The Addl CIT Range-6 TDS Visakhapatnam, Visakhapatnam V. M/s Coromandel International Ltd, Kakinada

ITA 213/VIZ/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7390 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 31-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SINGH
• Assessee Lawyers: C KAMESWARA RAO
• Keywords: Bonafide belief; Non-deduction of tax; Reasonable cause
• Section: 273B; 194C

Judgement Text

ITA NOS.213&214/2011 COROMANDEL INTERNATIONAL LTD., V SKP 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 213&214 /VIZAG/ 20 11 ASSESSMENT YEAR S : 2007 - 08 & 2008 - 09 ADD L. CIT RANGE - 6 TDS VISAKHAPATNAM VS. M/S. COROMANDEL INTERNATIONAL LTD. VISAKHAPATNAM (APPELLANT) (RESPONDENT) TAN NO.VPNCO 0843D APPELLANT BY: SHRI R.K. SINGH, DR RESPONDENT BY: SHRI C. KAMESWARA RAO, CA ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) ON COMMON GROUNDS WHICH ARE AS UNDER: 1. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE ACTION OF THE ADDL. CIT IN LEVYING THE PENALTY U/S 271C. 2. THE CONTENTION OF THE COMPANY, THAT IN THE FY 2007- 08, IT TOOK THE COMPANY FROM ERSTWHILE COMPANY M/S. COROMANDEL FERT ILISERS LTD., AND MAJOR PORTION OF WHARFAGE CHARGES WERE PAID BY THE FORMER COMPANY, IS NOT TENABLE THAT THE COMPANY IS BEING M ONITORED BY HIGHLY QUALIFIED PROFESSIONALS WHO ARE OUGHT TO KNO W THE PROVISIONS OF DIFFERENT ACTS. 3. THE CONTENTION OF THE COMPANY, THAT IN THE FY 2008- 09, TDS WAS NOT DEDUCTED ON WHARFAGE CHARGES AS THE NEW EMPLOYE ES OF THE COMPANY WERE IN BONAFIDE IMPRESSION THAT WHARFAGE C HARGES ARE NOT IN THE AMBIT OF SEC.194C OF THE INCOME TAX ACT. THIS SUBMISSION IS PURELY IMAGINARY AND IT CANNOT BE PRO VED AND STATUTORY CONSTITUTED BODY CANNOT ESCAPE ITS LIABIL ITY TO DEDUCT TAX UNDER THESE KIND OF REASONS. 4. THE COMPANY HAS PAID THE TDS U/S 194C ON WHARFAGE C HARGES ONLY AFTER CONDUCTING INSPECTION IN ITS PREMISES. THE T DS REMITTANCE IS NOT VOLUNTARY. HENCE, PROVISIONS OF SEC.271C CLEAR LY ATTRACTS IN THIS CASE. 5. ANY OTHER GROUND THAT MAY BE ARGUED AT THE TIME OF HEARING. 2. THOUGH THE REVENUE HAS RAISED VARIOUS GROUNDS OF APPEAL BUT THEY ALL RELATE TO THE DELETION OF PENALTY LEVIED U/S 271C O F THE INCOME-TAX ACT (HEREINAFTER CALLED AS AN `ACT). THE FACTS IN BRI EF BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE, FORMERLY KNOWN AS COROMANDEL FERTILISERS LIMITED WAS ITA NOS.213&214/2011 COROMANDEL INTERNATIONAL LTD., V SKP 2 ENGAGED IN THE BUSINESS OF MANUFACTURE OF FERTILIZE RS. THE TDS SURVEY OPERATION WAS CONDUCTED ON 6.2.2009, DURING THE COU RSE OF WHICH IT WAS OBSERVED THAT IT HAD MADE PAYMENT TO M/S. KAKINADA SEA PORTS LIMITED BY WAY OF WHARFAGE CHARGES OF RS.7,92,84,183/- (THIS I NCLUDES RS.7,22,79,137/- MADE BY THE ERSTWHILE COMPANY M/S. GODAVARI FERTILI SERS & CHEMICALS LTD. WHICH LATER GOT AMALGAMATED WITH THE ASSESSEE COMPA NY) AND RS.7,64,28,996/- IN THE FINANCIAL YEAR 2007-08 AND 2008-09 RESPECTIVELY WITHOUT DEDUCTION OF TAX AT SOURCE IN TERMS OF PROV ISIONS OF SECTION 194C OF THE ACT. ON BRINGING SUCH DEFAULT TO THE NOTICE OF THE ASSESSEE, IT ADMITTED ITS DEFAULT AND PAID TDS AMOUNT TOGETHER WITH INTER EST U/S 201(1A) OF THE ACT FOR BOTH THE YEARS. 3. THE ASSESSING OFFICER HAS LEVIED THE PENALTY U/S 271C OF THE ACT, AFTER REJECTING THE EXPLANATIONS OF THE ASSESSEE FOR NON- DEDUCTION OF TDS. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT THE ASSESSEE HAS TAKEN OVER THE AFFAIRS OF THE ERSTWHIL E M/S. GODAVARI FERTILISERS & CHEMICALS LTD., FOLLOWING ITS AMALGAMATION WITH T HE ASSESSEE VIDE ORDER OF ANDHRA PRADESH HIGH COURT DATED 18.12.2007. AT THE TIME OF TDS INSPECTION BY THE DEPARTMENT, THE ASSESSEE WAS IN THE PROCESS OF ACQUAINTING ITSELF WITH THE DAY TO DAY AFFAIRS OF THE ERSTWHILE M/S. GODAVA RI FERTILISERS & CHEMICALS LTD. AND IN CARRYING OUT VARIOUS STATUTORY OBLIGATI ONS SUCH AS COMPLETION OF THE PROCESS OF AMALGAMATION, PREPARATION OF CONSOLI DATED BALANCE SHEET, ARRANGEMENT FOR CONDUCT OF STATUTORY AUDITS, ETC. THE TDS INSPECTION REVEALED THAT FOR MAJOR PART OF FINANCIAL YEAR ENDE D 31.3.2008, ITS ERSTWHILE M/S. GODAVARI FERTILISERS & CHEMICALS LTD., WHICH H AD COMMITTED THE TDS DEFAULT AND AFTER AMALGAMATION WITH THE ASSESSEE CO MPANY, SUCH DEFAULT CAME OVER TO THE ASSESSEE. THE TDS NON-COMPLIANCE CONTINUED INTO FINANCIAL YEAR 2009-10 AFTER AMALGAMATION ON THE BONAFIDE BEL IEF THAT THE ASSESSEE WAS NOT REQUIRED TO MAKE TDS ON WHARFAGE CHARGES BY ERRONEOUSLY PLACING RELIANCE ON CIRCULAR NO.93 OF THE CBDT WITHOUT KNOW ING THAT THE SAID CIRCULAR STOOD RESCINDED PRIOR TO THE FINANCIAL YEAR 2007-08 AND ALSO THE FACT THAT THE STATUTORY AUDITORS HAD NEVER REPORTED ANY ADVERSE R EMARKS ABOUT ANY NON- COMPLIANCE OF TDS IN RESPECT OF WHARFAGE CHARGES. THEREFORE, THE NON- DEDUCTION OF TDS WAS DUE TO A BONAFIDE BELIEF. ITA NOS.213&214/2011 COROMANDEL INTERNATIONAL LTD., V SKP 3 4. THE CIT RE-EXAMINED THE ISSUE IN THE LIGHT OF AS SESSEES EXPLANATIONS AND BEING CONVINCED WITH IT, HE DELETED THE PENALTY . THE RELEVANT OBSERVATION OF THE CIT IS EXTRACTED HEREUNDER: AFTER HEARING THE LD. AUTHORIZED REPRESENTATIVE AND ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES LEADIN G TO THE LEVY OF THE PENALTIES U/S 271C OF THE ACT FOR THE F.YS 2007-08 AND 2008-09, IT MAY BE STATED THAT THE PROVISIONS OF SECTION 273B PROVI DE THAT WHERE THERE EXIST ANY REASONABLE CAUSE FOR COMMISSION OF DEFAUL T, PENALTY NEED NOT BE LEVIED IN SUCH CASE IF IT IS CONVINCINGLY DEMONS TRATED TO THE PENALTY IMPOSING AUTHORITY, THE DETAILED CIRCUMSTANCES THAT IS CLAIMED TO CONSTITUTE A REASONABLE CAUSE. ORDINARILY, BONAFID E BELIEF RESULTING IN MISCONSTRUWAL OF THE RELEVANT LEGAL PROVISIONS AND THE CONSEQUENTIAL VIOLATION OF SUCH LEGAL PROVISIONS, COULD BE TAKEN AS A REASONABLE CAUSE FOR SEEKING EXONERATION FROM LEVY OF PENALTY. BUT, THEN, THE BONAFIDE BELIEF OF A PERSON SHOULD BE SUCH THAT IT SHOULD IN SPIRE PLAUSIBILITY AND CONVICTION IN THE AUTHORITY CONDUCTING PENALTY PROC EEDINGS, HAVING REGARD TO THE SURROUNDING FACTS AND CIRCUMSTANCES, SUCH AS THE EDUCATIONAL QUALIFICATION OF A PERSON, HIS GENERAL AWARENESS LEVEL, THE FACT OF THE ENLISTING OR NOT ENLISTING THE SERVICES OF A INCOME-TAX CONSULTANT OR ADVISOR, THE FACT OF WHETHER HE HAS B EEN A REGULAR INCOME-TAX ASSESSEE FOR THE PAST MANY YEARS OR THE FIRST TIME FILER OF A RETURN, ETC. IF SUCH CIRCUMSTANCES AND FACTORS ARE NOT CONSIDERED FOR WEIGHING THE GENUINENESS OR OTHERWISE OF A BONAFID E BELIEF, THEN ALL VIOLATORS OF THE RELEVANT PROVISIONS OF LAW WOULD G ET AWAY SCOT-FREE BY MERELY CLAIMING THAT THEY HAD ENTERTAINED A BONAFI DE BELIEF THAT RESULTED IN INFRINGEMENT OF THE RELEVANT PROVISIONS OF THE I.T. STATUTE. APPLYING THE AFORESTATED FACTORS AND CIRCUMSTANCES IN THE APPELLANTS CASE, IT COULD BE STATED THAT AS REGARD S THE F.Y. 2007-08 IS CONCERNED, THE DEFAULT IS LARGELY ATTRIBUTABLE TO T HE ERSTWHILE COMPANY M/S. GODAVARI FERTILISERS & CHEMICALS LTD., THAT WA S AMALGAMATED WITH THE APPELLANT COMPANY TOWARDS THE FAG END OF THE 3 RD QUARTER OF F.Y. INASMUCH AS THE APPELLANT HAD NO ROLE WHATSOEVER TO PLAY IN THE PAYMENT OF WHARFAGE CHARGES PRIOR TO AMALGAMATION, AND THE CONSEQUENTIAL NON-DEDUCTION OF TAX AT SOURCE THEREF ROM. HOWEVER, INSOFAR AS THE F.Y. 2008-09 IS CONCERNED, THE APPEL LANT CAN BE SAID TO BE IN FULL CHARGE OF THE MATTERS RELATING TO PAYMEN T OF WHARFAGE CHARGES AND, THUS, IT WAS OBLIGED IN TERMS OF THE P ROVISIONS OF SECTION 194C OF THE ACT TO DEDUCT TAX AT SOURCE IN RESPECT OF WHARFAGE