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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George George K, JM & Shri Laxmi Prasad Sahu, AM
Per George George K, JM :
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 24.11.2014. The relevant assessment year is 2010-2011.
There is a delay of 1 day in filing this appeal. The assessee has filed a petition for condonation of delay and an affidavit of the Managing Director of the assessee-company stating therein the reasons for belated filing of this appeal. On perusal of the reasons stated for belated filing of the appeal, we noticed that no latches can be attributed to the assessee and there is sufficient cause in filing this appeal belatedly. Accordingly, we condone the delay in filing this appeal and proceed to dispose of this appeal on merits.
The solitary issue raised is whether the CIT(A) is justified in confirming the Assessing Officer’s order, wherein penalty
2 ITA No.96/Coch/2015. M/s.Vijaya Hospitality and Resorts Limited. has been imposed u/s 271C of the I.T.Act amounting to Rs.9,12,060.
The brief facts of the case are as follows: The assessee is a company engaged in the business of running a resort, namely, `The Elephant Court’ at Thekkady. For the assessment year 2010-2011, the assessee had deducted TDS for an amount of Rs.8,12,839. The assessee did not remit the TDS on the due date and the entire TDS along with interest was remitted on 30.04.2011 amounting to Rs.9,12,069. The Additional CIT issued notice show causing the assessee why the penalty u/s 271C of the I.T.Act should not be imposed. The assessee in reply to the notice submitted that due to acute financial problem and shortage of funds, the TDS could not be remitted on the due date. It was further submitted that majority of the TDS amount is with reference to Directors remuneration for which no payments were made, but only there was book entry. Therefore, it was submitted that there was a reasonable cause envisaged u/s 273B of the I.T.Act and requested that penalty may not be imposed u/s 271C of the I.T.Act.
However, the Addl.CIT, TDS, took a view that provisions of section 273B of the I.T.Act is not applicable and after referring the judgment of the Hon’ble jurisdictional High Court in the case of US Technology International Limited, reported in (2010) 195 taxman 323 (Ker.) imposed penalty of Rs.9,12,060.
3 ITA No.96/Coch/2015. M/s.Vijaya Hospitality and Resorts Limited.
Aggrieved, the assessee preferred an appeal before the first appellate authority. The CIT(A) confirmed the view of the A.O. in imposing penalty u/s 271C of the I.T.Act. The relevant finding of the CIT(A) reads as follows:-
“8. It was argued on behalf of the appellant that the Addl. Commissioner on Income Tax (TDS) was not justified in holding that the provisions of section 2738 are not applicable in this case by relying on the decision of the Hon'ble High Court of Kerala in the case of US Technology Ltd (2010) 195 Taxman 323 (Ker). However the appellant also has relied on the same decision of Hon.High Court of Kerala by stating that:
"It is pertinent to point out that the Hon'ble High Court, in the concluding paragraph, has said that failure to remit on account of failure to recover for any reason, whatsoever, then the case cal/s for reduction of penalty, if not waiver. Similarly, recovery and remittance of tax though with delay, but with interest, before detection is certainly a mitigating circumstance for waiver or reduction of penalty. In the same judgement, the Assessing Officer was directed to consider new facts or circumstances that are brought to his notice in view of the Court's observations, or in terms of section 2738 of the l.T. Act."
The above observations were made by the Hon. High Court with regard to a specific scenario where the failure to remit TDS was due to failure to recover from the deductee for any reason, Whereas in the appellant's case the deductees were mainly its own directors and the delay in remittance was not due to any failure to recover tax from the deductees. Therefore these observations are not applicable to appellant's case. lt is also to be noted that in the same case the Hon. High Court has made the following observations with regard to the applicability of section 273B of Income Tax Act:
"so far as failure on the part of the assessee to remittance recovered at source is concerned, we do not think there can be any justifying circumstances for delay in remittance because assessee cannot divert tax recovered for the Government towards working capital or any other purpose. So much so, in our view, defence available and Section 2738 does not cover failure in payment of recovered tax".
4 ITA No.96/Coch/2015. M/s.Vijaya Hospitality and Resorts Limited. These observations are squarely applicable to appellant's case and therefore the appellant is not eligible for availing the benefit of section 2738 of I.T. Act 1961. 9. It was also observed from the impugned order that the appellant has been a habitual defaulter in the matter of depositing taxes deducted at sources to the Central Government account. The relevant portion of the impugned order is reproduced here in for the sake of clarity:
"Verification of the records revealed that the assessee is a habitual defaulter in the matter of depositing tax deducted at source to the Central Government Account There was delay in depositing tax deducted at source during this financial year 2009-10. This delay in depositing tax deducted at source has continued during the F.Y.2007-08, 2008-09 and subsequently financial year 2010-11 also".
Considering the above facts and circumstances of this case and also relying on the observations made by the jurisdictional High Court in the case of US Technologies International (P) Limited, I am of the opinion that the penalty levied by the Addl.Commissioner of Income Tax (TDS) is based on the correct legal position and material available on record.
I therefore confirm the penalty of Rs.9,12,069/-levied u/s. 271C of the Income Tax Act, 1961 for the assessment year 2010-11.”
Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The assessee has filed a paper book comprising of 68 pages enclosing therein the financial statement for the year ending 31.03.2020, the various orders of Income Tax Authorities and the case laws relied on. The learned AR relied on the Full Bench judgment of the Hon’ble jurisdictional High Court in the case of Lakshadweep Development Corporation Ltd. v. Addl.CIT & Anr. Reported in (2019) 411 ITR 213 (Ker) (FB) and reiterated that there is reasonable cause as envisaged u/s 273B of the I.T.Act,
5 ITA No.96/Coch/2015. M/s.Vijaya Hospitality and Resorts Limited. and therefore, penalty u/s 271C of the I.T.Act ought to be deleted.
The learned Departmental Representative strongly supported the orders of the Income Tax Authorities.
We have heard rival submissions and perused the material on record. The Full Bench of the Hon’ble Kerala High Court in the case of Lakshadweep Development Corporation Ltd. v. Addl.CIT & Anr. (supra) had reversed the judgment of the Hon’ble Kerala High Court in the case of US Technology International Private Limited v. CIT (supra) and Classic Concepts Home India Pvt. Ltd. v. CIT reported in (2016) 383 ITR 225 (Ker.). The Full Bench of the Hon’ble Kerala High Court had held penalty u/s 271C(1)(b) of the I.T.Act for non- remittance of tax deducted at source will have application only to a limited extent, involving sub-section (2) of section 115-O of the I.T.Act (coming under Chapter XII-D) or covered under the “second proviso” to section 194B f the I.T.Act (coming under Chapter XIIB). The relevant finding of the judgment of the Full Bench of the Hon’ble Kerala High Court reads as follow:-
“Section 271C of the Income-tax Act is quite categorical. Its scope and extent of application is discernible from the provision itself, in unambiguous terms. When the non- deduction of the whole or any part of the tax, as required by or under the various instances / provisions of Chapter XVII-B would invite penalty under section 271C(1)(a); only to a limited extent, involving sub-section (2) of section 115-O (coming under Chapter XII-D) or covered by the “second proviso” to section 194B (coming under Chapter XVII-B) alone would constitute an instance where penalty can be imposed in
6 ITA No.96/Coch/2015. M/s.Vijaya Hospitality and Resorts Limited.
terms of section 271C(1)(b) of the Act. Since there is no obscurity in the above provision, it is not for the court to read something more into it, contrary to the intent and legislative wisdom, which stands to be a forbidden field for the court. It is settled law that the rule of “strict interpretation” is the relevant one in so far as the fiscal statute is concerned. We find support from the ruling rendered by the apex court in Sneh Enterprises v. Commissioner of Customs (2006) 7 SCC 714.”
9.1 In the instant case, the tax has been deducted for the year ending for an amount of Rs.8,12,839 under the following sections :-
Particulars Section Amount Marketing expenses 194C 7,462 Spa Operation 194C 9,101 Professional Feeds 194J 15,000 Rent 194I 60,540 Salary 192B 1,05,696 Directors remuneration 192B 6,15,040 Total 8k,12,839
9.2 Therefore, strictly going by the dictum laid down by the Full Bench judgment of the Hon’ble Kerala High Court, penalty u/s 271C of the I.T.Act cannot be imposed for non-remittance of tax deducted at source u/s 194C, 194J, 194I and 192B of the I.T.Act.
