GUJARAT ALKALIES AND CHEMICALS LTD.,,BARODA vs. THE ADDL. CIT, TDS RANGE,, BARODA

आदेश / O R D E R

PER MAHAVIR PRASAD, JUDICIAL MEMBER :

These are two appeals by the assessee against the separate orders of the Commissioner of Income Tax(Appeals)-VI, Baroda, dated 08/07/2017 for the Assessment Years (AYs) 2008-09 & 2009-10, on the following Grounds: i. The order passed by the Honorable Commissioner of Income Tax (Appeals)-VI, Baroda is bad in law, contrary to legal pronouncements and same be quashed.

ITA Nos.2846 & 2847/Ahd/2014 Gujarat Alkalies and Chemicals Ltd. vs. ACIT Asst.Year –2008-09 & 2009-10 - 2 - ii. The CIT(A)-VI, Baroda has erred in confirming the penalty of Rs.7,64,519/-(A.Y.2008-09) & Rs.7,61,398/- (A.Y.2009-10) levied by the AO on the tax not deducted on the amount of Washing allowance reimbursed to employees. It is submitted that the CIT(A)-VI, Baroda has failed to appreciate the facts submitted before him, that the expenses incurred are in the nature of reimbursement of expenses and hence the same are not treated as perquisite for the purpose of deduction of tax at source. Hence no tax was rightly deductible from such reimbursement of expenses. Your appellant therefore submits that the AO be directed to delete the penalty levied by the AO.

ii.a Without prejudice to the above, it is submitted that there is a bonafide and reasonable cause for not deducting the tax, and hence the penalty levied by AO is unjust and uncalled for as per provisions of section 273B of the Act. iii. The CIT(A)-VI, Baroda has erred in confirming the penalty of Rs.13,81,597/-(A.Y. 2008-09) & Rs.13,32,610/-(A.Y. 2009-10) levied by the AO on the tax not deducted on the amount of Medical allowance reimbursed to employees. The CIT(A)-VI has failed to appreciate the facts submitted before him, that the expenses incurred are in the nature of reimbursement of expenses and hence the same are not treated as perquisite for the purpose of deduction of tax at source. Hence no tax was rightly deductible from such reimbursement of expenses. Your appellant therefore submits that the AO be directed to delete the penalty levied by the AO.

iii.a Without prejudice to the above, it is submitted that there is a bonafide and reasonable cause for not deducting the tax, and hence the penalty levied by AO is unjust and uncalled for as per provisions of section 273B of the Act. iv. The CIT(A)-VI, Baroda has erred in confirming the penalty of Rs.90,705/- levied by the AO being so called short deduction of tax on payment of Rs.4,45,000/- made to Eureka Chemicals Pvt. Ltd. towards warehousing charges. Your appellant submits that the tax was rightly deducted as per provisions of section 194C of the Act instead of 194I of the Act as held by the AO. It is

ITA Nos.2846 & 2847/Ahd/2014 Gujarat Alkalies and Chemicals Ltd. vs. ACIT Asst.Year –2008-09 & 2009-10 - 3 - therefore submitted that provisions of section 271C are not applicable. Provisions of section 271C are applicable only in case of non deduction/payment of Tax. Since your appellant had deducted and paid the tax, provisions of section 271C are not applicable and hence penalty levied by AO is unjust and uncalled for. v. The CIT(A)-VI has erred in confirming the penalty of Rs.19,37,430/- levied by the AO being tax deductible as per provisions of section 194I of the Act, on the ground that Hon'ble CIT(A) has confirmed the order passed by AO u/s.201(1)/201(1A) of the Act . It is submitted that your appellant was under bonafide belief that no tax is deductible from the payment made to Suzlon Gujarat Park Ltd. Accordingly your appellant submits that no penalty is leviable as per provisions of section 273B of the Act. It be held so now and penalty levied by AO be deleted. 2. The relevant facts as culled out from the materials on record are as under:- In this case, a survey was conducted in the case of the assessee on 16.07.2009, in which, it was found that the assessee had either short deducted or not deducted tax on certain payments made on account of Medical Allowance paid to its employees, warehouse rent paid to M/s. Ureka Chemical Pvt. Ltd. and rent paid to M/s. Suzlon Gujarat Part Ltd. An order u/s.201(1)/201(1A) was passed on 26.04.2010. The assessee appealed against the said order before CIT(A), Baroda, who confirmed all the additions except (i) the payment of medical allowance in excess of Rs.15,000/- (ii) Washing Allowance, which were directed to be verified. Penalty proceedings u/s.271C were also initiated after affording the assessee an opportunity of being heard, the Addl.CIT, TDS Range, Baroda levied penalty of Rs. 41,74,251/- u/s.271C of the Act.

