THE ADDL.DIRECTOR OF I.T, Hyderabad V. M/s Spectrum Power Generation Ltd., Hyderabad

ITA 1475/HYD/2008

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0275 (ITAT-HYDERABAD)
• Duration Of Justice: 6 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-06-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 24-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: M V ANIL KUMAR
• Keywords: Double taxation relief; Non-deduction of tax; Reasonable cause
• Section: 133A; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 1474, 1475, 1476 & 1477/HYD/2008 ASSESSMENT YEARS: 2002-03, 2003-04, 2004-05 & 2005- 06 ADDL. DIRECTOR OF INCOME-TAX, (INTERNATIONAL TAXATION), HYDERABAD. VS. M/S SPECTRUM POWER GENERATION LTD., HYDERABAD. PAN AAACZ2295B (APPELLANT) (RESPONDENT) REVENUE BY : SHRI RAJAT MITRA ASSESSEE BY : SHRI M.V. ANIL KUMAR DATE OF HEARING 09-06-2015 DATE OF PRONOUNCEMENT 12-06-2015 O R D E R PER SAKTIJIT DEY, J.M.: THESE APPEALS FILED BY THE DEPARTMENT ARE DIRECTE D AGAINST A COMMON ORDER DATED 15/07/2008 OF LD. CIT(A)-VI, HYD ERABAD, DELETING PENALTY IMPOSED U/S 271C OF THE ACT FOR THE AYS 200 2-03 TO 2005-06. AS THE FACTS AND ISSUES INVOLVED IN THESE APPEALS A RE COMMON, THEY WERE CLUBBED AND HEARD TOGETHER, THEREFORE, THE SAM E ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. 2. SINCE THE FACTS AND ISSUES ARE COMMON IN ALL THE APPEALS, FOR THE SAKE OF BREVITY, WE DEAL WITH THE FACTS AS INVO LVED IN AY 2002-03 BEING ITA NO. 1474/HYD/2008. 3. BRIEFLY THE FACTS ARE, ASSESSEE A COMPANY IS ENG AGED IN THE BUSINESS OF GENERATING POWER AND SELLING IT TO AP T RANSCO. FOR 2 ITA NOS. 1474 TO 1477/HYD/2008 SPECTRUM POWER GENERATION LTD. VERIFYING ASSESSEES COMPLIANCE TO TDS PROVISIONS A SURVEY U/S 133A OF THE ACT WAS CONDUCTED IN THE BUSINESS PREMISES O F ASSESSEE. DURING THE SURVEY, IT WAS FOUND THAT ASSESSEE HAS E NTERED INTO AN AGREEMENT WITH ROLLS ROYCE POWER INDIA LTD. (RRIPL) , ON 14/03/1995 FOR OPERATION AND MAINTENANCE. SIMILARLY, ASSESSEE HAS ENTERED INTO ANOTHER CONTRACT WITH GAS AUTHORITY OF INDIA LTD. (GAIL) FOR SUPPLY OF GAS. IT WAS FOUND DURING THE SURVEY THAT, THOUGH AS SESSEE HAS PAID INTEREST ON ACCOUNT OF DELAYED PAYMENT BOTH TO RRIP L AS WELL AS GAIL, BUT, IT HAS FAILED DEDUCT TAX AS PER SECTION 194A AND 195 OF THE ACT. IT WAS NOTICED THAT ON ACCOUNT OF ASSESSEES F AILURE TO DEDUCT TAX AS AFORESAID, PROCEEDINGS WERE INITIATED U/S 201 AN D ULTIMATELY ORDERS WERE PASSED TREATING ASSESSEE AS ASSESSEE DEFAULT U /S 201 OF THE ACT AND DEMANDS WERE RAISED U/S 201(1) ALONG WITH INTER EST U/S 201(1A) OF THE ACT. CONSEQUENT UPON THE ORDER PASSED U/S 20 1(1) AND 201(1A) OF THE ACT ORDERS, AO INITIATED PROCEEDING FOR IMPO SITION OF PENALTY U/S 271C BY ISSUING SHOW CAUSE NOTICE TO ASSESSEE. IN R ESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE VIDE LETTER DATED 17/03 /08 REQUESTED AO TO KEEP PENALTY PROCEEDING IN ABEYANCE SINCE APPEAL S FILED AGAINST DEMAND RAISED U/S 201(1) AND 201(1A) ARE PENDING BE FORE ITAT. FURTHER, ASSESSEE FILED LETTERS DATED 25/03/2008 AN D 28/03/2008 REQUESTING FOR DROPPING OF PENALTY PROCEEDING ON TH E REASONING THAT THERE WAS NO DELIBERATE OR INTENTIONAL ACT ON ITS P ART FOR NON-DEDUCTION OF TAX AT SOURCE AS ASSESSEE WAS UNDER BONAFIDE IMP RESSION THAT TDS LIABILITY DID NOT ARISE EITHER U/S 194A OR U/S 195 OF THE ACT ON THE INTEREST ON DELAYED PAYMENT PAYABLE TO RRIPL AND GA IL. AO, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF A SSESSEE. HE OBSERVED THAT AS PER 12 TH ANNUAL REPORT FOR AY 2004-05, INTEREST AMOUNTS WERE PAYABLE TO RRIPL AND GAIL ON DELAYED P AYMENT OF LOAN AND OPERATION & MAINTENANCE CHARGES FOR THE YE ARS ENDED 31/03/2002 TO 31/03/2005 AMOUNTING TO A TOTAL OF RS . 2,79,39,262. AO NOTED THAT AS PER THE AGREEMENT ENTERED INTO BY ASS ESSEE WITH RRIPL AND GAIL, IT IS LIABLE TO PAY INTEREST WHENEVER THE AMOUNT DUE TO THE SAID TWO PARTIES ARE DELAYED. SINCE ASSESSEE FAILED TO DEDUCT TAX ON 3 ITA NOS. 1474 TO 1477/HYD/2008 SPECTRUM POWER GENERATION LTD. THE INTEREST ON DELAYED PAYMENT, WHICH IS APPEARING AS LIABILITY IN THE TRIAL BALANCE OF ASSESSEE FOR AY 2005-06 AND REMIT TO THE GOVT. ACCOUNT, AO PROCEEDED TO IMPOSE PENALTY U/S 271C OF THE ACT AMOUNTING TO RS. 67,295. SIMILAR ORDERS IMPOSING PE NALTY U/S 271C OF DIFFERENT AMOUNTS WERE ALSO PASSED FOR THE OTHER AY S UNDER APPEAL. BEING AGGRIEVED, ASSESSEE CHALLENGING THE PENALTY O RDERS BY PREFERRING APPEALS BEFORE LD. CIT(A). 4. IN COURSE OF HEARING OF APPEAL BEFORE LD. CIT(A) , ASSESSEE ADVANCED ELABORATE ARGUMENTS CHALLENGING THE IMPOSI TION OF PENALTY ON VARIOUS GROUNDS. LD. CIT(A) AFTER CONSIDERING TH E SUBMISSIONS OF ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON R ECORD, HAVING FOUND THAT THERE IS NO DELIBERATE ATTEMPT ON THE PA RT OF ASSESSEE FOR NOT DEDUCTING TAX AT SOURCE, DELETED PENALTY FOR AL L THE AFORESAID ASSESSMENT ORDERS. BEING AGGRIEVED, REVENUE IS BEFO RE US. 5. LD. DR HEAVILY RELYING UPON THE OBSERVATIONS MAD E BY AO IN THE PENALTY ORDER SUBMITTED, ASSESSEE HAVING DEFAULTED IN DEDUCTING TAX AT SOURCE ON THE INTEREST PAID TO RRIPL AND GAIL FO R WHICH ASSESSEE HAS BEEN DECLARED AS ASSESSEE IN DEFAULT U/S 201(1) AND 201(1A) OF THE ACT, IMPOSITION OF PENALTY U/S 271C IS JUSTIFIE D. 6. LD. AR, ON THE OTHER HAND, STRONGLY SUPPORTING T HE ORDER OF LD. CIT(A) AND MORE OR LESS REITERATING WHAT WAS STATED BEFORE LD. CIT(A) SUBMITTED BEFORE US, THERE BEING NO DELIBERATE OR C ONSCIOUS ATTEMPT ON THE PART OF ASSESSEE IN NOT DEDUCTING TAX AT SO URCE AND THERE BEING A REASONABLE CAUSE SHOWN BY ASSESSEE, LD. CIT (A) WAS JUSTIFIED IN DELETING PENALTY IMPOSED. IN THIS CONTEXT, LD. A R SPECIFICALLY DREW OUR ATTENTION TO THE OBSERVATIONS MADE BY LD. CIT(A ) IN PARAS 6 & 8 OF APPELLATE ORDER. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. AS IS EVIDENT FROM THE PEN ALTY ORDER, AO HAS PROCEEDED TO IMPOSE PENALTY MAINLY ON THE REASONING THAT INTEREST ON DELAYED PAYMENT HAS BEEN SHOWN AS LIABILITY IN THE ACCOUNTS OF 4 ITA NOS. 1474 TO 1477/HYD/2008 SPECTRUM POWER GENERATION LTD. ASSESSEE IN AY 2005-06, BUT, ASSESSEE HAS FAILED TO DEDUCT TAX ON SUCH LIABILITY ON ACCOUNT OF INTEREST ON DELAYED PA YMENT TO RRIPL AND GAIL AND REMIT THE SAME TO THE GOVERNMENT ACCOUNT I N ACCORDANCE WITH SECTION 194A AND 195 OF THE ACT. HOWEVER, IT I S EVIDENT FROM THE ORDER OF LD. CIT(A), HE HAS DELETED PENALTY BROADLY ON THE FOLLOWING REASONS: 1. WHILE IMPOSING PENALTY FOR ALL THE ASSESSMENT Y EARS AO HAS REFERRED TO ANNUAL REPORT OF FY 2004-05 WHEREAS IF HE WOULD HAVE CONSIDERED THE ANNUAL REPORT OF THE RESPECTIV E FYS INDEPENDENTLY, HE WOULD NOT HAVE BEEN IN A POSITIO N TO ESTABLISH DEFAULT ATTRACTING PENALTY U/S 271C. 2. ASSESSEE AT THE STAGE OF PROCEEDING U/S 201(1) ITSELF HAS TAKEN A STAND BEFORE THE DEPARTMENT THAT PAYMENTS MADE TO RRIPL WAS NOT TAXABLE IN INDIA BY VIRTUE OF THE RE SPECTIVE DTAA AND TO SOME EXTENT ASSESSEES STAND WAS UPHELD BY LD. CIT(A) IN APPEAL FILED U/S 248. FURTHER, IN VIEW OF THE C ERTIFICATE OBTAINED U/S 197 OF THE ACT BY THE DEDUCTEES WHERE IN THE RATE OF DEDUCTION OF TAX IS EITHER NIL OR AT A LOWER RA TE. MAXIMUM DEDUCTION REQUIRED TO BE MADE IN RESPECT OF ASSES SMENT YEAR 2005-06 WAS 6% OF THE AMOUNT PAYABLE TO RRIPL WHER EAS THE MINIMUM DEDUCTION REQUIRED WAS NIL FOR AY 2001-02, HENCE, WHEN ASSESSEE WAS IN POSSESSION OF NO DEDUCTION CE RTIFICATES ISSUED TO THE DEDUCTEES, IT WOULD HAVE MADE TDS AS PER SUCH CERTIFICATES CONSIDERING THE FACT THAT THE AMOUNT REQUIRED TO BE DEDUCTED WAS VERY SMALL BUT ONLY BECAUSE OF ITS BO NAFIDE IMPRESSION THAT PAYMENTS WERE NOT SUBJECT TO TDS, TAX WAS NOT DEDUCTED. 