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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’: NEW DELHI
Before: SHRI CHANDRA MOHAN GARG, & SHRI O.P. KANT,
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER This appeal filed by the revenue is directed against the order of the CIT(A)-XXX, Delhi, dated 20/11/2009 for AY 2001-02.
The grounds raised by the Revenue read as under:
“On the facts and circumstances of the case as well as the in law, the ld. CIT(A) has erred in : 1. deleting the penalty levied u/s 271C of I. T. Act, 1961 amounting to Rs.27,78,033/- being 100% of tax not deducted by the assessee on the Commission / discount/handling charges paid to sub 194H of the I.T. Act. She has failed to appreciate that the fault was established conclusively and was admitted by the assessee. 2. holding that the assessee being ignorant of law can be said to have a reasonable cause within the meaning of section 273B of the I.T. Act. She has failed to appreciate that in assessee’s case which is availing services of qualified tax consultants ignorance of law cannot be a valid ground for such relief.
3. holding that the imposition of penalty u/s 271C is not justified as it would amount to penalizing the assessee for an omission which did not cause any loss of revenue.”
We have heard the rival submissions and have perused the relevant material on record before us, inter alia, quantum assessment order and first appellate order, penalty order and the impugned order in this appeal paper book and the assessee spread over 190 pages. The ld. DR supporting the action of the AO submitted that the assessee has no reasonable cause for not deducting the tax at source u/s 194H of the Income tax Act, 1961 [for short, 'the Act'] on commission/discount/handling charges paid to sub agents. Hence, for this willful default, penalty provisions of section 271C of the Act are attracted and in view of the first proviso to section 275(1)(a) of the Act penalty is leviable. The ld. DR vehemently argued that the ld. CIT(A) granted relief to the assessee without any legal and justified basis. The ld. DR has drawn our attention para 3 at page 3 of the penalty order and submitted that while the assessee is crediting the TDS and deposit the same to the exchequer, otherwise the assessee should have made provisions of expenses instead of crediting the same to the accounts of the sub- agents/bookers. The ld. CIT-DR contended that the ignorance of legal provisions are not an excuse. To support this contention, the ld. DR placed reliance on the judgment of the Hon'ble High Court of Madras in the case of CIT Vs. India Gospel Fellowship Trust reported at 331 ITR 283 [Mad].
Replying to the above, the ld. AR submitted that prior period expenses cannot be allowed in the subsequent years, hence, it was necessary to credit the accounts of sub agents/bookers instead of making provisions for the same. The ld. AR supporting the first appellate order contended that the assessee had paid short fall of TDS and interest thereon thus penalty cannot be imposed merely on technical issues. The ld. AR further submitted that the assessee was under bonafide belief that TDS was to be made at the time of payment of commission and not at the time of booking and crediting the expenditure to the respective recipients accounts. The ld. AR also pointed out the A.Y 2001-02 was the first year of TDS provisions and the assessee was a bit confused hence some bonafide omissions happened which were promptly corrected when noticed subsequently.
On careful consideration of the above rival submissions of both the sides, at the outset, we observe that the ld. CIT(A) granted relief to the assessee with the following findings and conclusion:
I 6. have considered the submissions made by the appellant,the case laws relied upon by him in support of the arguments as well as the order u/s. 271C of the IT Act passed by the AO. It is a case where survey u/s. 133 A was conducted at the premises of the assessee company and it was found that the assessee company had shown expenditure of Rs.9.30 crores as agency commission for financial years 01-02 but in its TDS return the assessee company was showing commission payment amounting to Rs.26,37,000/- only on which TDS u/s. 194H of the IT Act was made. In respect of the remaining commission due to the agents no TDS was made. The AO held that TDS should have been deducted on the total expenditure of Rs.9.30 crores booked in the accounts as commission and worked out the shortfall of TDS at Rs.27,78,033/- and interest thereon at Rs. 14,89,631/- raising a demand of Rs.42,67,664/- u/s 201(1)/ 201(1A) of the IT Act. Penalty proceedings u/s. 271(1)(C) were also initiated. The demand was paid by the assessee, however, the imposition of penalty is being contested by the assessee on the ground that he was under a bonafide belief that TDS was to be made at the time of payment of commission and not at the time of booking/crediting the expenditure. He has given the following reasons to support his plea of bonafide belief (i) That it was the first year of the inactment of the relevant provision and the assessee was a bit confused, (ii) That it was a policy of the company in the past that TDS was deducted when payment of commission was made 4 TDS is made at the time of crediting the commission expenses and TDS certificates are also issued then if the sale is not realized then the agent would encash the TDS and in this way he will receive an undue benefit.
(iii) That as far as financial year 2001-02 is concerned the subsequent event proved that the policy of the company was prudent because the sales effected through the agents actually resulted in bad debts and the commission which was credited to the agents was reversed and added to the income of the assessee in the next year.
(iv) In any case when the liability of TDS was pointed out to the assessee during the survey the assessee made the payment of TDS as well as interest and it is only the penalty which is being contested by the appellant.
I find that the above mentioned facts prove the bonafide credentials of the appellant. In fact, at this point of time, it stands established that the sale in respect of which commission was payable did not materialize and the commission was also written back. There cannot be any tax liability in respect of such commission. In spite of this fact, the assessee has already paid TDS and interest and the respective party accounts were debited by the said amounts as no commission was paid to them and the TDS refund received by them was undue benefit received by them. The amount of TDS by the assessee being a benefit to the agents was debited to their respective accounts and other liabilities due to them were reduced to the extent of TDS deposited on their account with Government. After considering 5 I am of the view that imposition of penalty u/s.271C is not justified in this case as it will amount to penalizing the assessee for an omission which did not cause any loss of revenue. I therefore cancel the penalty.”
On logical analysis of the operative part of the first appellate order, we observe that the ld. CIT(A) considered the submissions, reasons and the explanation of the assessee and then noted that the sale in respect of which commission was payable did not materialize and the commissions was also written back. The ld. CIT(A) also observed this fact that the assessee has already paid the TDS and interest thereon and respective party accounts were debited by the said amounts as no commission was paid to them and the TDS refund received by them [payee sub agents/brokers] was undue benefit enjoyed by them. After noticing above mentioned facts, on careful consideration of submissions of the assessee the ld. CIT(A) rightly held that imposition of penalty u/s 271(C) of the Act is not justified.
It is pertinent to mention that the ignorance of a statutory provision is not an umbrella for willful defaulters but section 273B of the Act provides that no penalty u/s 271C of the Act shall be imposable on the person or assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was a reasonable cause for the said failure. In the present case, the causes shown by the assessee before the authorities below are sufficient to show that there was a number of reasonable causes before the assessee for alleged failure on which penalty has been imposed.
7. The ld. CIT-DR could not controvert the aforementioned finding and facts and appreciation of explanation of the assessee. On the basis of the foregoing discussions we are inclined to hold that there was no valid reason before the AO for imposing penalty on the payments which were received back when the sales could not be materialized and the assessee was in loss as the TDS certificates issued to the respective payees fetched tax credit to the sub agents/brokers for which they were not entitled. The ld. CIT(A) was quite justified and correct in deleting the baseless penalty and thus we are unable to see any valid reason to interfere with the impugned order and consequently we uphold the same. Accordingly, the sole ground of the Revenue being devoid of merits is dismissed.
In the result, the appeal of the Revenue stands dismissed.
The order is pronounced in the open court on 18.03.2016.