MANISH JAISWAL,GORAKHPUR vs. ADDL. CIT, (TDS), ALLAHABAD

PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER:

This appeal, filed by assessee, being ITA No. 216/Vns/2019, is directed against the appellate order dated 16.07.2019 passed by ld. Commissioner of Income Tax (A), Lucknow (hereinafter called "the CIT(A)") in Appeal No. A.No./CIT(A)/GKP/2018-19 , confirming penalty of Rs. 68,250/- levied by ld. Assessing Officer u/s 271C read with Section 194IA of the Income-tax Act, 1961 (hereinafter called “ the AO”), vide penalty order dated 31.03.2019 in Order No.

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT ITBA/PNL/F/15B(3)/2018-19/1015613185(1) . We have heard both the parties in Open Court through physical hearing mode. 2. The grounds of appeal raised by assessee in memo of appeal filed with Income Tax Appellate Tribunal, Varanasi (hereinafter called “the tribunal”) , reads as under : “1. BECAUSE the appellant being an individual by status was unaware with the provisions of section 194IA, so the alleged default at the end on the appellant was not at all willful so as to made him liable for the penalty under section 271C of the Act. 2. BECAUSE the penalty confirmed by the CIT(A) on the ground that it cannot be accepted that the assessee was unaware of the provisions of section 194IA as the said provisions were given vide publicity, is bad and is liable to be deleted. 3. BECAUSE the maxim 'ignorance of law is no excuse' is not applicable to the fiscal laws (as the Income-tax Act is) as per the principle laid down by the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Vs. State of U.P. reported in 118 ITR page 326 and accordingly the penalty of Rs.68250/- confirmed by the CIT(A) on the said ground is also not correct and the same deserves to be deleted. 4. BECAUSE, without prejudice to the aforesaid, the seller had duly disclosed the capital gain in his return filed by him and there is overall no loss of revenue to the department, so looking to the facts in its entirely, the benefit of section 273B should have been allowed by the CIT(A) while passing the impugned appellate order dated 16.07.2019. 5. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice.” 3. The brief facts of the case are that the assessee purchased one property for Rs.68,25000/-. The assessee did not deducted income tax at source u/s. 194IA @ 1% of the total cost of the property, while making payments for

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT purchasing the aforesaid property . The penalty proceedings u/s 271C was initiated against the assessee by the AO for failure to deduct income tax at source u/s 194IA of the 1961 Act , on payments made for transfer of immovable property(other than agricultural land). Show cause notice (SCN) dated 20.03.2019 was issued by the AO u/s 271C read with Section 274 of the 1961 Act, through email and also by Registered post, show-causing assessee as to why penalty u/s 271C be not levied for aforesaid failure. The assessee did not responded to aforesaid SCN , which led AO to levy penalty of Rs.68,250/- u/s. 271C r.w.s. 194IA of the Act, vide penalty order dated 31.03.2019 passed by AO u/s 271C read with Section 194IA of the 1961 Act. 4. The assessee being aggrieved by the penalty order dated 31.03.2019 passed by AO , filed first appeal with ld. CIT(A) , which appeal filed by the assessee stood dismissed by ld. CIT(A) , vide appellate order dated 16.07.2019, by holding as under: “5. In this case the appellant has raised five grounds of appeal through which it is contended that the penalty imposed by the AO was not correct and the seller has disclosed the capital gain in his return of income and has paid tax on the basis of the said return. In this case the appellant had purchased a plot of land for Rs.68,25,000/- during the year consideration from Shri Ashish Jaiswal. As per the provisions of section 194IA, the appellant was liable for deduction of tax @ 1% of the purchase consideration. The appellant did not deduct the tax, accordingly penalty proceeding u/s 271C were initiated and the AO imposed a penalty of Rs. 68,250/- for the failure. During the course of appellate proceeding it was submitted that the appellant could not be considered as an assessee in default since the seller has furnished his return u/s 139 of the Act and has taken into account, the sale consideration in his computation of income and has paid the due tax on such income. Accordingly the penalty u/s 271C was

