KUNDAN INDUSTRIES LIMITED, MUMBAI V. JOINT COMMISSIONER OF INCOME TAX, RANGE, THANE

ITA 1729/MUM/2022

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Kundan Industries Ltd. appealed against the penalty imposed by the Joint Commissioner of Income Tax (TDS), Thane, for not deducting TDS on interest payments made to Dewan Housing Financial Corporation Ltd (DHFL). The penalty was initially contested at the JCIT level and subsequently at the CIT(A), both of which upheld the penalty. The tribunal, after considering the submissions and the lack of evidence provided by the assessee to substantiate any reasonable cause for non-compliance, dismissed the appeals. The case highlighted issues of procedural compliance under the Income Tax Act, particularly sections 194A and 271C, concerning TDS on interest payments.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129284 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 02-08-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 03-07-2022
• Other Referred Cases: L & T John Dere (P) Ltd. Vs. ACIT (120 ITD 497), CIT VS. Muthoot Bankers (Aryasala) 71 taxmann.com 110 (Kerala)
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Reasonable cause; TDS
• Section: 273B; 133A; 40(a)(ia); 194A

Judgement Text

ITA No.1729 & 1730/Mum/2022 Kundan Industries Ltd. Vs. JT.CIT, TDS 1 IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA Nos.1729 & 1730/Mum/2022 (A.Ys. 2017-18 & 2018-19) Kundan Industries Ltd. Kundan House, Harisiddhi Estate, Gorai Pada, VAsai (East) Palghar - 401208 Vs. Jt. CIT, TDS Range, Thane Ground Floor, Qureshi Mansion Gokhale Road, Naupada, Thane, West 400 602 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACK6811G Appellant .. Respondent Appellant by : None Respondent by : Vivek Anand Ojha, CIT, DR Date of Hearing 30.08.2022 Date of Pronouncement 30.08.2022 आदेश / O R D E R Per Amarjit Singh (AM): The present appeals filed by the assessee are directed against the order passed by the ld. CIT(A)-11, Pune. Both these appeals of the assessee i.e ITA No. 1729/Mum/2022 & 1730/Mum/2022 are based on similar facts and identical issue, therefore the for the sake of convenience both these appeals are adjudicated together by taking ITA No. 1729/Mum/2022 as lead case and its finding will be applied to ITA No. ITA No.1729 & 1730/Mum/2022 Kundan Industries Ltd. Vs. JT.CIT, TDS 2 1730/Mum/2022 as mutatis mutandis. The assessee has raised the following grounds before us: “1. On the facts and circumstances of the case, the learned erred both in law and on facts in upholding the order of penalty order u/s 271C of the Act dated 26.03.2018 passed by the Jt. CIT(TDS) levying penalty of Rs.12,94,375/-. 2. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the appellant had deposited TDS with interest in the government account so as to end dispute with Revenue and there was no contumacious conduct on the part of the assessee which is for levy of penalty u/s. 271C of the Act. 3. The appellant craves leave to add, alter, vary, omit substitute or amend the above at any time before or at the time of hearing.” 2. During the course of appellate proceedings before us, no one from the side of the assessee has attended the hearing and no written submission or adjournment request had been filed. Therefore the appeal of the assessee is adjudicated after hearing the ld. D.R and taking into consideration the material on record. 3. The fact in brief is that return of income declaring income of Rs.81,18,080/- was filed on 07.11.2017. The assessee company was engaged in the business of manufacturing of sale of steel fastener. A survey action u/s 133A (2A) of the Act was carried out by the DCIT, TDS Circle, Thane on 13.12.2017 at the business premises of the assessee company. During the survey action it was found that during the F.Y. 2016-17, the assessee company had paid interest of Rs.129,43,750/- to Dewan Housing Financial Corporation Ltd on which tax had not been deducted. Thereafter the DCIT, TDS, Circle, Thane Vide letter dated 04.01.2018 had intimated the JCIT, TDS, Circle, Thane, that there was failure on the part of the deductor for non deduction of TDS u/s 194A on interest payment of Rs.129,43,751/- made to Dewan Housing Financial ITA No.1729 & 1730/Mum/2022 Kundan Industries Ltd. Vs. JT.CIT, TDS 