Asst.C.I.T., Bangalore V. M/s KBR Infratech Limited, Bangalore

ITA 1303/BANG/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9346 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 08-08-2016
• Assessment Year: 2013-2014
• Appeal Filed On: 30-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C ERANNA
• Keywords: Business income; Opportunity of being heard; Initiation of penalty proceedings
• Section: 201(1)

Judgement Text

ITA.1303/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A NO.1303/BANG/2015 (ASSESSMENT YEAR : 2013-14) ASST. COMMISSIONER OF INCOME TAX, CIRCLE -2(1), BENGALURU .. APPELLANT V. M/S. KBR INFRATECH LTD, NO.1, I FLOOR, 8 TH MAIN, BALAJI LAYOUT, KODIGEHALLI MAIN ROAD, TATANAGAR, BENGALURU 560 094 .. RESPONDENT PAN : BLRK09844C ASSESSEE BY : SHRI. C. ERANNA, JCIT REVENUE BY : DR. C. P. RAMASWAMI, ADVOCATE HEARD ON : 08.08.2016 PRONOUNCED ON : .10.2016 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-13, BENGALURU, DT.14.08.2015, FOR THE ASSESS MENT YEAR 2013-14. 2. THE ASSESSEE , A COMPANY ENGAGED IN CIVIL CONS TRUCTION, WAS SUBJECTED TO SURVEY ON 25/7/2013, WAS NOTICED THAT THOUGH IT HAD ITA.1303/BANG/2015 PAGE - 2 DEDUCTED TAXES AMOUNTING TO RS.2.05 CRORES FROM SA LARY, CONTRACT PAYMENTS, PROFESSIONAL FEES ETC DURING THE YEAR END ING 31/3/2012, IT HAD FAILED TO REMIT SUCH DEDUCTED TAXES TO THE ACCOUNT OF THE CENTRAL GOVERNMENT WITHIN THE TIME STIPULATED IN TH E ACT. ACCORDING TO THE A O , THE TAXES DEDUCTED AT SOURCE S DURING THE FINANCIAL YEAR 2012-13 (AY 2013-14) VARIED FROM RS.4,02,769/- IN APRIL 2012 TO RS. 59,60,557/- IN M ARCH 2013 IN TOTAL RS.2.05 CRORES. ON SUCH FAILURE, THE AO PASSE D AN ORDER U/S 201(1)/201(1A) ON 30/7/2013 RAISING THE DEMAND AND TREATING THE ASSESSEE AS AN 'ASSESSEE-IN-DEFAULT'. THEREAFT ER, THE ASSESSEE HAD REMITTED THE ENTIRE TDS AND THE INTERE ST AND DID NOT FILE AN APPEAL AGAINST THAT ORDER. SUBSEQUENT LY, THE AO INITIATED PROCEEDINGS U/S 221 FOR LEVY OF PENALTY F OR THE FAILURE ON THE PART OF THE ASSESSEE TO REMIT THE TDS IN TIME, HEARD THE ASSESSEE , FOUND FROM THE ASSESEE'S BOOKS OF ACCOUN T, INTER ALIA, THAT ITS STATEMENT THAT FACED FINANCIAL CRUNCH WAS BOGUS AND, ON THE OTHER HAND, IT HAD CONSCIOUSLY AVOIDED REMITTIN G THE TAX DEDUCTED AT SOURCE IN TIME AND MADE THE REMITTANCE ONLY WHEN IT WAS VISITED WITH A SURVEY, IT HAD DELIBERATELY D ELAYED THE REMITTANCE OF THE TDS AMOUNTING TO RS.2.05 CRORES E TC AND THEN LEVIED PENALTY AT RS.77,95,155/-, @ 5% PM ON THE DE FAULTED TDS. 03. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A)-13, BENGALURU. THE CIT(A) HELD , INTER ALIA, THAT CONS EQUENT TO THE ORDER PASSED U/S 201(1), THE ASSESSEE WAS SERVED WITH A DEMAND NOTICE ITA.1303/BANG/2015 PAGE - 3 U/S 156 DATED 30/7/2013 PROVIDING 30 DAYS TIME TO M AKE THE PAYMENT AND IT PAID THE SAID TAX WITHIN FOUR DAYS FROM THE DATE OF DEMAND NOTICE, PERUSAL OF THE ASSESSEE'S SUBMISSIONS ALONG WITH ITS BALANCE SHEET AND OTHER FINANCIAL STATEMENTS SHOW THAT IT H AD FACED GENUINE FINANCIAL DIFFICULTIES DURING THE SAID PERIOD, SINC E THE ASSESSEE HAD SUBSEQUENTLY REMITTED THE TDS ALONG WITH INTEREST U /S 201(1A) @ 1.5 % PER MONTH, THE PENALTY LEVIED @ 5% PER MO NTH U/S 221 IS NOT JUSTIFIABLE AND THEREFORE DIRECTED TO BE DE LETED. AGGRIEVED AGAINST THE CIT(A) ORDER, THE REVENUE FILED THIS A PPEAL RAISING THE FOLLOWING GROUNDS : ITA.1303/BANG/2015 PAGE - 4 04. THE DR RELYING ON THE CASE LAWS MENTIONED IN T HE GROUNDS OF APPEAL SUBMITTED THAT LEVY OF PENALTY U/S 221 IS PROPER. T HE AO EXAMINED THE ASSESSEES BOOKS OF ACCOUNTS RAISING CERTAIN QUESTI ONS VIZ 1) WHETHER THE ASSESSEE DID NOT RECEIVE ANY MONEY FROM THE CLIENTS DURING THE YEAR ENDED 31.03.2012 ?, 2) WHETHER ALL PAYMENTS M ADE BY THE ASSESSEE. DURING THE PERIOD WHEN IT REMAINED UNPAID , WERE TOWARDS KEEPING THE BUSINESS GOING? AND 3) WHETHER THE ASSESSEE HAD CLEARED OTHER STATUTORY DUES ? ETC., AND FOUND THAT THE ASS ESSEE DID NOT HAVE GOOD AND SUFFICIENT REASONS. FURTHER, HE SUBMITTED THAT THIS IS A CASE OF SERIOUS VIOLATION OF THE TRUST REPOSED BY THE GOVERNMENT ON THE DEDUCTOR. BY SUCH DEFIANCE OF LAW, THE ASSESSEE HAS CAUSED PROBLEMS T O THE PAYEES FROM WHOM TAX WAS DEDUCTED AS THEY WERE NOT GETTING CRED IT FOR THE TAX PAID BY THEM BY WAY OF TDS, ETC., 05. THE LD. AR SUBMITTED THAT CONSEQUENT TO THE OR DER U/S.201 /201(1A), THE AO SENT THE DEMAND NOTICE DT 30.7.20 13 U/S.156 IN FORM NO.7 . UNDER SUB-SECTION (1) OF SECTION 220, ANY AM OUNT OTHERWISE THAN BY WAY OF ADVANCE TAX, SPECIFIED AS PAYABLE IN A NOTIC E OF DEMAND U/S.156 SHALL BE PAID WITHIN THIRTY DAYS OF THE SERVICE OF THE NOTICE AT THE PLACE AND TO THE PERSON MENTIONED IN THE NOTICE. AS PER PAR A (2) OF FORM NO 7 ALSO, THE ASSESSEE WAS GIVEN 30 DAYS TIME TO PAY THE DEMA ND. HOWEVER, IT PAID WITHIN FOUR DAYS OF THE DEMAND NOTICE . HE SOUGHT OUR ATTENTION TO PARA (4) AND (5) OF THE FORM NO7 WHICH READ AS UNDER : (4) IF YOU DO NOT PAY THE AMOUNT OF THE TAX WITHIN THE PERIOD SPECIFIED ABOVE, PENALTY (WHICH MAY BE AS MUCH AS T HE AMOUNT OF TAX IN ARREAR) MAY BE IMPOSED UPON YOU AFTER GIVING YOU A ITA.1303/BANG/2015 PAGE - 5 REASONABLE OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH SECTION 221. (5) IF YOU DO NOT PAY THE AMOUNT WITHIN THE PERIOD SPECIFIED ABOVE, PROCEEDINGS FOR THE RECOVERY THEREOF WILL BE TAKEN IN ACCORDANCE WITH SECTIONS [(222 TO 227, 229 AND 232] OF THE INC OME-TAX ACT, 1961. 