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT unjustified. Copy of return filed by the seller was also submitted in support of the contention. I have perused the penalty order and the submissions made by the appellant. The submission of the appellant that since the seller has disclosed the income in his return filed for the year under consideration, the penalty u/s 271C was unjustified, is found to be without any merit. The penalty u/s 271C of the Act is independent of the provision u/s 201 of the Act. Failure to deduct tax invites consequences of tax being not deducted, interest charged on the late deduction or no deduction of the tax and penalty for the failure to deduct the tax. The Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. Vs. CIT (2007) 293 ITR 226 (SC) has clarified the above said issue. The apex court held that "Be that as it may, the circular No, 275/201/95- IT(B) dated 29.1.1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares "no demand visualized under Section 201(1) of the Income- tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under section 201 (1A) of the Act till the date of payment of taxes by the deductee- assessee or the liability for penalty under Section 271C of the Income- tax Act." Thus, it is clear that the appellant was liable for imposition of penalty of u/s 271C of the Act. However, It cannot be in dispute that penalty under section 271C is not an automatic consequence of non-deduction or short-deduction of tax at source, since section 273B inter alia provides that penalty under section 271C cannot be imposed in case the person concerned can demonstrate that there was a reasonable cause for his failure referred to in section 271C. in other words, in case the assessee can show reasonable cause for his failure for non- deduction or short-deduction of taxes, penalty under section 271C cannot be imposed. However, as to what will constitute reasonable cause is essentially a question of fact, which needs to be determined after taking into account facts and circumstances of each case.

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT In this case the appellant has submitted that he was not knowing the provisions of the act and neither the seller nor the registering authority told the provisions to the appellant. The provisions of section 194IA of the Act were introduced by the finance Act, 2013 w.e.f 01/06/2013. The said provisions were given vide publicity thus the contention of the appellant the tax was not deducted for the want of knowledge of the provisions does not hold good. Furthermore it has been held through a number of judgment that ignorance of law is of no excuse. The appellant-has failed to offer any valid or cogent reason for not deducting the tax. Accordingly the penalty imposed u/s 271C is upheld. 6. As a result, the appeal is rejected.” Thus, as could be seen, penalty levied by AO of Rs. 68,250/- by invoking provisions of Section 271C read with Section 194IA of the 1961 Act, was confirmed by ld. CIT(A) and the appeal filed by the assessee stood dismissed by ld. CIT(A) , vide appellate order dated 16.07.2019. 5. The assessee being aggrieved by the appellate order dated 16.07.2019 passed by ld. CIT(A) filed second appeal with tribunal. The Ld. Counsel for the assessee opened arguments before the Division Bench and submitted that the assessee is an individual who has purchased one plot of land for Rs.68,25,000/- and the assessee had failed to deduct income-tax at source u/s. 194IA of the Act , hence penalty of Rs.68,250/- was levied by AO u/s. 271C read with Section 194IA of the 1961 Act, which stood later confirmed by ld. CIT(A). It was submitted that the seller of the plot of land has duly filed its return of income with department, and has paid all due taxes to the Revenue, and thus no prejudice was caused to Revenue. The ld. Counsel for the assessee drew our attention to the appellate order passed by ld. CIT(A) where the contentions of the assessee was recorded by ld. CIT(A) that the seller of the property has filed return of income, declared capital gains and paid due taxes 5

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT to the Government . The ld. Counsel for the assessee submitted that the assessee being individual was not knowing the provisions of Section 194IA of the 1961 Act . The ld. Counsel for the assessee submitted that provisions of Section 271C is subject to provisions of Section 273B. The ld. Counsel for the assessee relied upon the judgment and order of Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Company Limited v. State of Uttar Pradesh, reported in (1979)118 ITR 326(SC). The ld. Counsel for the assessee reiterated that the provision of Section 271C is subject to provisions of Section 273B , and assessee was individual having no knowledge about Section 194I , which itself constitute a reasonable cause u/s 273B . The ld. Counsel for the assessee made prayers for deletion of penalty. The ld. Sr. DR on the other hand supported the appellate order passed by ld. CIT(A) and relied upon the judgment and order of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. v. CIT, reported in (2007) 293 ITR 226 (SC). The ld. Sr. DR submitted that the assessee did not appear before the AO. 6. We have considered rival contentions and perused the material on record. We have observed that the assessee is an individual who has purchased a plot of land during the year under consideration for Rs.68,25,000/- , but the assessee failed to deduct income-tax at source u/s. 194IA of the Act of Rs.68,250/- while making payment of Rs. 68,25,000/- to seller for purchasing the said plot of land , as the prescribed rate of TDS u/s 194IA of the 1961 Act was @ 1% of the purchase price of the property. The assessee has submitted before ld. CIT(A) as well stated in the statement of facts as well Grounds of appeal filed before ld. CIT(A) , that the seller of plot of land Shri Ashish Jaiswal has shown the capital gains arisen from the sale of

