M/s. Arrone Ceramic, At Vaghasiya, Taluka Wakaner V. The JCIT TDS Range, Rajkot, Rajkot

ITA 117/RJT/2021

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The case involves Arrone Ceramic, a partnership firm engaged in the business of ceramics, which purchased two immovable properties without deducting TDS under Section 194-IA of the Income Tax Act, 1961. The Assessing Officer initiated penalty proceedings under Section 271C, which were upheld by the CIT(Appeals). The Tribunal, however, found that the assessee's failure to deduct TDS was due to a bona fide mistake, supported by the fact that the sellers had reported the income and paid taxes. The Tribunal referenced several judicial precedents to support the decision to delete the penalty, emphasizing that there was no contumacious conduct by the assessee and that there was no loss to the Revenue.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 138307 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-08-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 28-09-2021
• Other Referred Cases: Bank of Nova Scotia vs. CIT, Sukhdev Singh vs. JCIT(TDS), Commissioner of Income Tax, New Delhi vs. M/s Eli Lilly & Company (India) Pvt. Ltd. & Ors., Itochu Corporation vs. CIT, Mitsui & Company Ltd. vs. CIT, Television Eighteen India Ltd. vs. CIT, Motilal Padampat Sugar Mills Limited vs. State of Uttar Pradesh, CIT vs. P.S.S. Investments Private Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; Non-deduction of tax; Reasonable cause; TDS; Set aside; Capital Gains
• Section: 139; 273B; 40(a)(ia); 201(1); 201; 192; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted through E-Court at Ahmedabad) BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . N o .1 1 7 /R j t /2 02 1 ( A s se ss m e nt Y e a r : 20 16- 17 ) A rr o n e C e r a m i c, C / o. R . K . D o s h i & C o . LL P, D o s h i C or po ra te P a r k, A k s h ar Ma r g E nd , N ea r U t ka r s h Sc ho o l, R a j ko t- 3 6 0 0 0 1 Vs .Jo i nt C o m mi s s io ne r of I nc o me Tax , TD S R a ng e, R a j k ot [ P A N N o. A B C F A 3 78 3H ] (Appellant) .. (Respondent) Appellant by : Shri R. K. Doshi, A.R. Respondent by: Shri Abhimanyu Singh, Sr. DR D a t e of H ea r i ng 07.08.2023 D a t e of P r o no u n ce me nt 23.08.2023 O R D E R PER SIDDHARTHA NAUTIYAL, JM: This appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax(Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre, (in short “NFAC”) in Order No. ITBA/NFAC/S/250/2021-22/1034566352(1) vide order dated 02.08.2021 passed for Assessment Year 2016-17. 2. The assessee has taken the following grounds of appeals:- “1. The order of the learned CIT (A), NFAC is bad in law and contrary to the facts of the case. ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 2 - 2. The learned CIT (A), NFAC has erred in upheld the imposing penalty of Rs.4,53,400/- U/s.271C r.w.s. 201(1) of the Act. 3. The learned CIT (A), NFAC has passed the order without giving us adequate opportunity of being heard. 4. The learned CIT (A), NFAC has erred in not considering the first proviso to section 201(1) of the Income tax Act, 1961. 5. The learned CIT (A), NFAC has erred in upheld in the imposition of penalty u/s.271C even though no order u/s.201 (1) has been passed by the Joint Commissioner of Income-tax, TDS Range, Rajkot before initiation of proceedings u/s.271C of the Income-tax Act 1961. 6. The learned CIT(A), NFAC has erred in not considering the replies filed in response to the show cause notice issued by The Joint Commissioner of Income-tax, TDS Range, Rajkot. 7. The learned CIT (A), NFAC has erred in not considering the Adjournment sought by the Appellant for the hearing was fixed on 21.07.2021 by the notice u/s.250 dated 09.07.2021. 8. The order of the learned CIT (A), NFAC is illegal, unjustified and against the principles of natural justice. 9. Without prejudice to the above your appellant craves to add, amend, alter, vary or withdraw all or any of the grounds on or before the hearing of appeal.” ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 3 - 3. The brief facts of the case are that the assessee purchased two immovable properties amounting to Rs. 3.88 crores and Rs. 64.75 lakhs on which no TDS was deducted under Section 194-IA of the Act. The Assessing Officer initiated penalty proceedings under Section 271C of the Act, during the course of which the assessee submitted that the seller of the aforesaid two properties are regularly assessed to tax and they have disclosed income on sale of the aforesaid properties in their return of income and paid taxes thereon. A certificate from the chartered accountant under the First Proviso to Section 201 of the Act was also furnished before the Assessing Officer. However, the Assessing Officer rejected the contention of the assessee and imposed penalty under Section 271C of the Act, with the following observations: “2. The reply of the assessee has been considered, but it is not found tenable for the reasons that assessee was liable to deduct tax and pay it to Government as per the provisions of the section 1941A of the Income Tax Act, 1961, within time limit prescribed in the Act. The payment of taxes by seller may give relief to the assessee to the extent of Tax i.e. applicability of provisions of section 201 of the Income Tax Act 1961 but by not deducting the tax assessee is in default and liable for all other provisions including penalty and interest, which is apparent from the submission of the assessee that penal interest u/s 201(1A) of the Income Tax Act, 1961 has been paid. 3. In view of above mentioned facts the argument that the sellers of property are regularly assessed to tax and they have disclosed income on sale of above referred property in Income Tax Returns and paid tax ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 4 - thereon and therefore, penalty in not leviable is not acceptable. The assessee has without reasonable cause failed to deduct the tax and pay it to the government account within permissible period.” 4. In appeal, Ld. CIT(Appeals) upheld the levy of penalty with the following observations: “3.3 I am inclined to agree with the findings of the assessing officer. The AO has succinctly discussed the issue in the order. The mere factum of the seller having disclosed the income of the sale of property in the return and having paid tax thereon and interest having being paid by the appellant does not protect the appellant from penalty. As per the provisions of section 194IA of the IT Act, the appellant was liable to deduct tax and pay it to Government within the time limit prescribed. Section 271C of the Act provides for the levy of penalty in cases where the appellant has failed to comply with provisions as required u/s 201(1) of the IT Act i.e. deduct the whole or any part of the tax as required by or under the provisions of Chapter VXII-B unless there is a reasonable cause for failure as stipulated in Sec 273B. In this case the assessee failed to deduct and deposit the tax as per section 194IA and is therefore liable for penalty u/s 271C. No satisfactory explanation has been offered for the default. The appellant was provided sufficient opportunity of being heard. However, he had failed to avail the opportunities provided and to put forth justification for non levy of penalty. In view of the above facts I hold that since the appellant has failed to show any reasonable cause ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 5 - for coming within the purview of 273B the imposition of penalty is upheld. 4. In the result, appeal is dismissed.” 5. Before us, the Counsel for the assessee submitted that in the instant facts, the assessee which is a partnership firm is engaged in the business of ceramics. The assessee purchased two immovable properties on 01.07.2015. At the relevant time, the assessee was not advised by its income tax consultant to deduct and paid taxes before making the payment. Even at the time of registration, the office of sub-registrar and advocates who prepared the purchase deeds did not advise the assessee about liability to deduct taxes at the time of purchase. Therefore, the assessee was not aware about legal provisions and did not deduct tax at source under Section 194- IA of the Act. The Counsel for the assessee submitted that the sellers/recipient of income have included such income in their returns of income submitted under Section 139 of the Act. A certificate from the recipient’s chartered accountant has also been furnished by the assessee at Pages 6-10 of the Paper Book. The Counsel for the assessee submitted that the assessee has also paid interest of Rs. 81,628/- under Section 201 (1A) of the Act and furnished Form No. 26A in support of the aforesaid contention. The Counsel for the assessee submitted that there has been a bona fide mistake on the part of the assessee, for which the assessee also had to bear the burden of interest under Section 201(1A) of the Act. Further, it was submitted that there has been no loss to the Revenue since the recipients of income have offered the sale consideration in their returns of income and also paid taxes thereon. Accordingly, it was requested that it is a fit case ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 6 - where penalty imposed under Section 271C of the Act is liable to be deleted. 6. In response, the Ld. DR placed reliance on the observations made by Ld. CIT(Appeals) and Assessing Officer in their respective orders. 