CHARGES PAID. AT THIS JUNCTURE, IT IS NECESSARY TO EXAMINE AS TO WHETHER THE APPELLANT CAN BE SAID TO ENTERTAIN ANY BONAFIDE BEL IEF THAT IT WAS NOT OBLIGED UNDER THE ACT TO DEDUCT TAX AT SOURCE IN RE SPECT OF WHARFAGE CHARGES OR NOT. THE APPELLANT HAS RELIED ON THE BO ARD CIRCULAR NO.93, DT.26.9.1972 ACCORDING TO WHICH PAYMENTS, INTER ALI A, OF WHARFAGE CHARGES FOR USE OF PORT FACILITIES WOULD NOT COVERE D UNDER THE AMBIT OF SECTION 194C OF THE ACT. BUT THEN SUCH BOARD CIRCU LAR STOOD RESCINDED ITA NOS.213&214/2011 COROMANDEL INTERNATIONAL LTD., V SKP 4 LONG AGO SO AS TO SUBJECT WHARFAGE CHARGES PAYMENTS TO DEDUCTION OF TAX AT SOURCE. THE APPELLANT COMPANY BEING A PROFE SSIONALLY MANAGED COMPANY WAS EXPECTED TO KEEP TRACK OF THE CHANGES I N THE INCOME TAX STATUTE AND THE INSTRUCTIONS AND CIRCULARS OF T HE CBDT. HOWEVER, ITS CONTENTION THAT SOME NEW EMPLOYEES WORKING IN T HE TAXATION DIVISION HAD OVERLOOKED THE WITHDRAWAL OF SUCH CIRC ULAR AND WERE UNDER THE BONAFIDE IMPRESSION THAT THE SAME WAS IN SUBSIS TENCE CANNOT BE BRUSHED ASIDE. TO ERR IS HUMAN, NO MATTER HOW SMAL L OR GREAT A PERSON MAY BE. THE VERY FACT THAT THE BOARD CIRCUL AR NO.93 HAD EARLIER EXEMPTED WHARFAGE CHARGES FROM THE AMBIT OF SECTION 194C WEIGHS IN FAVOUR OF THE APPELLANT ABOUT ITS CLAIM O F ENTERTAINING A BONAFIDE BELIEF THAT IT WAS NOT LIABLE TO DEDUCT TA X AT SOURCE IN RESPECT OF WHARFAGE CHARGES AND SUCH BONAFIDE BELIEF ON THE PART OF THE APPELLANT CAN BE SAID TO CONSTITUTE REASONABLE CAUS E FOR RESCUING THE APPELLANT FROM THE LEVY OF PENALTY U/S 271C OF THE ACT. THE ASSESSING OFFICER, HAVING NOT DISCUSSED ELABORATELY WHY THE O VERSIGHT OF THE APPELLANTS EMPLOYEES IN-CHARGE OF TAXATION MATTERS WITH A BONAFIDE BELIEF THAT WHARFAGE CHARGES CONTINUED TO REMAIN OU TSIDE THE AMBIT OF SECTION 194C OF THE ACT IN THE LIGHT OF THE BOARD C IRCULAR NO.93 CANNOT BE GIVEN CREDENCE, HIS DECISION TO LEVY OF PENALTY U/S 271C OF THE ACT IN THE APPELLANTS CASE CAN BE SAID TO BE NOT FAIR AND JUST. LOOKING TO THE FACT THAT THE APPELLANT HAD ENTERTAINED A BONAF IDE BELIEF THAT IT WAS NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE IN RESPEC T OF WHARFAGE CHARGES IN THE LIGHT OF BOARD CIRCULAR NO.93 FOR THE F.Y. 2 008-09 AND THE FACT THAT A MAJOR RESPONSIBILITY FOR DEDUCTION OF TAX AT SOURCE LAY WITH THE ERSTWHILE COMPANY M/S. GODAVARI FERTILISERS AND CHE MICALS LTD., IN RESPECT OF THE F.Y. 2007-08, PENALTIES U/S 271C FOR BOTH THE F.YS WERE NOT EXIGIBLE IN THE APPELLANTS CASE ON THE REASONI NG THAT THERE EXISTED REASONABLE CAUSE FOR DEFAULT FOR BOTH THE YEARS. A CCORDINGLY, THE ORDERS IMPOSING PENALTIES U/S 271C OF THE ACT OF RS .16,85,747 AND RS.17,04,804/- FOR THE F.YS 2007-08 AND 2008-09, RE SPECTIVELY, ARE HEREBY, CANCELLED. 5. NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE T HE TRIBUNAL AND PLACED A HEAVY RELIANCE UPON THE ORDER OF THE A.O. THE LD. D.R. HAS EMPHATICALLY ARGUED THAT DURING THE RELEVANT ASSESS MENT YEARS, THE CIRCULAR NO.93 ISSUED BY THE CBDT WAS NOT IN FORCE. THEREFO RE, THE ASSESSEE WAS REQUIRED TO DEDUCT THE TDS AS PER PROVISIONS OF SEC TION 194C OF THE ACT. BUT IT DID NOT DO SO. THEREFORE, THE A.O. HAS RIGHTLY LEVIED THE PENALTY U/S 271C OF THE ACT. 6. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND HAS SUBMITTED THAT PRIOR TO THE FINANCIAL YEAR 2007-08, THE CIRCULAR N O.93 OF THE CBDT WAS IN FORCE AND ACCORDING TO WHICH THE ASSESSEE WAS NOT R EQUIRED TO DEDUCT THE TDS ON WHARFAGE CHARGES. RELYING UPON THE SAID CIR CULAR, THE ASSESSEE WAS ITA NOS.213&214/2011 COROMANDEL INTERNATIONAL LTD., V SKP 5 UNDER A BONAFIDE BELIEF THAT HE WAS NOT REQUIRED TO DEDUCT THE TDS ON WHARFAGE CHARGES. 7. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF THE ORDER OF THE LOWER AUTHORITIES, WE FIND THAT THE AS SESSEE HAS FURNISHED SUFFICIENT REASONS FOR THE NON-DEDUCTION OF TDS. I N ANY CASE, WHEN THE DEFAULT WAS POINTED OUT TO THE ASSESSEE, HE IMMEDIA TELY PAID THE TDS AMOUNT TOGETHER WITH THE INTEREST. UNDISPUTEDLY, A CCORDING TO THE CIRCULAR NO.93 OF THE CBDT, THE ASSESSEE WAS NOT REQUIRED TO MAKE TDS ON WHARFAGE CHARGES BUT THE SAID CIRCULAR WAS RESCINDED AROUND FINANCIAL YEAR 2007-08. IT IS NOT NECESSARY THAT ALL CIRCULARS MIGHT HAVE B EEN BROUGHT TO THE NOTICE OF THE ASSESSEE. HE HAS NOT DEDUCTED THE TDS UNDER A BONAFIDE BELIEF. THEREFORE, WE FIND NO MERIT IN THE PENALTY ORDER PA SSED BY THE A.O. THE CIT(A) HAS RIGHTLY ADJUDICATED THE ISSUE UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND WE FIND NO INFIRMITY THEREIN. WE ACCORDINGLY, CONFIRM HIS ORDER. 8. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 8.8.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 8 TH AUGUST, 2011 COPY TO 1 ADDL. CIT, INCOME - TAX (TDS), RANGE - 6, VISAKHAPATNAM 2 M/S. CO ROMANDEL INTERNATIONAL LTD. (FORMERLY KNOWN AS CORO MANDEL FERTILISERS LTD., BEACH ROAD, KAKINADA, EAST GODAVA RI DISTRICT). 3 THE CI T, RAJAHMUNDRY 4 THE CIT (A) , RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM