Ornet Intermediates Pvt. Ltd., Ahmedabad V. The Addl.CIT.,TDS Range, Ahmedabad

ITA 2575/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2008 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 27-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR RAJA RAM SAH
• Keywords: Non-deduction of tax; Reasonable cause
• Section: 273B; 201(1)

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.2575, 2576 AND 2577/AHD/2010 [ASSTT. YEAR : 2006-2007, 2007-2008 AND 2008-2009] M/S.ORNET INTERMEDIATES LTD. 3 RD FLOOR, SURYARATH B/6, WHITE HOUSE, PANCHAVATI AHMEDABAD. PAN : AAACO 2744 E VS. ACIT-TDS RANGE AHMEDABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : DR. RAJA RAM SAH O R D E R PER BENCH : ALL THESE THREE APPEALS HAVE BEEN FILED BY THE ASSE SSEE RESPECTIVELY ARISING FROM THE ORDERS OF THE CIT(A)- VI, AHMEDABAD DATED 16-7- 2010 AGAINST LEVY OF PENALTY UNDER SECTION 271C OF THE INCOME TAX ACT, 1961 FOR A.Y.2006-07 RS.26,11,900/-, FOR A.Y.2008-2009 R S.4,43,265/- AND A.Y.2007-2008 RS.12,12,783/-. SINCE FACTS IN RESPE CT OF ALL THE THREE YEARS ARE IDENTICAL, THEREFORE, WE SHALL PROCEED WITH THE FAC TS OF THE LEAD ASSESSMENT YEAR I.E. A.Y.2006-2007. 2. WHILE LEVYING PENALTY UNDER SECTION 271C FOR NON -DEDUCTION OF TDS VIDE ORDER DATED 3-12-2009, IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD MADE THE PAYMENT OF INTEREST OF RS.1,16,39,481/- TO THE COMPANIES VIZ. DSP MERRIL LYNCH LTD. AND KOTAK MAHINDRA LTD. IT WAS EXPLAINE D THAT THE NATURE OF PAYMENT WAS NOT INTEREST PAYMENT BUT TOWARDS THE CO ST OF SHARES. IT WAS STATED THAT THE ASSESSEE HAS ADVANCED A FRACTION OF THE SH ARE APPLICATION MONEY AS MARGIN MONEY TO THESE COMPANIES AND AFTER ADDING TH E REMAINING AMOUNT BY THOSE COMPANY, THE TOTAL SHARE APPLICATION MONEY WA S DEPOSITED. THE AO HAS RULED OUT THE THEORY OF COST OF SHARES AND HELD T HAT THE BALANCE AMOUNT OF ITA NO.2575, 2576 AND 2577/AHD/2010 -2- SHARE APPLICATION MONEY BEING ADVANCED ON BEHALF OF THE ASSESSEE, THEREFORE, IT WAS A LOAN TO THE ASSESSEE ON WHICH THE INTEREST WA S PAID, HENCE SUBJECT TO DEDUCTION OF TDS. THE AO HAS MENTIONED THAT THE OR DER SECTION 201(1) AND 201(1A) OF THE ACT HAD ALREADY BEEN PASSED. HE HAS ALSO MENTIONED THAT THERE WAS NO REASONABLE CAUSE FOR NOT DEDUCTING TDS THERE FORE OUT OF THE AMBIT OF THE PROVISIONS OF SECTION 273B OF THE IT ACT AND AC CORDINGLY IMPOSED PENALTY UNDER SECTION 271C FOR ALL THE THREE YEARS. 3. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLAT E AUTHORITY. THE LEARNED CIT(A) HAS DISCUSSED BOTH THE SIDES OF THE ARGUMENT S I.E. WHETHER THE PENALTY WAS LEVIABLE UNDER SECTION 194A OF THE IT ACT, AS WELL AS, THE QUESTION OF REASONABLE CAUSE AS PRESCRIBED UNDER SECTION 273B O F THE ACT. IN HIS OPINION, THE ASSESSEE HAS NOT ESTABLISHED ANY GOOD AND SUFFI CIENT REASON FOR NOT DEDUCTING THE TAX AT SOURCE. BEFORE THE LEARNED CI T(A), IT WAS VEHEMENTLY CONTESTED THAT THE ASSESSEE HAS FORWARDED SHARE APP LICATION IN IPOS., AND INVESTED ONLY MARGIN MONEY, HOWEVER, PORTION OF THE SHARE APPLICATION MONEY WAS INVESTED BY THOSE COMPANIES. THE AMOUNT REFUND ED IN CASE OF NON- ALLOTMENT OR PART ALLOTMENT HAS BEEN RECEIVED BY TH ESE COMPANIES, THEREFORE, THE PAYMENT WAS NOTHING BUT TOWARDS THE COST OF SHA RES. HOWEVER, THE LEARNED CIT(A) HAS REJECTED BOTH THE PLEAS AND AFFIRMED THE ACTION OF THE AO. 4. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. FR OM THE SIDE OF THE ASSESSEE ONLY WRITTEN SUBMISSIONS HAVE BEEN FURNISH ED AND FROM THE SIDE OF THE REVENUE DR.RAJA RAM SHAH, LEARNED SR.DR APPEARED. WE HEARD ARGUMENTS OF THE LEARNED DR AT SOME LENGTH AND ALSO CAREFULLY PE RUSED THE WRITTEN SUBMISSIONS. FEW THINGS HAVE BEEN NOTICED BY US, THAT IS, SHARE APPLICATION MONEY HAS BEEN FORWARDED FOR IPO ISSUE OF THESE COM PANIES ON BEHALF OF THE ASSESSEE. THAT THE ASSESSEES INVESTMENT WAS ONLY STATED TO BE MARGIN MONEY. THROUGH WRITTEN SUBMISSIONS, IT HAS BEEN PLACED ON RECORD THAT THE PAYMENT MADE TO THESE COMPANIES HAVE NOT BEEN DEBITED AS PA YMENT OF INTEREST IN THE ITA NO.2575, 2576 AND 2577/AHD/2010 -3- BOOKS OF ACCOUNTS, BUT THE SAID PAYMENT WAS DEBITED TOWARDS INVESTMENT ACCOUNT. THAT THE ASSESSEE HAS RECORDED THE TRANSA CTION IN THE BOOKS OF ACCOUNT AS EXPENDITURE TOWARDS INVESTMENT THEREFORE TREATED THE PAYMENTS AS COST OF SHARES. IT IS STATED THAT ON ACCOUNT OF THE FACT T HAT THE PAYMENT WAS NOT TREATED AS INTEREST PAYMENT THEREFORE NO TAX WAS DEDUCTED A T SOURCE. RELIANCE HAS ALSO BEEN PLACED ON THE DECISION OF THE ITAT PUNE BENCH IN THE CASE OF S. BALAN VS. DCIT, 120 ITD 469. FURTHER, AN ALTERNATE PLEA HAS ALSO BEEN RAISED THAT THE PROVISIONS OF SECTION 273B SHOULD ALSO BE APPLI ED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, BECAUSE THE ASSESSEE WAS UNDER THE IMPRESSION THAT THERE WAS BONA FIDE CAUSE FOR NON-DEDUCTION OF TAX AT SOURCE. IN SUPP ORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ELI LILLY & CO. (INDIA) P. LTD., 312 ITR 225 (SC). 5. HAVING PERUSED THE WRITTEN SUBMISSIONS, AS ALSO ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT IS NOT A FIT CASE WHERE THE PENALTY UNDER SECTION 271C SHOULD BE IMPOSED. AS STATED IN THE WRITTEN SUBMISSION, THE ASSESSEE HAS TREATED THE IMPUGNED P AYMENT AS PAYMENT TOWARDS COST OF SHARES, MOREOVER UNDER BONAFIDE BEL IEF THE ASSESSEE HAS NEVER TREATED THE PAYMENT AS PAYMENT TOWARDS THE INTEREST . THE ASSESSEE HAS ALSO EXPLAINED THAT ONLY THE MARGIN MONEY IN RESPECT OF SHARE APPLICATION MONEY FOR IPOS ISSUE WAS CONTRIBUTED AND REST OF THE PAYM ENT WAS MADE BY THE SAID COMPANIES PROVIDING THE FINANCE FOR THE SAID TRANSA CTION. IT HAS ALSO BEEN STATED THAT THE ASSESSEE WAS ENTITLED ONLY FOR THE FRACTION OF THE AMOUNT INVESTED IN THE CASE OF NON-ALLOTMENT OF SHARES THEREFORE TH E REST OF THE PAYMENTS WERE DIRECTLY RECEIVED BY THOSE COMPANIES AND NOT BY THE ASSESSEE. IN VIEW OF THIS, THE BONA FIDE OF THE ASSESSEE MUST NOT BE DOUBTED AND THE QUESTI ON OF LEVY OF PENALTY UNDER SECTION 271C CAN BE SAID TO BE COVERE D BY THE PROVISIONS OF SECTION 273B BECAUSE THE ASSESSEE HAS PROVED THAT T HERE WAS REASONABLE CAUSE FOR THE IMPUGNED FAILURE, IF ANY. FOLLOWING THE DE CISIONS STATED HEREINABOVE, ITA NO.2575, 2576 AND 2577/AHD/2010 -4- WE HEREBY REVERSE THE FINDINGS OF THE AUTHORITIES B ELOW AND DIRECT TO DELETE THE PENALTY. 6. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE A RE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 11 TH FEBRUARY, 2011. SD/- SD/- (G.D. AGARWAL) VICE-PRESIDENT (MUKUL KR. SHRAWAT) JUDICIAL MEMBER PLACE : AHMEDABAD DATE : 11-02-2011 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