to the parties within the due date as assessee was facing a financial crunch. By referring page 11 of the Paper Book, it is pointed out that in almost all cases, the interest was paid to the respective parties after the deposit of requisite TDS into the State exchequer showing the bonafides of the assessee. The Ld. Representative for the assessee also pointed out that in the instant year assessee had returned a loss of Rs.5.83 crores and even in the assessment finalized under section 143(3), loss was assessed at Rs.5.76 crores. Considering the entirety of facts, it was sought to be pointed out that there was no intention to deliberately delay the deposit of the TDS into the Government Account and, therefore, penalty under section 221(1) r.w.s. 201(1) of the Act should not be levied.
On the other hand, Ld. Departmental Representative pointed out that penalty under section 221(1) r.w.s. 201(1) of the Act could not be deleted merely because of the financial crunch as held by the lower authorities, based on the decision of the Hon’ble Calcutta High Court in the case of Jubilee Investments & Industries Ltd. vs. ACIT, 106 Taxman 210(Cal) as also the decision of the Amritsar Bench of the Tribunal in the case of M/s. Kapsons Industries Ltd. vs. ITO, in ITA Nos. 262/(Asr)/2012 & Others order dated 8/10/2012 and that of Delhi Tribunal in the case of ACIT vs. Catmoss Retail Ltd., 142 TTJ 273(Del).
We have carefully considered the rival submissions. Factually speaking, there is no dispute to the fact that the assessee HUF has not deposited the tax deducted at source to the Government Treasury within the stipulated period. In assessment year 2011-12, the delay in
5 ITA No. 4045& 4046/Mum/2015 (Assessment Year : 2011-12& 2012-13) deposit is of 30 days and it is also not in dispute that TDS was deposited along with the applicable interest payable for the period of delay. Section 221(1) of the Act, inter-alia, empowers the Assessing Officer to levy penalty in cases where an assessee is in default in making payment of tax deducted at source. In the present case, section 221(1) of the Act has been invoked by the Assessing Officer on the ground that assessee is in default for having delayed the deposit of TDS beyond the stipulated period. On this factual aspect, there is no dispute. The second proviso to section 221(1) of the Act prescribes that where the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons, no penalty shall be levied under this section. Quite clearly, the presence of the said proviso reflects that the power of the Assessing Officer to levy penalty under section 221(1) of the Act is a discretionary power and such discretion is to be exercised in a fair manner. Therefore, what needs to be examined in the present case is as to whether there was any ‘good and sufficient reason’ with the assessee for having defaulted in the deposit of the requisite TDS into the Government exchequer within the stipulated period. Before us, assessee has pleaded good and sufficient reason for the delay in deposit of tax on two grounds. Firstly, it is sought to be made that there was absence of adequate cash liquidity at the relevant point of time, which lead to the delay in deposit of tax into the Government Exchequer. Absence of adequate cash liquidity or financial crunch, in our view, is not a good and sufficient reason to mitigate the rigors of section 221(1) of the Act , as has been held by the Hon’ble Calcutta High Court in the case of Jubilee Investments & Industries Ltd. (supra). As per Hon’ble Calcutta High Court, any loss or
6 ITA No. 4045& 4046/Mum/2015 (Assessment Year : 2011-12& 2012-13) profit in the business of the assessee has nothing to do with the deposit of the TDS amount, therefore, the plea of financial stringency cannot be a ground to mitigate the rigors of section 221(1) of the Act. In this context, the following discussion in the judgment of Hon’ble Calcutta High Court is quite relevant:-
“1O. If we read carefully the provisions of s.221. s. 221 provides that when assessee is in default or is deemed to be in default in making the payment of tax deducted at source he shall in addition to the amount of the arrears and the interest payable under sub- s.(2) of s.220 be liable by way of penalty to pay such amount as the AO may direct. Therefore, whether assessee has paid the interest or not is immaterial. When he is found in default in depositing the amount of TDS within the time-limit prescribed he is liable to pay interest as when as he is liable to pay penalty.
The admitted facts that the assessee has not paid the TDS amount within time-limit prescribed for that he has also paid the interest that further supports the finding that he has not deposited the TDS amount within time. Case of the assessee before the Asstt.CIT was that he suffered loss and financial stringency therefore, he could not deposit that amount in time.