3 Corporation Ltd. during the F.Y. 2016-17 relevant to A.Y. 2017-18. Thereafter JCIT, TDS has issued a show cause notice on 11.01.2018 asking the assessee to show cause why penalty u/s 271C should not be levied in its case. In response the assessee vide letter dated 23.01.2018 explained that Dewan Housing Financial Corporation Ltd (DHFL) has assured its client that they will provide them with respective forms and declaration for non deduction of tax at source. Thereafter as requested by the assessee, the JCIT, TDS had adjourned the case to 15.02.2018. However, the assessee has made submission on 23.03.2018 and taken a different ground stating that deductee had confirmed the receipt of interest which then had offered in their return of income therefore no penalty should be levied. After taking into consideration the submission of the assessee the JCIT, TDS held that assessee had failed to establish that there was any reasonable cause u/s 273B of the Act for failure to comply with the provision of Sec. 194A and deducting the tax on the interest payment made to the abovementioned party. Accordingly the penalty of Rs.12,94,375/- u/s 271C of the Act was levied. 4. Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. 5. During the course of appellate proceedings before us the ld. D.R. vehemently contended that the assessee has not established that there was better reason for not making compliance with the TDS provision and he supported the order of the lower authorities. 6. Heard the ld. D.R and perused the material on record. Without reiterating the facts as elaborated above the assessee was under obligation to deduct tax at source on the amount of interest paid to Dewan Housing Financial Corporation Ltd (DHFL). However, during the ITA No.1729 & 1730/Mum/2022 Kundan Industries Ltd. Vs. JT.CIT, TDS 4 course of survey action carried out in the case of the assessee it was detected that assessee company had not deducted tax at source on the amount of interest of Rs. 129,43,751/- paid to Dewan Housing Financial Corporation Ltd (DHFL). Thereafter during the course of penalty proceedings u/s 271C the assessee claimed that tax was not deducted because Dewan Housing Financial Corporation Ltd (DHFL) had assured that they will provide it with respective confirmations and declaration of non deduction of tax at source. However, in spite of affording adequate opportunities, the assessee failed to furnish any such declaration or any evidence vide which Dewan Housing Financial Corporation Ltd (DHFL) had assured the assessee that they will provide it with respective confirmation and declaration for non deduction of tax at source. Even during the course of penalty proceedings the assessee had taken altogether different ground that deductee had confirmed the receipt of interest and offered the same in their return of income, therefore, the penalty proceedings should be dropped. After taking into consideration the altogether different explanation of the assessee the JCIT, TDS, after following the decision of ITAT, Pune in case of L & T John Dere (P) Ltd. Vs. ACIT (120 ITD 497) held that merely because the taxes due have in the meantime been paid by the deductee, this would not absolve the assessee from the liability of penalty u/s 271C of the Act. In addition to above the JCIT has also stated that assessee failed to establish that there was reasonable cause u/s273B of the Act for failure to comply with the provision of Sec. 194A and deducting the tax on interest payment made to the aforesaid party. Thereafter at the time of appellate proceedings before the ld. CIT(A) the assessee had taken altogether different ground stating that its C.A. had advised the assessee that the TDS was not ITA No.1729 & 1730/Mum/2022 Kundan Industries Ltd. Vs. JT.CIT, TDS 5 deductible. The relevant part of the operating para of the decision of ld. CIT(A) is reproduced as under: “7 I have considered the facts of the case and submissions made by the appellant. It is an admitted fact that the appellant had taken loan from M/s DHFL, which is an NBFC company. It is also an admitted fact that the appellant was under an obligation to deduct tax at source on the interest paid to M/s DHFL. During the penalty proceedings the appellant took an argument that M/s DHFL had assured to