7. We have heard the rival contentions and perused the material on record. In our view, looking into the facts of the instant case, we observe that there seems to be a bona fide mistake on the part of the assessee in not deducting taxes at source under Section 194-IA of the Act. The assessee has also furnished relevant documents in support of the fact that the recipients/payees have duly reflected the sale consideration in their respective returns of income have and have also paid taxes thereon. Therefore, it is evident that there is no loss to the Revenue on account of non-reduction of taxes at source by the assessee. Further, it is seen that the assessee has also paid interest amounting to Rs. 81,628/- under Section 201(1A) of the Act for non-deduction of tax at source in the instant facts. In the case of Bank of Nova Scotia 66 taxmann.com 175 (SC)/[2016] 237 Taxman 594 (SC), the Hon'ble Supreme Court held that when the assessee’s conduct is not contumacious, then penalty under Section 271C of the Act is liable to be vacated. The Supreme Court made the following observations: “11. We have carefully considered the rival submissions. In the instant case we are not dealing with collection of tax u/s 201(1) or compensatory interest u/s 201(1A). The case of the assessee is that these amounts have already been paid so as to end dispute with Revenue. In ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 7 - the present appeals we are concerned with levy of penalty u/s 271-C for which it is necessary to establish that there was contumacious conduct on the part of the assessee. We find that on similar facts Hon'ble Delhi High Court have deleted levy of penalty u/s 271-C in the case of Itochu Corporation 268 ITR 172 (Del) and in the case of CIT v. Mitsui & Company Ltd. 272 ITR 545. Respectfully following the aforesaid judgments of Hon'ble Delhi High Court and the decision of the ITAT, Delhi in the case of Television Eighteen India Ltd., we allow the assessee's appeal and cancel the penalty as levied u/s 271-C.” 8. The Hon’ble Income Tax Appellate Tribunal, Chandigarh Bench made the following observation in the Case of Sukhdev Singh Vs. The J.C.I.T.(TDS) in ITA No. 116/Chd/2014, Chandigarh, with regards to reasonable cause for failure to deposit tax deducted at source: “It is well settled law that the penalty need not to be imposed in each and every case and discretionary in nature and the facts and circumstances of the case shall have to be taken into consideration. Section 273B of the Income Tax Act provides that no penalty under Section 271C 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 circumstances explained by the learned counsel for the assessee clearly reveal that the assessee paid interest to nonbanking financial institution and did not deduct tax because the assessee was under the bonafide belief that no TDS was to be deducted on the payments made to non- banking financial institution. The Assessing Officer made disallowance under Section 40(a)(ia) of the Income Tax Act and other additions were ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 8 - also made in the assessment order, which are accepted by the assessee and the demand raised as per assessment order has been paid. Therefore, these circumstances would clearly reveal that the assessee has reasonable cause for failure to comply with the provisions of section. Therefore, in view it being a beginning of the assessee for failure to deduct tax and then the assessee in future has starting deducting TDS would suggest that the penalty may not be imposed in the aforesaid case. Considering the above discussion, we are of the view that the levy of penalty in the facts and circumstances of the case is not warranted. We accordingly set aside the orders of the authorities below and cancel the penalty.” 9. The Hon’ble Supreme Court of India made the following observation in the Case of Commissioner of Income Tax, New Delhi Vs. M/s Eli Lilly & Company (India) Pvt. Ltd. & Ors. 178 Taxman 505 (SC)with regards to reasonable cause for failure to deposit tax deducted at source held that only those persons will be liable to penalty who do not have good and sufficient reason for not deducting tax and burden, of course, is on such person to prove such good and sufficient reason. The Hon'ble Supreme Court made the following relevant observations: “(iv) On the Scope of Section 271C read with Section 273B: 35. Section 271C inter alia states that if any person fails to deduct the whole or any part of the tax as required by the provisions of Chapter XVII-B 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. In these cases we are concerned