ITA Nos.2846 & 2847/Ahd/2014 Gujarat Alkalies and Chemicals Ltd. vs. ACIT Asst.Year –2008-09 & 2009-10 - 4 - 3. Against the said order, assessee preferred an appeal against the levy of penalty before the ld.CIT(A) who dismissed the appeal of the assessee.

ITA Nos.2846 & 2847/Ahd/2014 Gujarat Alkalies and Chemicals Ltd. vs. ACIT Asst.Year –2008-09 & 2009-10 - 5 - 5. So far medical allowance is concerned. Same were deductible u/s.192 in Asst. Year 2008-09 of Rs.13,81,597/- and in Asst. Year 2009- 10 of Rs.13,32,610/-. Same has been deleted by our Coordinate Bench and Hon’ble Gujarat High Court by holding as below: “We draw support from the above extracted observations and conclude that the assessee has acted fairly and honestly in computing its TDS liability qua salary and other allowances paid to its employees u/s.192 of the Act. Nor it is the Revenue’s case that it has not acted in the above stated bonafide manner or that quantum of medical allowance question appears to be payment of salary in garb thereof. The case file does not reveal that these very sums stand assessed in individual employees’ hands. The Revenue fails in controverting all of the above stated findings. We accordingly reverse lower authorities’ action and accept assessee’s first substantive ground challenging section 201(1) and (1A) demand in question. This first substantive ground relating to medical reimbursement issue succeeds. ITA 461/Ahd/2012 is partly accepted.”

“Section 17(2) of the Act refers to term “perquisite” as to include range of benefits to be paid by the employer to the employees. Proviso to said sub-section, however, provides that nothing in this clause shall apply to in clause (v) where any sum paid by the employer in respect of nay expenditure actually incurred by the employee on his medical treatment or the treatment of any member of his family, so, however that such sum does not exceed Rs.15,000/- in the previous year. Thus, reimbursement of medical expenditure actually incurred by the employee on himself or his family or up to a ceiling of Rs.15,000/- would not be included in the term “perquisite”. This is precisely what are the facts in the present case. The Revenue does not contend that the ceiling of Rs.15,000/- was breached. Prime objection of the Revenue appears to be the fixed reimbursement commensurate with the level of the employee irrespective of the demand for medical reimbursement. The company, however, when ensured that such reimbursement was not in excess of actual expenditure incurred by the employees, this objection of the Revenue also cannot survive.”

ITA Nos.2846 & 2847/Ahd/2014 Gujarat Alkalies and Chemicals Ltd. vs. ACIT Asst.Year –2008-09 & 2009-10 - 6 - 5.2 Therefore, respectfully following the Co-ordinate Bench’s order and judgment of the Hon’ble High Court, we delete the penalty.

ITAT Pune, Bench [2017] 81 taxmann.com 8 (Pune-Trib.) “I. Section 194J, read with section 271C, of the Income Tax Act, 1961 – Deduction of tax at source – Fees for professional or technical services (Data facilities) – Assessment years 2008-09 to 2010-11 – Whether where assessee was accessing standard data server facility of German Company, payments made to German Co. did not partake of nature of professional/technical services and provisions of Section 194J were not applicable – Held, yes [Para 21][In favour of assessee] II. Section 194J, read with sections 194C and 271C, of the Income- tax Act, 1961 – Deduction of tax at source – Fee for professional or technical services (Penalty for non-deduction of TDS) – Assessment years 2008-09 to 2010-11 – Whether where assessee had not established its case of TDS not applicable on which short-deduction was made by it, it was exigible to levy of penalty under section 271C – Held, yes- Whether in case of payments on which assessee had deducted tax at source under section 194C merely because debate was whether provisions of Section 194J