The Asstt.CIT has rightly pointed out that once the TDS is deducted from the income of somebody, assessee is merely a custodian of that TDS amount. He cannot touch that amount. That amount to be deposited within the time prescribed in the Central Government Account and any loss or profit in the business of assessee has nothing to do with deposit of the TDS amount. In view of these aforesaid facts and relevant provisions discussed above, we do not find any merit in this appeal and no case is made out for interim order.”
7.1 Therefore, following the aforesaid decision, we reject the plea of the assessee based on the financial stringency.
7.2 The second ground, which has been canvassed as a ‘good and sufficient reason’ is the fact that assessee bonafidely in a suo-motu action deposited the requisite TDS into the Government Treasury along
7 ITA No. 4045& 4046/Mum/2015 (Assessment Year : 2011-12& 2012-13) with interest thereon. It has also been pointed out that assessee deposited the TDS into the Government Treasury even before the corresponding interest payments were made to the respective creditors. A pertinent point which also emerges is that such suo-motu deposit has been made by the assessee even before any proceedings under section 201(1) were initiated by the Assessing Officer. On this aspect, the Ld. Departmental Representative had referred to the Explanation below section 221(1) of the Act, which prescribes that an assessee shall not cease to be liable to penalty under sub-section (1) of section 221 of the Act “merely by reason of the fact that before levy of such penalty, he has paid the tax”. According to the Ld. Departmental Representative, deposit of tax shall not absolve the assessee from the levy of penalty u/s 221(1) of the Act.
7.3 The rival stands on this aspect of the matter have been carefully considered by us. The proviso to section 221(1) of the Act clearly suggests that the levy of penalty u/s. 221(1) of the Act is not automatic and that the Assessing Officer is empowered to use his discretion not to levy penalty where the default is for good and sufficient reasons. In the present case, the bonafides of the assessee in complying with the requirements of depositing the tax into the Government Treasury stand established inasmuch as the tax has been deposited even before the corresponding interest amounts were paid to the respective creditors and also before any proceedings were initiated by the Assessing Officer. The Explanation below section 221(1) of the Act, in our view, is distinguishable, having regard to the facts of the present case. Notably, the Explanation refers to a situation where the tax has been paid
8 ITA No. 4045& 4046/Mum/2015 (Assessment Year : 2011-12& 2012-13) “before the levy of such penalty”, whereas the situation before us is qualitatively different inasmuch as in the instant case, assessee has deposited the requisite TDS along with applicable interest into the Government Treasury even before any proceedings under section 201(1) of the Act were initiated by the Assessing Officer. In our considered opinion, considering the penal nature of section 221 of the Act, it would be in the fitness of things to make a distinction between a case where the TDS is deposited suo-motu before any proceedings are initiated by the Assessing Officer and a case where the deposit of the TDS is made after initiation of proceedings by the Assessing Officer but before levy of penalty. Considered in the aforesaid light, in our view, the said Explanation would not militate against the assessee in the present case, because of the aforesaid distinction. Having considered the entirety of circumstances canvassed by the assessee, which are based on bonafide considerations, it deserves to be construed that there existed ‘good and sufficient reasons’ to mitigate the default in question, and thus, the first proviso to section 221(1) of the Act clearly comes to the rescue of the assessee, and the penalty levied under section 221(1) r.w.s. 201(1) of the Act by the Assessing Officer deserves to be set-aside. We hold so.
7.4 In the result, the order of the CIT(A) is set-aside and Assessing Officer is directed to delete the penalty of Rs.5,10,000/- imposed under section 221(1) r.ws. 201(1) of the Act. Thus, appeal of the assessee in ITA NO.4045/Mum/2015 is allowed, as above.
9 ITA No. 4045& 4046/Mum/2015 (Assessment Year : 2011-12& 2012-13) 8. It was a common point between the parties that the facts and circumstances in ITA No. 4046/Mum/2015 for assessment year 2012- 13 are pari-materia to those considered by us in ITA No. 4045/Mum/2015 for assessment year 2011-12; thus, our decision therein shall apply mutatis mutandis in the appeal for assessment year 2012-13 also.
In the result, both the appeals of the assessee are allowed, as above.
Order pronounced in the open court on 19/08/2016
Sd/- Sd/- (RAVISH SOOD) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER Mumbai, Dated 19/08/2016 Vm, Sr. PS Copy of the Order forwarded to : 1. The Appellant , 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// Dy./Asstt. Registrar) ITAT, Mumbai