06. SINCE THE ASSESSEE DID NOT VIOLATE THE CONDI TIONS IN PARAS 4 AND 5 IN FORM NO.7, ABOVE, HE PLEADED THAT THE LEVY OF PE NALTY U/S.221 IS NOT IN ACCORDANCE WITH THE ACT. FURTHER, HE SUBMITTED THA T AS PER THE SUB-SECTION (4) OF SECTION 220, IF THE AMOUNT IS NOT PAID WITHI N THE TIME LIMITED UNDER SUB-SECTION (1) OF SECTION 220 ONLY THE ASSESSEE SHALL BE DEEMED TO BE IN DEFAULT. IN ITS CASE , SINCE IT PAID WITHIN FOUR DA YS OF THE DEMAND NOTICE , THE AO CANNOT TREAT IT AS AN ASSESSEE IN DEFAULT AN D RELIED ON THE CIT (A) ORDER. 07. IN HIS REJOINDER, THE LD. DR SUBMITTED THAT TH E ASSESSEE IS IN DEFAULT AS PER SECTION 201(1) AND ITS CASE IS CLEARLY COVER ED WITHIN THE SCOPE OF EXPLANATION TO SECTION 221. 08. WE HAVE PERUSED THE MATERIALS AND HEARD THE RIV AL CONTENTIONS. THE FACTS ARE THAT (A) THE ASSESSEE HAS DEDUCTED THE T AX AT THE TIME OF MAKING THE PAYMENT OF SALARIES, DIVIDENDS, INTEREST AS ALS O ON THE PAYMENT MADE TO CONTRACTORS. (B) IT HAS DELAYED IN DEPOSITING THE AMOUNTS OF TAX DEDUCTED IN (A) ABOVE WITH THE REVENUE ;(C) THERE IS NO DISPUTE ABOUT THE QUANTUM OF TAX DEDUCTED WHICH HAS BEEN DEPOSITED LATE WITH THE REVENUE ; AND (D) THE QUANTUM OF TAX DEDUCTED HAS BEEN DEPOSITED WITH THE REVENUE ALONG WITH THE INTEREST BY THE ASSESSEE WITHIN FOUR DAYS OF RE CEIPT OF ORDER U/S 201(1) / 201(1A) AFTER IT WAS DECLARED TO BE AN ASSESSEE T O BE IN DEFAULT BY THE ITA.1303/BANG/2015 PAGE - 6 REVENUE. THEREFORE , THE ASSESSEE IS IN DEFAULT. TH E BOMBAY HIGH COURT IN THE CASE OF RELIENCE INDUSTRIES LTD V CIT & OTHERS IN 377 ITR 74 HELD ,INTER ALIA , IN PARA 20 TO 25 AS UNDER (RELEVANT PORTION ONLY EXTRACTED) : 20 ........................... IN THE PRESENT CASE , THERE IS NO DISPUTE THAT THE ASSESSEE IS IN DEFAULT. MOREOVER, IN TERMS OF S ECTION 221 OF THE ACT, THE ONLY CONDITION PRECEDENT TO IMPOSE OF PENA LTY UPON THE ASSESSEE IS THAT IT SHOULD BE IN DEFAULT OR DEEMED TO BE IN DEFAULT. IN THE PRESENT FACTS THIS POSITION IS NOT DISPUTED. DE HORS, THE ABOVE, ONE MORE FEATURE TO BE NOTICED IS THAT SECTI ON 201(1) OF THE ACT ITSELF PROVIDES THAT WHERE THERE IS FAILURE OF AN ASSESSEE TO DEDUCT TAX AND PAY TO THE REVENUE, SUCH AN ASSESSEE IS DEEMED TO BE IN DEFAULT. THE FAILURE TO DEPOSIT IN TIME IS AC CEPTED/ ADMITTED POSITION. THERE IS NO DISPUTE ABOUT THE QUESTIONS. THUS, THE APPELLANT IS DEEMED TO BE IN