ACIT, NEW DELHI vs. M/S. NATIONAL PROJECT CONSTRUCTION & CORPORATION LTD., NEW DELHI

The appeal by the Revenue and cross-objection by assessee arise out of the order dated 29.08.2013 of learned CIT(A)-XVI, Dehli for the assessment year 2007-08. The Revenue challenges the deletion of penalty of Rs.18,67,162/- imposed by the Assessing Officer u/s. 271(1)(c) of the IT Act, whereas the cross objection of assessee supports the impugned order.

The brief facts, leading to the present case, are that the assessee had paid interest to ONGC amounting to Rs.55,47,123/- without deducting tax on interest payments (TDS) as required under section 194A of the Act. Therefore, disallowance of impugned interest was made u/s. 40(a)(ia) of the Act and was added to the total income of the assessee. This addition stood sustained upto the stage of ITAT in the case of assessee. Consequent upon this, the Assessing Officer initiated penalty proceedings for furnishing inaccurate particulars of income and after applying Explanation 1 to section 271(1)(c) against the assessee, imposed penalty of Rs.18,67,162/- representing to 100% of the tax sought to be evaded. The assessee challenged the penalty order in appeal before the ld. CIT(A) who after thrashing out the Explanation 1 to section 271(1)(c) and relying upon various judicial pronouncements in the light of submissions made by assessee, observed that the explanation offered by the assessee for non-deduction of tax at source was bona fide and that the factum of non-deduction of tax on the interest payment was brought to the notice of Department at the time of filing of return itself by way of disclosure as appendix “D”(I) in Tax Audit Report u/s. 44AB. He therefore, deleted the penalty imposed for furnishing inaccurate particulars of income. Aggrieved by the impugned order, the Revenue is in appeal before us.

The ld. Departmental Representative, reiterating the contents of the penalty order, submitted that the ld.CIT(A) is not justified in deleting the impugned penalty without appreciating the observation of the ITAT given while deciding the quantum appeal of the assessee, sustaining the disallowance of interest claimed to have been paid to ONGC. He submitted that the assessee has failed to deduct tax at source as required under the provisions of section 194A and since the disallowance of interest made u/s. 40(a)(ia) stood sustained by ITAT, the ld. CIT(A) has erred in deleting the penalty. He, therefore, urged for sustenance of penalty imposed by Assessing Officer.

Repudiating the contentions of the ld. DR, the ld. Counsel for the assessee contended that the respondent has never concealed the particulars of income nor furnished inaccurate particulars of income. Satisfactory explanations were offered by the respondent both at the assessment stage as well as penalty stage before the AO for non-deduction of tax on the interest paid to ONGC. It was submitted that bona fide of assessee’s explanations cannot be questioned in the penalty proceedings simply because disallowance of interest was made for non-deduction of tax at source u/s. 40(a)(a) of the Act. It was submitted that the Revenue Department has not raised any finger on the genuineness of the interest expenditure, but disallowed the claim only for the reason that TDS was not deducted on such interest payment as required u/s. 194A of the Act, for which substantial explanations were offered before the authorities below. He, therefore, urged for sustenance of impugned order of ld. CIT(A), deleting the penalty imposed. Reliance is placed on the following decisions : (i). CIT vs. AT & T Communication services India (P) Ltd., 342 ITR 257 (Del.). (ii). CIT vs. Dahyabhai Veljibhai Patel (ITA No. 793 of 2013) Gujrate High Court. (iii). ACIT vs. M.V. International Ltd.(ITA No. 1451/Kol/2012) ITAT Kolkata Bench. (iv). Ramkrishna Shetty vs. ACIT(2013) 38 CCH 20-ITAT Mumbai Bench. (v). ACIT vs. Seaways Shipping Limited (ITA No. 80/H/2011) ITAT, Hyd. Bench. (vi). ACIT vs. Medversity Online Ltd., 69 DTR 326-ITAT Hyd. Bench. (vii). ACIT vs. Narendrabhai P. Patel (ITA No. 2412/Ahd/2010) ITAT Ahmedabad Bench (viii). ACIT vs. Rajinder Kumar(2012) 32 CCH 433, ITAT Del. Bench (ix). Tanushree Basu vs. ACIT (2013) 36 CCH 89, ITAT Mumbai Bench.

We have considered the rival submissions and have gone through the entire material on record as well as the decisions cited and we find no merit in the appeal of the Revenue. In this appeal, the only question which needs adjudication is whether the disallowance of interest due to mere non- deduction of tax at source, would amount to furnishing of inaccurate particulars on the part of respondent or not. A deep delve into the record shows that in the assessment proceedings itself, it was explained that the respondent did not deduct tax at source u/s. 194 owing to assurance of the payee company that they will pay the tax on the part of this income, as was communicated to respondent vide their letter dated 06.08.2007 whereby they have certified that the amount of Rs.55,47,123/- being interest on the NPCC loan has been recognized as interest income of ONGC in F.Y. 2006-07 and tax as applicable has been paid to the Government. The ld. AR of the assessee submitted that this fact led the respondent not to deduct tax on interest payment to the ONGC, a Govt. Company. Besides, the factum of non-deduction of tax on the interest payment made to ONGC was declared to the Department at the very time of filing of return itself by way of disclosure as appendix “D”(I) in Tax Audit Report u/s. 44AB. In the penalty proceedings also, the respondent had explained that the ONGC has shown the interest income in their P & L Account for taxation purpose and the company is a Govt. of India Co. as defined in section 617 of the Companies Act, 1956. All these facts, in our considered opinion are suffice to form a bona fide belief, which led the respondent not to deduct tax on interest payment, but this by itself does not tantamount to furnishing of inaccurate particulars of income, as observed by the AO. Laying our hands on the decision of Hon’ble Supreme Court in the case of Reliance Petroproducts Ltd., 322 ITR 174, we are of the opinion that mere making of the claim which is not sustainable in the law, by itself will not amount to furnishing inaccurate particulars of income. In the instant case, the assessee made a claim but the same was rejected and disallowed not for the reason that the claim was fabricated, but keeping in view the statutory provision of law that the assessee did not deduct TDS thereon. It, therefore, can hardly be said that the assessee had furnished inaccurate particulars of income entailing penalty u/s. 271(1)(c) of the Act. The assessee had offered bona fide explanations before the authorities below and as such, the Assessing Officer was not justified to hold that the case of the assessee is hit by Explanation 1 to Section 271(1)(c) of the Act. We also find that the decisions relied upon by the ld. Counsel for the respondent go to support the case of the assessee, against which no counter material could be adduced on behalf of the Revenue. The ld. CIT(A) also reached his conclusions after following decisions of Hon’ble Supreme Court which do not stand rebutted on behalf of the Revenue. We, therefore, find no justification to interfere with the order of the ld. CIT(A). Accordingly, the appeal of the Revenue is found to have no merits and is liable to fail. The cross objection of the assessee, being supportive in nature, becomes infructuous and is, accordingly, dismissed, as we have sustained the impugned order while deciding the appeal of the Revenue.

In the result, the appeal of the Revenue and Cross-objection of the assessee are dismissed, as indicated above. Order pronounced in the open court on 15.02.2016.