ITA Nos.2846 & 2847/Ahd/2014 Gujarat Alkalies and Chemicals Ltd. vs. ACIT Asst.Year –2008-09 & 2009-10 - 7 - were attracted or not, it did not make assessee exigible to levy of penalty under section 271C – Held, yes – Whether where assessee claimed that there was some reconciliation pending in case of tow transporters and on reconciliation of amounts, TDS was paid in succeeding year, assessee had reasonable cause for non-deduction of tax on such payments and since after reconciliation assessee admittedly had paid TDS in succeeding year, there was no merit in levy of penalty under section 271C on such payments – Held, yes [Partly in favour of assessee]”

Judgment of Delhi High Court in the matter of CIT v. Cadbury India Ltd.

“Section 271 C, read with section 273B, of the Income-tax Act, 1961 - Penalty - For failure to deduct tax at source - Assessment years 2002- 03 to 2004-05 - Survey at premises of assessee revealed that assessee was deducting tax at source under section 194C on payments made to clearing and forwarding agents (CFAs) and on payment of rent for usage of space in warehouse and it was not deducting TDS on payments made to outside agencies supplying manpower - Assessing Officer held that on payment of rent and CFAs, remuneration, TDS was to be deducted under sections 194-1 and 194J and not under section 194C and payment made to outside agencies supplying manpower was liable for TDS at rate of 2 per cent - He held assessee- in-default and levied penalty under section 271C - Assessee contended that deductions were made in consolidated form under section 194C on professional advice of chartered accountant and due to bona fide belief thereon - Whether it was neither case of mala fide intention nor that of negligent intention or want of bona fide, but a case of misconceived belief of applicability of one provision of law than other and, therefore, it could not be said judiciously that assessee had failed to comply with provisions of sections 194-1 and 194J without reasonable cause - Held, yes – Whether, therefore, no penalty could be levied upon assessee under section 271 C - Held, yes”

6.2 Respectfully following the order of the Pune Bench and judgment of the Hon’ble Delhi High Court, we delete the penalty.

ITA Nos.2846 & 2847/Ahd/2014 Gujarat Alkalies and Chemicals Ltd. vs. ACIT Asst.Year –2008-09 & 2009-10 - 8 - 7. So far as rent to Suzlon Gujarat Park Ltd is concerned, the rent was paid not for go-down but use of piece of land as clearly stated by CIT appeal in page 16 & 17 of impugned order para 9.1. The assessee bonafidely believes that TDS has to be deducted u/s 194(1) for lease or tenancy charge paid for use of building and not for using land. That was the position till A.Y. 2007-08 as the definition of rent was amended w.e.f. 13.07.2006. Therefore, assessee company bonafidely did not deduct the tax as per earlier practice. Even the auditors in the Tax Audit Report agreed with this view and has not qualified the default of the assessee, as can be seen in tax audit report filed on page 53 of the paper book. Thus it was a bonafide mistake on bonafide belief. The assessee submits that, the bonafide belief means "Reasonable cause as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as probable cause. It means an honest belief founded upon reasonable grounds, of existence of a state of circumstance, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do . The cause shown has to be considered and only if it is found to be frivolous without substance or foundation, the prescribed consequences follow."

7.2 This was based on Hon’ble Supreme Court decision, in case of Price Waterhouse Coopers Ltd., and same in Paper Book at Page 63 to 67.

ITA Nos.2846 & 2847/Ahd/2014 Gujarat Alkalies and Chemicals Ltd. vs. ACIT Asst.Year –2008-09 & 2009-10 - 9 - 7.3 In view of the above said Supreme Court Judgment in case of Price Waterhouse Coopers Pvt. Ltd., we delete the penalty against the assessee.

Sd/- Sd/- vejthr flag vejthr flag vejthr flag महावीर �साद vejthr flag (लेखा सद�य) (�या�यक सद�य) ( AMARJIT SINGH ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 16/11/2017 Priti Yadav, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-VI, Baroda �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 02/11/2017 (dictation-pad 8 pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 13/11/2017 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………