DEFAULT. THEREFORE, IT CANNOT BE SAID THAT THE PENALTY PROCEEDINGS ARE WITHOUT JURISDICTI ON UNDER SECTION 221 OF THE ACT................... 21. IT WAS NEXT SUBMITTED ON BEHALF OF THE APPELLA NT THAT PENALTY UNDER SECTION 221 OF THE ACT WOULD BE PAYAB LE ONLY WHEN THE SAME IS IN ADDITION TO THE ARREARS OF PAYMENT O F TAX DEDUCTED. THIS, ACCORDING TO THEM, IS THE PLAIN READING OF TH E WORDS. WE DO NOT FIND SO. PARLIAMENT HAS SPECIFICALLY PROVIDED FOR T HE WORDS 'IN ADDITION TO THE AMOUNT OF ARREARS ALONG WITH THE AM OUNT OF INTEREST PAYABLE BE LIABLE FOR PENALTY' ONLY WITH A VIEW OF QUALIFYING THAT THE PAYMENT OF THE AMOUNT OF ARREARS AND THE INTEREST P AYABLE WOULD BY ITSELF NOT WIPE AWAY THE LIABILITY TO PENALTY UNDER SECTION 221 OF THE ACT. THE AFORESAID SUBMISSION ON BEHALF OF THE APPE LLANT ALSO STANDS NEGATIVED BY THE EXPLANATION ADDED TO SECTION 221(1 ) OF THE ACT. THIS EXPLANATION CLARIFIES THAT AN ASSESSEE SHALL C ONTINUE TO BE LIABLE TO PENALTY EVEN IF THE TAX HAS BEEN PAID BEFORE LEV Y OF PENALTY. 22. IT WAS NEXT CONTENDED THAT IN VIEW OF THE PROVI SO TO SECTION 201(1) OF THE ACT, INVOCATION OF SECTION 221 OF THE ACT IS BARRED WHERE THE ASSESSING OFFICER IS SATISFIED THAT FAILU RE TO DEDUCT AND PAY TAX WAS WITHOUT GOOD AND SUFFICIENT REASONS. TH E WORDS 'FAILED TO DEDUCT AND PAY TAX' OF THE PROVISO IS CONTRASTED WITH THE WORDS 'FAILS TO PAY THE TAX AS REQUIRED BY OR UNDER THIS ACT' FOUND IN SECTION 201(1) AS WELL AS SECTION 201(1A) OF THE AC T. IN VIEW OF THIS DIFFERENCE IN THE LANGUAGE, IT IS SUBMITTED THAT TH E PROVISO WOULD HAVE NO APPLICATION WHERE AN ASSESSEE HAS PAID THE TAX EVEN IF THE SAME IS PAID BEYOND THE PERIOD PROVIDED UNDER THE A CT. THIS IS CONTESTED BY THE REVENUE ON THE GROUND THAT THE PRO VISO APPLIES ONLY IN CASE OF A PERSON WHO HAS FAILED TO SATISFY BOTH THE CONDITION THEREIN, I.E., FAILS TO DEDUCT AND ALSO FAILS TO PA Y THE TAX. THIS ITA.1303/BANG/2015 PAGE - 7 INTERPRETATION IS ALSO SUPPORTED BY THE WORDS FOUND IN SUB-SECTION (1) OF SECTION 201 OF THE ACT WHICH PROVIDES '. . . PRINCIPAL OFFICER OF THE COMPANY DOES NOT DEDUCT OR AFTER DEDUCTING FAIL S TO PAY THE TAX AS REQUIRED BY OR UNDER THIS ACT'. IN THIS CASE, TH E TAX HAS BEEN DEDUCTED BUT THERE IS A FAILURE IN DEPOSITING THE T AX WITH THE REVENUE. PARLIAMENT TREATS A PERSON WHO HAS DEDUCTE D THE TAX AND FAILS TO PAY IT TO THE REVENUE AS A CLASS DIFFERENT FROM A PERSON WHO HAS NOT DEDUCTED THE TAX AND ALSO NOT DEPOSITED THE TAX WITH THE REVENUE. THIS IS FOR THE REASON THAT IN THE FIRST C LASS OF CASES THE ASSESSEE CONCERNED AFTER DEDUCTING THE TAX, KEEP