3. THERE WERE INTER-SE DISPUTE BETWEEN ASSESSEE AN D RRIPL WITH REGARD TO THE PAYMENTS TO BE MADE UNDER O&M AGREEMENT, WHICH ULTIMATELY WAS RESOLVED BY VIRTUE OF AN AGREEMENT FOR SETTLEMENT ENTERED INTO ON 21/12/06 . AS PER THE 5 ITA NOS. 1474 TO 1477/HYD/2008 SPECTRUM POWER GENERATION LTD. DIRECTIONS OF THE SAID AGREEMENT, ASSESSEE WAS TO PAY AMOUNT OF US DOLLARS RS. 22.50 CRORES AND AFTER SIGNING OF THE SAID SETTLEMENT AGREEMENT, ASSESSEE REVERSED A LL THE PROVISIONS MADE AT THE INSTANCE OF THE AUDITORS I N THEIR BOOKS OF ACCOUNT TOWARDS POSSIBLE LIABILITIES OF RRIPL. T HUS, LIABILITIES CREATED IN THE BOOKS DID NOT REFLECT THE REAL AND CORRECT LIABILITY AND WERE ONLY CONTINGENT IN NATURE HAVI NG BEEN DISPUTED BY ASSESSEE. THE PAYMENTS WERE ALSO NEVE R RELEASED BY ASSESSEE TO RRIPL OUT OF THE PROVISI ONS SO MADE. FINALLY PAYMENTS WERE MADE TO RRIPL AS PER THE TERMS OF THE SETTLEMENT AGREEMENT ENTERED INTO BETWEEN THE PARTIES ON 21/12/06. THE AFORESAID FINDING OF FACTS OF LD. CIT(A) HAVE N OT BEEN CONTROVERTED BY LD. DR BY BRINGING ANY MATERIAL ON RECORD. THUS, FROM THE AFORESAID FACTS, IT IS VERY MUCH EVIDENT THAT T HE SO-CALLED LIABILITY CREATED IS NOT THE ACTUAL LIABILITY TOWARDS DEDUCTE ES AND IN REALITY THE SAID AMOUNTS WERE NOT PAID TO THEM. THE PAYMENT MAD E ULTIMATELY BY ASSESSEE DOES NOT MATCH WITH THE LIABILITY CREATED IN THE ACCOUNTS FOR FY 2004-05. FURTHER, THE LIABILITY CREATED AT THE I NSTANCE OF THE AUDITOR HAS ALSO BEEN REVERSED AFTER SETTLEMENT OF DISPUTE BETWEEN THE PARTIES. IN THE AFORESAID CIRCUMSTANCES, IT CANNOT BE SAID THAT THERE WAS ANY DELIBERATE ATTEMPT OR CONTUMACIOUS CONDUCT ON THE PART OF ASSESSEE FOR NOT DEDUCTING TAX AT SOURCE. AS CAN BE SEEN FROM THE PROVISIONS CONTAINED U/S 271C READ WITH SECTION 273 B PENALTY IMPOSABLE IS NOT AUTOMATIC. A DISCRETION HAS BEEN G IVEN TO THE AUTHORITY CONCERNED, NOT TO IMPOSE PENALTY IF ASSES SEE PROVES THAT THERE WAS REASONABLE CAUSE FOR NOT DEDUCTING TAX. I N THE FACTS OF THE PRESENT CASE, IN OUR VIEW, ASSESSEE HAS PROVED BEY OND DOUBT THAT THERE WAS REASONABLE CAUSE FOR NOT DEDUCTING TAX AT SOURCE. IN THE AFORESAID FACTS AND CIRCUMSTANCES, WE DO NOT SEE AN Y REASON TO DISTURB THE FINDING OF LD. CIT(A), WHICH IS ACCORDI NGLY UPHELD. 6 ITA NOS. 1474 TO 1477/HYD/2008 SPECTRUM POWER GENERATION LTD. 8. FACTS BEING IDENTICAL IN OTHER APPEALS UNDER CON SIDERATION TO THAT OF ITA NO. 1474/HYD/2008 (SUPRA), FOLLOWING TH E DECISION THEREIN, WE UPHOLD THE ORDER OF LD. CIT(A) AND DISMISS THE A PPEALS. 9 IN THE RESULT, ALL THE APPEALS OF DEPARTMENT ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE, 2015. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 12 TH JUNE, 2015 KV COPY TO:- 1) ADDL. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAX ATION), CIRCLE 14(1),6 TH FLOOR, C BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 2) M/S SPECTRUM POWER GENERATION, 6-3-871, SNEHALA THA, II FLOOR GREENLANDS ROAD, BEGUMPET, HYDERABAD. 3) CIT(A)-VI, HYDERABAD 4) DIT (INTERNATIONAL TAXATION), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.