with Section 271C(1)(a). Thus Section 271C(1)(a) makes it ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 9 - clear that the penalty leviable shall be equal to the amount of tax which such person failed to deduct. We cannot hold this provision to be mandatory or compensatory or automatic because under Section 273B Parliament has enacted that penalty shall not be imposed in cases falling there under. Section 271C falls in the category of such cases. Section 273B states that notwithstanding anything contained in Section 271C, no penalty shall be imposed on the person or the assessee for failure to deduct tax at source if such person or the assessee proves that there was a reasonable cause for the said failure. Therefore, the liability to levy of penalty can be fastened only on the person who does not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The burden, of course, is on the person to prove such good and sufficient reason. In each of the cases before us, we find that non- deduction of tax at source took place on account of controversial addition. The concept of aggregation or consolidation of the entire income chargeable under the head “Salaries” being exigible to deduction of tax at source under Section 192 was a nascent issue. It has not be considered by this Court before. Further, in most of these cases, the tax-deductor-assessee has not claimed deduction under Section 40(a)(iii) in computation of its business income. This is one more reason for not imposing penalty under Section 271C because by not claiming deduction under Section 40(a)(iii), in some cases, higher corporate tax has been paid to the extent of Rs. 906.52 lacs (see Civil Appeal No. 1778/06 entitled CIT v. The Bank of Tokyo-Mitsubishi Ltd.). In some of the cases, it is undisputed that each of the expatriate ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 10 - employees has paid directly the taxes due on the foreign salary by way of advance tax/self-assessment tax. The tax-deductor-assessee was under a genuine and bona fide belief that it was not under any obligation to deduct tax at source from the home salary paid by the foreign company/HO and, consequently, we are of the view that in none of the cases penalty was leviable under Section 271C as the respondent in each case has discharged its burden of showing reasonable cause for failure to deduct tax at source.” 10. In the case of Mr. Manish Jaiswal TA No. 216/Vns/2019, the facts were that the assessee was 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 under Section 194IA of the Act, hence penalty of Rs.68,250/- was levied by AO u/s. 271C r.w.s 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 ITAT while deleting the levy of penalty made the following observations: “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 ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 11 - 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 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: “......Moreover, 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 ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 12 - 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.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 13 - 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.” 11. In light judicial precedents in discussed above and the assessee’s facts, wherein there is a bona fide mistake on part of the assessee in not deducting taxes at source at time of purchase of aforesaid two properties, coupled with the fact that the recipients/sellers have duly accounted for the sale consideration in their respective returns of income and hence, there is no loss to the Revenue, we are of the considered view that this is a fit case for deleting the levy of penalty under Section 271C of the Act. 12. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 23/08/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 23/08/2023 TANMAY, Sr. PS TRUE COPY ITA No.117/Rjt/2021 Arrone Ceramic vs. JCIT Asst.Year –2016-17 - 14 - 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 आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, राजोकट / DR, ITAT, Rajkot 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot 1. Date of dictation 21.08.2023(Dictated on his dragon software by Hon’ble Member on 20.08.2023) 2. Date on which the typed draft is placed before the Dictating Member 21.08.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 21.08.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .08.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 23 .08.2023 7. Date on which the file goes to the Bench Clerk 23.08.2023 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..........................................