The ITO,TDS-4, Ahmedabad V. CTS Developers Pvt.Ltd., Ahmedabad

ITA 1886/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2181 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 31-01-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 05-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR RAJA RAM SAH
• Keywords: Non-deduction of tax; Reasonable cause; TDS
• Section: 133A; 201(1); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER) ITA NO.1886 AND 1887/AHD/2009 [ASSTT. YEAR : 2007-2008 AND 2008-2009] ITO, TDS-4 AHMEDABAD. VS. CTS DEVELOPERS PVT. LTD. 1 ST FLOOR, SN HOUSE OPP: ROCK RESIDENCY HOTEL LAW GARDEN, ASHRAM ROAD, AHMEDABAD. PAN : AACCC 4937 B ITA NO.1888/AHD/2009 [ASSTT. YEAR : 2008-2009] ITO, TDS-4 AHMEDABAD. VS. S.N. REALITIES CONSTRUCTION PVT. LTD. 1 ST FLOOR, SN HOUSE OPP: ROCK RESIDENCY HOTEL LAW GARDEN, ASHRAM ROAD, AHMEDABAD. PAN : AAJCS 3858 C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DHIREN SHAH REVENUE BY : DR. RAJA RAM SAH O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THESE THREE APPEALS ARE BY THE REVENUE AGAINST THE ORDERS OF THE COMMISSIONER OF I NCOME TAX (A)-X, AHMEDABAD DATED 20.02.2009 ARISING OUT OF THE ORDER S OF THE JT.CIT, TDS PASSED UNDER SECTION 271C OF THE INCOME TAX ACT, 19 61. SINCE COMMON ISSUES ARE RAISED IN ALL THESE APPEALS, FOR THE SAK E OF CONVENIENCE, WE DISPOSE OF ALL THESE APPEALS BY THIS CONSOLIDATED ORDER. 2. THE ONLY GROUND IN ALL THESE THREE APPEALS BY TH E REVENUE IS AGAINST THE CANCELLATION OF THE PENALTY LEVIED UNDER SECTION 27 1C OF THE INCOME TAX ACT. THE FACTS IN ALL THE THREE APPEALS ARE COMMON THERE FORE, WE SHALL DISCUSS HERE THE FACTS IN THE CASE OF CTS DEVELOPERS PVT. LTD. F OR A.Y.2007-2008. ITA NO.1886, 1887 AND 1888/AHD/2009 -2- 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN CONSTRUCTION BUSINESS. A SURVEY UNDER S ECTION 133A OF THE ACT WAS CARRIED OUT IN THE CASE OF THE ASSESSEE ON 9.10.200 7 WITH A VIEW TO VERIFY THE COMPLIANCE OF TDS PROVISIONS UNDER THE IT ACT. DUR ING THE COURSE OF VERIFICATION, IT WAS NOTICED THAT THE ASSESSEE MADE A PAYMENT OF INTEREST AMOUNTING TO RS.10 LAKHS TO GRUH FINANCE LTD. WITHO UT DEDUCTION OF TAX AT SOURCE. CONSEQUENTLY, THE AO PASSED ORDER UNDER SE CTION 201(1) AND 201(1A) OF THE ACT RAISING THE DEMAND FOR TDS AND INTEREST THEREON. THE AO ALSO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271C OF THE ACT. THE ASSESSEE SUBSEQUENTLY ACCEPTED ITS DEFAULT FOR NOT DEDUCTING TAX AT SOURCE ON THE PAYMENT OF INTEREST OF RS.10 LAKHS UNDER THE PROVIS IONS OF SECTION 194A OF THE ACT AND PAID TAX ACCORDINGLY. THE AO SUBSEQUENTLY CARRIED OUT THE PROCEEDINGS FOR LEVY OF PENALTY UNDER SECTION 271C OF THE ACT. DURING THE PENALTY PROCEEDINGS, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT IT WAS GIVEN TO UNDERSTAND THAT GRUH FINANCE LTD. FALLS IN THE CATEGORY OF FINANCIAL INSTITUTION THEREFORE, THE PROVISIONS OF TDS WERE N OT APPLICABLE IN RESPECT OF PAYMENT OF INTEREST TO THE COMPANY. IT WAS FURTHER ARGUED THAT ONCE THE ASSESSEE CAME TO KNOW THE APPLICABILITY OF THE PROV ISIONS OF SECTION 194A ON THE PAYMENT OF INTEREST TO GRUH FINANCE LTD., IT DE POSITED TAX ALONG WITH INTEREST WITH THE GOVERNMENT. THEREFORE, IT WAS PL EADED THAT THE ASSESSEE WAS NOT LIABLE FOR PENALTY UNDER SECTION 271C OF THE AC T. THE AO HOWEVER REJECTED THE CONTENTION OF THE ASSESSEE AND LEVIED PENALTY U NDER SECTION 271C AMOUNTING TO RS.2,35,604/-. THE CIT(A) CANCELLED T HE PENALTY. THE REVENUE AGGRIEVED WITH THE ORDER OF THE CIT(A) IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE CIT(A) WHILE CANCELLING THE PENALTY RECOR DED THE FOLLOWING FINDINGS: 5.7 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE LEARNED AR CAREFULLY. THERE IS NO DISPUTE ABOUT TH E FACT THAT GRUH ITA NO.1886, 1887 AND 1888/AHD/2009 -3- FINANCE LTD. IS A SUBSIDIARY OF HDFC LTD. THIS IS ALSO NOT IN DISPUTE THAT GRUH FINANCE LTD. CLEARLY MENTIONS THIS FACT O N ITS LETTER HEAD WHICH IS USED FOR CORRESPONDENCE WITH THE CLIENTS B Y THEM. THE HDFC LTD. HAS BEEN NOTIFIED BY THE CENTRAL GOVERNMENT FO R THE PURPOSES OF SUB-CLAUSE(F) OF CLAUSE (III) OF SUB-SECTION (3) OF THE SECTION 194A OF THE ACT VIDE NOTIFICATION SO NO.1724 DATED 2.6.1980. S INCE THE PAYMENT OF INTEREST TO HDFC IS EXEMPTED FROM DEDUCTION OF TAX AT SOURCE BY VIRTUE OF THE NOTIFICATION AS REFERRED TO ABOVE, THE APPEL LANT HAD A REASONABLE GROUND TO ENTERTAIN A BELIEF THAT GRUH FINANCE LTD. BEING A SUBSIDIARY OF HDFC LTD. WOULD ALSO BE COVERED FROM SUCH PROVIS IONS. XXXX 5.11 THEREFORE KEEPING IN VIEW THE AFORESAID DISCU SSION AND THE FACTS ENCOMPASSING THE CASE, IT IS HELD THAT THE APPELLAN T HAD REASONABLE CAUSE TO ENTERTAIN A BELIEF THAT IT WAS NOT REQUIRE D TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENTS OF INTEREST UNDER SECT ION 194A OF THE ACT TO GRUH FINANCE LTD. IN VIEW OF THESE FACTS THERE I S NO JUSTIFICATION FOR SUBJECTING THE APPELLANT FOR LEVY OF PENALTY U/S.27 1C OF THE ACT. AFTER CONSIDERING THE ARGUMENTS OF BOTH SIDES AND T HE FACTS OF THE CASE, WE ENTIRELY AGREE WITH THE ABOVE FINDINGS OF THE CIT(A ). IT IS NOT DISPUTED BY THE REVENUE THAT GRUH FINANCE LTD. IS A SUBSIDIARY OF H DFC LTD., AND THE HDFC HAS BEEN NOTIFIED BY THE CENTRAL GOVERNMENT FOR THE PURPOSE OF PAYMENT OF INTEREST WITHOUT DEDUCTION OF TAX VIDE NOTIFICATION S.O.NO.1724 DATED 2.6.1980. ON THE ABOVE FACTS, IF THE ASSESSEE BELIEVED THAT T HE PAYMENT TO SUBSIDIARY OF HDFC LTD. WOULD ALSO BE COVERED BY SUCH NOTIFICATIO N, SUCH A BELIEF IS A BONA FIDE BELIEF AND WOULD CONSTITUTE A REASONABLE CAUSE FOR NON-DEDUCTION OF TAX AT SOURCE ON THE PAYMENT TO GRUH FINANCE LTD. AS SOON AS THE ASSESSEE WAS POINTED OUT THAT IT IS LIABLE TO DEDUCT THE TAX, IT HAS DULY DEDUCTED THE TAX AND DEPOSITED THE SAME WITH THE CENTRAL GOVERNMENT ALON G WITH INTEREST THEREON. WE THEREFORE FIND NO JUSTIFICATION TO INTERFERE WIT H THE ORDERS OF THE CIT(A) IN ITA NO.1886, 1887 AND 1888/AHD/2009 -4- ALL THE APPEALS BEFORE US. ACCORDINGLY, WE DISMISS THIS GROUND OF THE REVENUE IN ALL THE APPEALS. 5. IN THE RESULT, ALL THE APPEALS OF THE REVENUE AR E DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 4 TH FEBRUARY, 2011. SD/- SD/- (MUKUL KR. SHRAWAT) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 04-02-2011 COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD 1. DATE OF DICTATION : 31-01-2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER : 01-02-2011 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./P.S : 03-02-2011 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT. : 04-02-2011 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER : 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P.S./P.S : 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK. : 04-02-2011 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 :