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT plot of land in the return of income filed with Revenue and paid due taxes to government. Even similar contentions are raised vide ground number 4 filed by assessee in memo of appeal filed before tribunal , and statements were made by ld. Counsel for the assessee before the DB that the sellers have duly included capital gains on sale of this plot of land in the return of income filed with Revenue and due taxes stood paid. This fact has not been controverted by Revenue at any stage , including even before us. It is an admitted fact that the assesssee is an individual and has purchased plot of land during the year under consideration for Rs. 68,25,000/- , but he failed to deduct income-tax at source @1% of the purchase of property u/s 194IA , while making payments to seller , Mr. Ashish Jaiswal. The property was registered by Registering Authorities in favour of the assessee, without taking into cognizance of the fact that no income tax was deducted at source @1% u/s 194IA of the 1961 Act by the assessee , before making payment to sellers of this property. The default by assessee of not deducting income tax at source u/s 194IA is thus an admitted position , but at the same time it remain uncontroverted that the seller included capital gains on sale of plot of land in its return of income filed with Revenue, and paid due taxes to the Government. The assessee has claimed that it is an individual and was not aware of the provisions of Section 194IA , which led to default in not deducting income tax at source . It has also been claimed that the Registering authorities before registering the property in favour of the assessee, also did not brought to the notice of the assessee that the assessee was required to deduct income tax at source @1% of the purchase consideration under provisions of Section 194IA while making payment for purchase of plot of land. The assessee has claimed that there is no presumption in law that every individual knows all the law, although there is a 7

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT general presumption that ignorance of law is not an excuse . The assessee has claimed that no prejudice is caused to Revenue , as the seller has declared the capital gains on sale of plot of land in the return of income filed with Revenue and paid due taxes to government . The Reliance is placed by ld. Counsel for the assessee on judgment and order of Hon’ble Supreme Court in the case of Motilal Padampat Sugar Mills Company Limited(supra). The assessee has also claimed that provisions of Section 271C are subject to provisions of Section 273B , and if a reasonable cause as is contemplated u/s 273B is shown, then no penalty is leviable. The assessee is an individual. The assessee is proprietor of New Manish Medical Agencies. The assessee is not into business of Real Estate. The assessee has purchased only one property during the year , which was covered by TDS provisions as are contained in Section 194IA , as its value was not less than Rs.50,00,000/-. The provisions of Section 194IA were inserted by Finance Act, 2013, w.e.f. 01.06.2013. The provisions of Section 194IA as were applicable during the relevant assessment year , reads as under: “Payment on transfer of certain immovable property other than agricultural land. 194-IA. (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon. (2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees. (3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section. Explanation.—For the purposes of this section,—

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT (a) "agricultural land" means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2; (b) "immovable property" means any land (other than agricultural land) or any building or part of a building.]” In the Memorandum to Finance Bill, 2013 , the purpose of introducing Section 194IA was mentioned to be to widen tax base , create a reporting measure as an anti avoidance tax measure:

“E. Widening of tax base and anti tax avoidance measures TAX DEDUCTION AT SOURCE (TDS) ON TRANSFER OF CERTAIN IMMOVABLE PROPERTIES (OTHER THAN AGRICULTURAL LAND) There is a statutory requirement under section 139Aof the Income-tax Act read with rule 114B of the Income-tax Rules, 1962 to quote Permanent Account Number (PAN) in documents pertaining to purchase or sale of immovable property for value of Rs. 5 lakh or more. However, the information furnished to the department in Annual Information Returns by the Registrar or Sub-Registrar indicate that a majority of the purchasers or sellers of immovable properties, valued at Rs. 30 lakh or more, during the financial year 2011-12 did not quote or quoted invalid PAN in the documents relating to transfer of the property. Under the existing provisions of the Income-tax Act, tax is required to be deducted at source on certain specified payments made to residents by way of salary, interest, commission, brokerage, professional services, etc. On transfer of immovable property by a non-resident, tax is required to be deducted at source by the transferee. However, there is no such requirement on transfer of immovable property by a resident except in the case of compulsory acquisition of certain immovable properties. In order to have a reporting mechanism of transactions in the real estate sector and also to collect tax at the earliest point of time, it is proposed to insert a new section 194-IA to provide that every transferee, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident transferor, shall deduct tax, at the rate of 1 % of such sum.

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT In order to reduce the compliance burden on the small taxpayers, it is further proposed that no deduction of tax under this provision shall be made where the total amount of consideration for the transfer of an immovable property is less than fifty lakh rupees. This amendment will take effect from 1st June, 2013.”

Section 194IA is not a provision for deduction of income-tax at source on normal and regular business payments such as payments to contractors, professionals, salary, rent etc. which are recurring in nature, but it is a provision for deduction of income-tax at source , when property is purchased which is not a day to day affair or recurring in nature for majority of individuals in this country, unless they are high networth individuals or are engaged in the business of real estate. The assessee is an individual and is proprietor of New Manish Medial Agencies. As is emanating from records, the assessee has purchased only one property in the year under consideration which is covered by provisions of Section 194IA. The assessee has submitted that he was not aware of legal provisions for deduction of income-tax at source as is enshrined in Section 194IA , nor the Registering authority brought to his notice about the same before registering property in his name. The seller has already filed return of income and declared capital gains on sale of this property, and due taxes paid to credit of government. This provision u/s 194IA was introduced to widen tax base and to check evasion of the taxes as an anti avoidance measure. Once the seller has declared capital gains in the return of income filed with department and due taxes paid to credit of government , the allegation of non deducting tax at source with malice of evasion of taxes does not survive , and further the seller having filed return of

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT income, is an existing assessee , so the second limb of purpose of introduction of this provision to widen tax base also get satisfied. Section 271C provides for penalty for non deduction of income tax at source, under Chapter XVII-B, which reads as under: “[Penalty for failure to deduct tax at source. 271C. [(1) If any person fails to— (a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or (b) pay the whole or any part of the tax as required by or under— (i) sub-section (2) of section 115-O; or (ii) the second proviso to section 194B, then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid.] [(2) Any penalty imposable under sub-section (1) shall be imposed by the [Joint] Commissioner.]”

The Section 271C stipulates levying penalty equivalent to the amount of tax which the person failed to deduct or pay. The assessee was required to deduct tax at source u/s 194IA @1% of the total consideration of property to the tune of Rs. 68,25,000/- paid by the assessee to seller , and the assessee having failed to deduct income tax at source u/s 194IA, the AO levied penalty of Rs. 68,250/- which was equivalent to amount of tax which the assessee was required to deduct . The provisions of Section 271C is subject to provisions of Section 273B which provides that if the assessee is able to prove reasonable cause for failure to deduct tax at source, no penalty shall be leviable. Section 273B , reads as under: “[Penalty not to be imposed in certain cases.

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT 273B. Notwithstanding anything contained in the provisions of [clause (b) of sub- section (1) of] [section 271, section 271A, [section 271AA,] section 271B [, section 271BA], [section 271BB,] section 271C, [section 271CA,] section 271D, section 271E, [section 271F, [section 271FA,] [section 271FAB,] [section 271FB,] [section 271G,]] [section 271GA,] [section 271H,] [section 271-I,] clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA] or [section 272B or] [sub-section (1) [or sub-section (1A)] of section 272BB or] [sub-section (1) of section 272BBB or] clause (b) of sub-section (1) or clause (b) or clause (c) of sub- section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.]”

The assessee has submitted that he is an individual and was not aware of the provisions of Section 194IA , nor the seller as well the registering stamp authorities brought to his knowledge about the provisions of Section 194IA of the 1961 Act. The assessee has also demonstrated that no prejudice is caused to Revenue, as the sellers had declared capital gains in return of income filed with Revenue and paid due taxes to the credit of government . The Revenue is not able to controvert this submission of the assessee. The assessee is the Prop. of New Manish Medical Agencies , and it could not be shown that the assessee is in the business of real estate or is regularly indulging in sale and purchase of properties . This is the solitary property purchased by the assessee, during the year under consideration, which was covered under the ambit of Section 194IA, consideration being not lower than Rs. 50,00,000/- . There is a latin maxim “ignorantia legis neminem excusat” which means that ignorance of law shall not excuse a person. But at the same time there is no presumption in law that all persons know all the laws, and more so complex fiscal laws concerning taxing statutes. Reference is drawn to the judgment and

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT order of Hon’ble Supreme Court in the case of Motilal Padampat Sugar Mills Limited(supra), wherein Hon’ble Apex Court observed at para 6, as under: “……Morever, it must be remembered that there is no presumption that every person knows the law. It is often said that every one is presumed to know the law, but that is not a correct statement : there is no such maxim known to the law. Over a hundred and thirty years ago, Maule, J., pointed out in Martindale v. Falkner, (1846) 2 CB 706: "There is no presumption in this country that every person knows the law : it would be contrary to common sense and reason if it were so". Scrutton, LJ„ also once said : "It is impossible to know all the statutory law, and not very possible to know all the common law". But it was Lord Atkin who, as in so many other spheres, put the point in its proper context when he said in Evans v. Bartlam, 1937 AC 473"...the fact is that there is not and never has been a presumption that every one knows the law. There is the rule that ignorance of the law does not excuse a maxim of very different scope and application." It is, therefore, not possible to presume, in the absence of any material placed before the Court, that the appellant had full knowledge of its right to exemption so as to warrant an inference that the appellant waived such right by addressing the letter dated 25th June, 1970. We accordingly reject the plea of waiver raised on behalf of the State Government.” Further, Reference is drawn to judgment and order of Hon’ble Supreme Court in the case of CIT v. P.S.S. Investments Private Limited , reported in (1977) 107 ITR 0001(SC) , wherein Hon’ble Supreme Court observed , as under:

“The intelligence of even those with legal background gets staggered in this continuous process of carving exceptions to exceptions. It seems more like a conundrum, baffling the mind and requiring special acumen to unravel its mystique. One can only wonder as to how the ordinary taxpayers, most of whom are laymen, can keep abreast of such laws. Yet the maxim is that every one is presumed to know the law. The one redeeming feature is that the above pattern was given up after 1959. From 1960 to 1964 there was another pattern. Since 1965 the charge of super-tax has been discontinued and the rates of income-tax have been so increased as to absorb fully the former levy of super-tax.”

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT Thus, keeping in view the entire factual matrix of the case as discussed and detailed above , we are of the considered view that the assessee has demonstrated a reasonable cause u/s 273B for not deducting income-tax at source under the provisions of Section 194IA, and hence the penalty levied by AO u/s 271C and confirmed by ld. CIT(A) is not sustainable in the eyes of law, and is hereby ordered to be deleted. We order accordingly. 7. In the result, appeal filed by the assessee in ITA no.216/Vns/2019, for ay:2016-17 is allowed

Order pronounced on 31/05/2022 at Allahabad, U.P, in accordance with Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963

Sd/- Sd/- [VIJAY PAL RAO] [RAMIT KOCHAR] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31/05/2022 Aks/- Copy forwarded to: 1. Appellant – Manish Jaiswal, Prop. New Manish Medical Agencies Pashupati Market, Gandhi Park, Gorakhpur,U.P. 2. Respondent – Addl.CIT (TDS), Allahabad , U.P. 3. Sr. DR , ITAT, Varanasi, U.P. 4. CIT, Varanasi,U.P. 5. The CIT(A), Lucknow, U.P. 5. Guard File

ITA No.216/Vns/2019 Assessment Year: 2016-17 Manish Jaiswal vs. Addl. CIT

Sr. P.S.