TH E MONEY SO DEDUCTED WHICH BELONGS TO ANOTHER PERSON FOR ITS OW N USE. IN THE SECOND CLASS OF CASES, THE ASSESSEE CONCERNED DOES NOT TAKE ANY ADVANTAGE AS HE PAYS THE ENTIRE AMOUNT TO THE PAYEE WITHOUT DEDUCTING ANY TAX AND DOES NOT ENRICH ITSELF AT THE COST OF THE GOVERNMENT. THEREFORE, ALTHOUGH PENALTY IS ALSO IMP OSABLE IN THE SECOND CLASS OF CASES, YET IN VIEW OF THE PROVISO T O SECTION 201(1) OF THE ACT, IT IS OPEN TO SUCH ASSESSEE TO SATISFY THE ASSESSING OFFICER THAT AS THEY HAVE GOOD AND SUFFICIENT REASONS NO PE NALTY IS IMPOSABLE. IT IS IN THE ABOVE VIEW THAT IN THE FIRS T CLASS OF ASSESSEES, PARLIAMENT HAS PROVIDED FOR PROSECUTION UNDER SECTI ON 276B OF THE ACT FOR FAILING THE PAY THE TAX DEDUCTED AT SOURCE. THEREFORE, THE FIRST CLASS OF ASSESSEE TO WHICH THE APPELLANT BELO NGS WOULD BE LIABLE FOR PROSECUTION. THUS, THE PROVISO WOULD ONLY APPLY IN RESPECT OF THE SECOND CLASS OF ASSESSEE, I.E., SUCH CLASS OF ASSES SEE WHO HAVE NOT DEDUCTED THE TAX AND, CONSEQUENTLY, FAILED TO PAY T HE TAX. 23. THEREFORE, IN OUR VIEW, THE PROVISO UNDER SECTI ON 201 WOULD HAVE NO APPLICATION TO THE FACTS OF THE PRESE NT CASE. THE LEGISLATURE DID NOT PROVIDE FOR THE WORDS 'BY OR UN DER THIS ACT' IN THE PROVISO AS IN THE ABSENCE OF DEDUCTING TAX, THE OCCASION TO DEPOSIT IT WITHIN TIME AS PROVIDED IN THE RULES WOU LD NOT APPLY. THIS IS SO AS THE TIME BEGINS TO RUN FROM THE DATE OF TH E DEDUCTING OF TAX AS IS EVIDENT ALSO FROM SECTION 200 OF THE ACT WHIC H PROVIDES THAT ANY PERSON DEDUCTING ANY SUM SHALL PAY IT WITHIN TH E PRESCRIBED TIME, THE SUM SO DEDUCTED TO THE CENTRAL GOVERNMENT . 24. IT WAS NEXT SUBMITTED ON BEHALF OF THE APPELLAN T THAT THE EXPLANATION BELOW SECTION 221 OF THE ACT WHICH CLAR IFIES THAT PENALTY WILL CONTINUE TO BE IMPOSABLE EVEN IF THE ASSESSEE HAS PAID THE TAX BEFORE THE LEVY OF PENALTY WOULD NOT APPLY TO THE P RESENT FACTS. THIS FOR THE REASON IT IS SUBMITTED THE PENALTY WOULD BE IMPOSABLE UNDER SECTION 221 OF THE ACT ONLY IF THE ASSESSEE IS IN D EFAULT AT THE TIME OF INITIATION OF PENALTY PROCEEDINGS. IN THE PRESENT C ASE, IT IS SUBMITTED THAT THE AMOUNTS DEDUCTED HAVE BEEN DEPOSITED LONG BEFORE THE NOTICE FOR PENALTY UNDER SECTION 221 OF THE ACT WAS ISSUED. THIS STAND WAS ALSO TAKEN BY THE COMMISSIONER OF INCOME- TAX (APPEALS) WHILE ALLOWING THE APPELLANT'S APPEAL. THE CONSTRUC TION SOUGHT TO BE PUT ON SECTION 221(1) OF THE ACT COMMENCING WITH TH E WORDS 'WHERE ITA.1303/BANG/2015 PAGE - 8 AN ASSESSEE IS IN DEFAULT OR IS DEEMED TO BE IN DEF AULT' CANNOT STAND IN THE FACE OF THE EXPLANATION WHICH CLARIFIES THAT MERELY