provide a non-deduction of tax certificate and when such certificate was not provided. TDS was duly deposited by the appellant. Before the JCIT (TDS), no such plea was taken by the appellant that it was under a bonafide belef that TDS was not deductible on the interest paid to DHFL or its chartered accountant advised it so. During the appellate proceedings, the appellant has taken up this plea that the chartered accountant advised at that no tax was deductible on interest paid to DHFL However, no affidavit or certificate from the chartered accountant to this effect has been submitted by the appellant. The appellant has relied on various case laws in support of its arguments. However, none of the case laws are applicable to the facts of the present case, as discussed below:- i. In the case of Bank of Nova Scotia (supra), the Hon'ble court followed the ratio laid down by Hon’ble Delhi High Court in the case of At's Itochu Corporation (268 ITR 172) and Ms Mitsui & Company Ltd 272 ITR 545 In these two cases, the Hon'ble Delhi High Court observed that the TDS was not deducted on the legal advice of the company's legal advisers. Accordingly, the Hon'ble Court held that it was not fit case for levying penalty u/s 271C of the Act. The facts of case in hand are completely different than the facts of these cases because the appellant has failed to substantiate that the tax was not deducted due to any legal advice. ii. In the case of Sukhdev Singh (supra), the Hon'ble Tribunal observed that the assessee had accepted the disallowance u/s 40(a)(a) of the Act and did not challenge the said addition and paid due taxes on same. However, in the present case, the appellant has challenged the disallowance u/s 40(a)(ia) of the Act made in its case iii. The decision of Hon'ble ITAT Cochin Bench in the case of Muthoot Bankers was reversed by the Hon'ble High Court of Kerala vide decision dated 6/6/2016, as reported in 71 taxmann.com 110 (Kerala). iv. In the case of Siby Mining (supra) the Hon'ble Tribunal deleted the penalty on relying the affidavit filed by the CA on whose advice, TDS was not deducted. However, in the present case, no such affidavit has been filed by the appellant. ITA No.1729 & 1730/Mum/2022 Kundan Industries Ltd. Vs. JT.CIT, TDS 6 8. The above discussion clearly suggests that the case laws relied upon by the appellant will not be applicable to the facts of the present case, on the other hand, the Hon'ble High Court of Kerala in the case of CIT VS. Muthoot Bankers (Aryasala) 71 taxmann.com 110 has held that wherever the assessee has failed to establish that there was a reasonable cause for failure to comply with section 194A of the Act, penalty u/s 271C of the Act would be attracted. As discussed earlier in this order the appellant has not substantiated any reasonable cause for its failure to deduct tax at source on the interest paid to DHFL. Accordingly, following the ratio laid down by Hon’ble High Court of Kerala, the penalty levied u/s 271C of the Act is upheld. The appeal for A.Y. 2017-18 is hereby dismissed.” After taking into consideration the finding of the JCIT, TDS and ld. CIT(A) it is observed that neither before the JCIT nor before the ld. CIT(A) the assessee had substantiated any reasonable cause u/s 273B for its failure to deduct tax at source on the interest paid to Dewan Housing Financial Corporation Ltd (DHFL), therefore we don’t find any infirmity in the decision of ld. CIT(A). Accordingly, the appeal filed by the assessee stand dismissed. 7. In the result, the appeal of the assessee stand dismissed. ITA No. 1730/Mum/2022 8. As the facts and the issue involved in this appeal are the same as mentioned supra in ITA No. 1729/Mum/2022, therefore, applying the same mutatis mutandis, this appeal of the assessee is also dismissed. 9. In the result, both the appeals of the assessee stand dismissed. Order pronounced in the open court on 30.08.2022 Sd/- Sd/- (PAVAN KUMAR GADALE) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 30.08.2022 PS: Rohit ITA No.1729 & 1730/Mum/2022 Kundan Industries Ltd. Vs. JT.CIT, TDS 7 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT 5. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, अहमदाबाद / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy// (Asst. Registrar) ITAT, Mumbai