9.3 The Full Bench of the Hon’ble Kerala High Court in the case of Lakshadweep Development Corporation Ltd. v. Addl.CIT & Anr. (supra) while reversing the Division Bench ruling in the case of U S Technology International Limited (supra), had held that section 273B of the I.T.Act shall be applicable for also the cases covered u/s 271C(1)(b) of the I.T.Act and not confined to section 271C(1)(a) of the I.T.Act.
7 ITA No.96/Coch/2015. M/s.Vijaya Hospitality and Resorts Limited. The relevant finding of the Full Bench of the Hon’ble Kerala High Court reads as follows:-
“Section 273B of the Income-tax Act stipulates that no penalty shall be imposed on the person or the assessee, as the case may be, for any failure referred to in the provisions mentioned therein, if he proves that there was reasonable cause for the failure. The said provision has already been extracted. One among the provisions mentioned therein is section “271C”. To put it more clear, the whole provision of section 271C is reckoned as such and no segregation has been effected unlike the limited extent of reckoning clause (b) of sub-section (1) of section 271. In other words, clause (b) of sub-section (1) of section 271C (dealing with failure to remit the deducted tax) is not excluded or the benefit is not confined to the instance covered by section 271C(1)(a) alone. Section 273B itself starts with a “non obstante clause” saying that the benefit is to be extended, to the extent as specified therein, notwithstanding anything contained in the provisions mentioned above, which includes section 271C in toto. As it stands so, it is quite open for the person / assessee concerned to claim the benefit of section 273B even in a case covered by section 271C(1)(b) (failure to remit the tax deducted at source), despite the fact that it may be a more serious default, than the failure to deduct the tax at source.”
9.4 In the instant case, the major part of the TDS relates to remuneration to the Directors credited to the unsecured loan account. However, the TDS was payable on that amount also, but the same could not be remitted due to acute fund shortage for the assessee-company. The assessee-company had incurred huge loss of Rs.3,53,28,596 during the relevant financial year and accumulated losses as on 31.03.2010 was Rs.10,87,90,555. In addition to the heavy losses, the assessee had huge liability towards bank loan and other borrowings, which is evident from the balance sheet placed on record. In the subsequent years, the bank had taken action under SARFAESI Act and taken possession of the resort and the
8 ITA No.96/Coch/2015. M/s.Vijaya Hospitality and Resorts Limited. resort was kept closed for a long time. It was also submitted that after bank had taken possession of the property, one of the NRI Directors had brought in additional funds and settled the dues to the bank and reopened the resort. However, after reopening due to Covid pandemic, resort was again closed in the month of March 2020. Therefore, the total accumulated losses as per the books of account as on 31.03.2021 is Rs.32,17,77,436. Only because of these hardships there was delay in remitting the TDS. Therefore, there is reasonable cause as envisaged u/s 273B of the I.T.Act, for the delayed remittance of TDS. Moreover, the assessee had paid the entire TDS amount along with interest on 30.04.2011, much prior to notice u/s 274 r.w.s. 271C of the I.T.Act was issued to the assessee-deductor on 05.03.2013. Therefore, for the aforesaid reasoning and the judgment of the Hon’ble Full Bench of the Kerala High Court in the case of Lakshadweep Development Corporation Ltd. v. Addl.CIT & Anr. (supra), we delete the penalty imposed u/s 271C of the I.T.Act amounting to Rs.9,12,060. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 24th day of June, 2022.
Sd/- Sd/- (Laxmi Prasad Sahu) (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER
Kochi; Dated : 24th June, 2022. Devadas G*
9 ITA No.96/Coch/2015. M/s.Vijaya Hospitality and Resorts Limited.
Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)-III, Kochi. 4. The CIT, Cochin. 5. The DR, ITAT, Cochin. 6. Guard File.
Asst.Registrar/ITAT, Cochin