BECAUSE THE TAX HAS BEEN PAID/DEPOSITED BEFORE THE LEVY OF PENALTY, WOULD ALSO TAKE IN ALL ACTS, FROM THE IMPOSITION OF THE C HARGE UP TO/TILL THE ENTIRE PROCESS OF RAISING DEMAND AND COLLECTING THE SAME. THE CONSTRUCTION SOUGHT TO BE PUT ON THE EXPLANATION DO ES NOT ALLOW FULL AMPLITUDE TO THE WORDS 'LEVY'. BESIDES PURPOSIVE IN TERPRETATION ALSO SUPPORTS THE ABOVE VIEW AS OTHERWISE THE CONSTRUCTI ON AS SUGGESTED BY THE APPELLANT WOULD ENABLE AN ASSESSEE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT BEING MADE AND NOT DEPOSIT IT WITH THE REVENUE WITHIN TIME PRESCRIBED. THEREFORE, UTILISE THE AMOU NT IN EFFECT TILL SUCH TIME JUST BEFORE THE NOTICE UNDER SECTION 221 OF THE ACT IS ISSUED. 25. IT MUST BE BORNE IN MIND THAT THE ASSESSEE CONT INUES TO BE IN DEFAULT IN CASE THE TAX HAS NOT BEEN DEPOSITED W ITH REVENUE WITHIN THE TIME PRESCRIBED UNDER THE ACT. TAX DEPOS ITED, THEREAFTER, BUT BEFORE PENALTY PROCEEDINGS ARE INITIATED WOULD NOT CLEANSE THE ASSESSEE FROM BEING IN DEFAULT. THE PENALTY IS IMPO SED UPON THE ASSESSEE UNDER SECTION 221 OF THE ACT FOR THE DEFAU LT IN NOT HAVING PAID THE TAX DEDUCTED AT SOURCE WITHIN THE TIME PRO VIDED UNDER THE ACT. THIS DEFAULT IS NOT WIPED AWAY BY THE ASSESSEE DEPOSITING THE TAX AFTER THE PRESCRIBED TIME. ................................................... ............................................ ................................................... ............................................ ................................................... ........................... THUS, WE FIND NO MERIT IN THE APPELLANT'S ABOVE SUBMISSION T HAT NO PENALTY CAN BE IMPOSED AS THERE WAS NO DEFAULT AT THE TIME WHEN PENALTY PROCEEDINGS WERE INITIATED.. FROM THE ABOVE, IT IS CLEAR THAT THE LEVY MADE UNDE R SECTION 221 IS IN ACCORDANCE WITH LAW AND HENCE THE DEPARTMENTS GROU ND IS SUSTAINED IN THIS REGARD. 09. THE NEXT QUESTION IS WHETHER, THE APPELLANT MAD E OUT GOOD AND SUFFICIENT REASONS FOR NOT LEVY OF PENALTY. IN THIS REGARD, THE AOS FINDINGS ARE BRIEFLY EXTRACTED AS UNDER : 1) WHETHER THE ASSESSEE DID NOT RECEIVE ANY MONEY F ROM THE CLIENTS DURING THE YEAR ENDED 31.03.2012 ? ANS : EXAMINATION OF THE OD ACCOUNT NO.54037922670 WITH THE STATE BANK OF MYSORE, MADHAVNAGAR, BENGALU RU SHOWED THAT THE AMOUNTS RECEIVED AND PAYMENTS MADE ITA.1303/BANG/2015 PAGE - 9 DURING THE YEAR ENDED 31.03.2012 AMOUNTED TO RS.159,01,93,866/- AND RS.161,33,36,880/-. THE APPELLANT HAD SURPLUS OF RS.7,85,71,805/-. THIS DISPROVED THE APPELLANTS STAND BEFORE THE AO THAT IT HAD RECEIVED PAYMENTS FROM ITS CLIENTS. 2) WHETHER ALL PAYMENTS MADE BY THE ASSESSEE. DURIN G THE PERIOD WHEN IT REMAINED UNPAID, WERE TOWARDS KEEPING THE B USINESS GOING? EXAMINATION OF THE OD ACCOUNT NO.64020026621 WITH S BM, HASSAN SHOWED THAT IT HAD MADE P A Y M E N T S A G G RE G AT IN G RS.3,28,08,516/- DURING THE FY 2012-13 AND THE TDS LIABILITY WAS ONLY RS.2.05 CRORES. BESIDES, IT WAS NOTICED TH AT THE APPELLANT HAD 3 PAYMENTS FOR PURCHASE OF SITES, 3 P AYMENTS FOR PURCHASE OF CARS, 1 PAYMENT FOR INVESTMENT AND PAYM ENTS TO 3 PERSONS WITHOUT THE PURPOSE BEING MENTIONED. SUCH P A Y M E N T S A G G R E G A T E D RS.44642214. THE 3 CARS COSTING RS,99,00,000/- WERE PURCHASED DESPITE 4 CARS HAVING BEEN PURCHASED IN THE EARLIER YEAR. THE PURPOSE OF PAYMENTS MADE TO THREE PERSONS(SHRI SUBBA RAJ, SHRI ASHOK RA JU AND SHRI SYED AKRAM JEELANI) AGGREGATING RS.2,55,00,000/- CA NNOT EXPLAIN AS TO WHAT KIND OF BUSINESS EXPEDIENCY THE APPELLAN T HAD IN PREFERENCE TO THE TIMELY REMITTANCE OF THE TAXES ALREADY DEDUCTED FROM AMOUNTS PAID/PAYABLE TO PARTIES. THE APPELLANT WAS FOUND TO HAVE RECEIVED A SUM OF RS.2.69 CRORES IN APRIL 2013 , WHICH COULD HAVE BEEN USED FOR REMITTING THE TDS BUT IT H AD FAILED TO DO SO. 3) WHETHER THE ASSESSEE HAD CLEARED OTHER STATUTORY DUES ? THE APPELLANT HAD PAID SERVICE TAX AMOUNTING TO RS. 83.75 LAKHS OUT OF RS.91.96 LAKHS COLLECTED BY IT A ND REMITTED PF OF RS.15-ODD LAKHS OUT OF RS.16.26 LAKHS COLLECTED BY IT. THE AO SUBMITTED AS UNDER : 1. IN THE FINANCIAL YEAR THE ASSESSEE HAD RECEIVED FUNDS TO THE TUNE OF 159 CRORES. THE CLAIM OF NON-RECEIPT OF MO NEY FROM CLIENTS IS NOT TRUE. 2. THE PAYMENTS MADE TO VARIOUS PARTIES TO THE EXTE NT OF 164 CRORES DISPROVE THE CLAIM OF FINANCIAL DIFFICULTY. 3. THE PAYMENTS MADE FOR INVESTMENT IN LAND/SITE, V EHICLES AND AS LOANS AND ADVANCES TO PRIVATE PARTIES WITHOUT PU RPOSE AND TO ITA.1303/BANG/2015 PAGE - 10 GROUP CONCERN, DECLARE LOUDLY AND IN UNAMBIGUOUS TE RMS THAT THE ASSESSEE HAD NO FINANCIAL DIFFICULTY WHATSOEVER . 4. THE ASSESSEE HAD CLEARED OTHER STATUTORY DUES ON REGULAR BASIS, AS IT HAD NO FINANCIAL DIFFICULTY ETC. 11. THE ASSESSEE SUBMITTED INTER ALIA AS UNDER : (I) THE PAYMENTS TOWARDS ACQUISITION OF LAND, REQUI RED FOR THE BUSINESS OF THE APPELLANT WERE MADE IN APRIL, 2012, WHEN NO LIABILITY ON ACCOUNT OF TDS WAS EXISTING (II) MAJOR PORTION OF PAYMENTS MADE FOR ACQUIRING V EHICLES, REQUIRED FOR THE BUSINESS OF THE ASSESSEE WERE OUT OF SECURED LOANS OBTAINED SPECIFICALLY FOR SUCH PURPOSE. (III) CONTRACTUAL PAYMENT MADE TO A THIRD PERSON, F OR OFFERING IMMOVABLE PROPERTY OWNED BY HIM AS COLLATERAL SECUR ITY FOR OBTAINING B. G. LIMITS OF RS.30 CRORES AND TERM LOA N LIMITS OF RS.3 CRORES BY THE ASSESSEE COMPANY. FURTHER, THE PAYME NT MADE WAS OUT OF THE TERM LOAN OBTAINED BUT NOT OUT OF TH E BUSINESS RECEIPTS OF THE ASSESSEE. (IV) PAYMENTS MADE TO MEET OPERATING EXPENSES AND O THER BUSINESS COMPULSIONS, WHICH WERE INEVITABLE TO ENSU RE THAT THE VERY SURVIVAL OF THE COMPANY WAS NOT IN DANGER. 12. WE HAVE PERUSED THE MATERIALS AND HEARD THE RIV AL CONTENTIONS. NON- PAYMENT OF TDS IN TIME IS A SERIOUS VIOLATION OF TH E TRUST REPOSED BY THE GOVERNMENT ON THE DEDUCTOR. SUCH AN ACTION CAUSES SERIOUS PROBLEMS TO THE PAYEES AS THEY WERE NOT GETTING CREDIT FOR THE TAX PAID BY THEM BY WAY OF TDS. IN FACT THE AO RECORDS THAT THE DEPARTMENT RECEIVED COMPLAINT FROM THE ASSESSEE FOR NOT ISSUING TDS CERTIFICATES DESPITE REPEATED REQUEST. THE DELAY IN REMITTANCES ARE IN THE RANGE OF FOUR M ONTHS TO FIFTEEN MONTHS. THE HONBLE BOMBAY HIGH COURT IN THE DECISION RELIE D ON SUPRA, INTER ALIA HELD THAT THE OBLIGATION TO DEDUCT AND PAY TAX UPO N THE ASSESSEE IS UNCONDITIONAL UNDER THE ACT. IT IS THE RESPONSIBILI TY OF THE ASSESSEE TO DEDUCT TAXES AND TO PAY TO THE REVENUE WITHIN THE P ERIOD PROVIDED UNDER THE ACT. FINANCIAL STRINGENCY WOULD NOT JUSTIFY DED UCTING TAX FROM THE AMOUNT PAID TO THE PAYEE AND NOT PAYING IT TO THE R EVENUE. OTHERWISE, IT WOULD AMOUNT TO USING SOMEBODY ELSE'S MONEY FOR THE PURPOSES OF ONE'S ITA.1303/BANG/2015 PAGE - 11 BUSINESS. IN SUCH CIRCUMSTANCES, THE QUESTION OF FI NANCIAL STRINGENCY, TO OUR MIND, HARDLY GIVES RISE TO A GOOD AND SUFFICIENT RE ASON FOR NOT DEPOSITING TAX WHICH WAS AN AMOUNT OTHERWISE PAYABLE TO THE PAYEE OR ON BEHALF OF THE PAYEE TO THE REVENUE. ON THE ABOVE FACTS AND CIRCUMSTANCES THE ASSESSEES PLEA CANNOT BE ACCEPTED AS GOOD AND SUFFICIENT REASON FOR NOT DEPO SITING TAX WITHIN TIME. HOWEVER WE FIND THAT THE LEVY MADE BY THE AO AT THE RATE OF 5% PER MONTH ON THE DEFAULTED TDS IS UNREASONABLE. WE CONSIDER THAT LEVY OF PENALTY U/S.221 @ 10% ON THE UNPAID TDS AT RS.2,05,55,731/- WOULD MEET THE ENDS OF JUSTICE. HENCE THE AO IS DIRECTED TO RESTR ICT THE LEVY TO RS.20,55,573/- IN THE PLACE OF RS.77,95,155/-. WE HOLD ACCORDINGLY. 13. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7TH OCTOBER, 2016. SD/- SD/- (VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUN TANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ACIT, TDS, CIRCLE-2(1), BENGALURU 3. THE PRINCIPAL COMMISSIONER OF INCOME TAX, BENGALURU 4. THE COMMISSIONER OF INCOME TAX (A)-13, BENGALURU 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR