The Kerala State Financial Enterprises Ltd, V. ITO, Trichur

ITA 265/COCH/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52262 (ITAT-COCHIN)
• Duration Of Justice: 5 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 09-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 18-04-2006
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: JOSE POTTOKKARAN
• Keywords: Principle of natural justice; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. NO. 265/COCH/2006 ASSESSMENT YEAR:2003-04 THE KERALA STATE FINANCIAL ENTERPRISES LTD., BHADRATHA MUSEUM ROAD, THRISSUR-680020. PAN:AABCT 3817A] VS. THE I.T.O.(TDS), THRISSUR. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI JOSE POTTOKKARAN, REVENUE BY SHRI S.R.SENAPATI, SR. DR DATE OF HEARING 09/08/2011 DATE OF PRONOUNCEMENT 21/10/2011 O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE CONTESTING THE O RDER BY THE COMMISSIONER OF INCOME-TAX (APPEAL)-I, KOCHI (`CIT(A) FOR SHORT) D ATED 31.3.206, AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2003-04. 2. THE SUBJECT MATTER OF THE APPEAL IS THE LEVY OF TAX U/S. 201 AND INTEREST U/S. 201(1A) OF THE INCOME-TAX ACT, 1961 ('THE ACT' HERE INAFTER) VIDE ORDER DATED 18.4.2005 BY THE INCOME TAX OFFICER (TDS), TRICHUR, RAISING A DE MAND OF ` 7,64,60,118/-, INCLUSIVE OF INTEREST UNDER SECTION 201(1)(A) AT ` 15897630/- FOR THE ASSESSMENT YEAR (A.Y.) 2003-04, BEING PARTLY CONFIRMED BY THE IMPUGNED ORDER DATED 13/3/2006BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOCHI (`CIT(A) FOR SHORT). I.T.A. NO. 265/COCH/2006 (ASSTT. YR.: 2003-04) 2 3.1 THE FACTS OF THE CASE IN-SO-FAR AS ARE RELEVANT ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY (NON-BANKING FINANCE COMPANY), OWNE D BY THE GOVERNMENT OF KERALA, CARRYING ON CHITTY AND FINANCE BUSINESS. APART FROM ITS REGISTERED OFFICE AT TRICHUR, IT HAS FIVE REGIONAL OFFICES AND 234 BRANCHES ACROSS THE S TATE OF KERALA. THE CHITTY SUBSCRIBER USUALLY DEPOSITS SOME AMOUNT WITH THE COMPANY AS A KURI SECURITY. THE INTEREST ACCRUED THEREON, WHICH IS CREDITED PERIODICALLY TO THE DEPO SITORS ACCOUNT, IS ADJUSTED TOWARD FUTURE INSTALMENTS ON THE CHITTY, I.E., TOWARD KURI SUBSCRIPTION. WHERE THE ANNUAL INTEREST EXCEEDS ` 5000/-, THE ASSESSEE-COMPANY IS UNDER LEGAL OBLIGAT ION TO DEDUCT TAX AT SOURCE (TDS) U/S. 194A, UNLESS COVERED BY THE EXCEPTION IN S. 197A(1A). SEC. 197A(1A) PROVIDES AN EXCEPTION TO, AMONG OTHERS, SEC. 194A, UPON A DECLARATION IN WRITING IN DUPLICATE IN THE PRESCRIBED FORM AND VERIFIED IN TH E PRESCRIBED MANNER BY THE DEPOSITOR TO THE EFFECT THAT THE TAX ON HIS ESTIMATED TOTAL INCO ME FOR THE RELEVANT PREVIOUS YEAR WILL BE NIL. SECTION 197A(1B) PROVIDES AN EXCEPTION TO S . 197A (1A), SO THAT SUCH A DECLARATION COULD NOT BE FURNISHED BY A PERSON WHER E THE TOTAL INTEREST CREDITED OR PAID OR LIKELY TO BE SO DURING THE RELEVANT PREVIOUS YEAR E XCEEDS THE MINIMUM AMOUNT NOT CHARGEABLE TO INCOME-TAX. THE PRESCRIBED FORM IS F ORM 15G/15H, AND IS TO BE IN DUPLICATE. ONE COPY THEREOF IS REQUIRED TO BE DELI VERED BY THE PERSON RESPONSIBLE FOR PAYING INTEREST TO THE CHIEF COMMISSIONER OR COMMIS SIONER ON OR BEFORE THE SEVENTH DAY OF THE MONTH NEXT FOLLOWING THE MONTH IN WHICH THE DECLARATION IS FURNISHED TO HIM. 3.2 AS NO FORMS WERE DELIVERED TO THE CIT FOR THE R ELEVANT PREVIOUS YEAR, I.E., FOR THE FINANCIAL YEAR 2002-03, A SURVEY WAS CONDUCTED BY T HE ITO (TDS) AT SOME OF THE BRANCHES OF THE APPELLANT-COMPANY ON 23.2.2005. DU RING THE COURSE OF SURVEY, IT WAS OBSERVED THAT THE DEPOSITS HAD BEEN SPLIT INTO THAT FOR SMALLER AMOUNTS SO AS TO REDUCE THE INTEREST PAYMENT BELOW ` 5000 /- EACH AND, THUS, AVOID THE REQUIREMENT OF TAX DED UCTION. A BUNCH OF 334 BLANK, THOUGH SIGNED 15G/15H FORMS, RELEVANT TO THE ASSESSMENT YEAR 2003-04, WERE FOUND IN THE CUSTODY OF THE BRANCH MA NAGER, SHORNUR ROAD, TRICHUR. AS PER THE ANNUAL RETURNS OF TDS FOR THE FINANCIAL YEA R 2002-03 FILED BY THE COMPANY, INTEREST IN THE SUM OF ` 57,67,85,600/- STOOD PAID/ALLOWED WITHOUT DEDUCTION OF TDS U/S. 194A ON THE STRENGTH OF 54525 DECLARANTS IN FORM 15 H. HOWEVER, NO SUCH DECLARATIONS I.T.A. NO. 265/COCH/2006 (ASSTT. YR.: 2003-04) 3 HAD BEEN FORWARDED TO THE OFFICE OF THE CIT, TRICHU R, AS PROVIDED U/S. 197A(2). ACCORDINGLY, THE ASSESSEE WAS TREATED AS AN ASSESS EE IN DEFAULT IN RESPECT OF TAX DEDUCTION AT SOURCE ON THE SAID GROUND, I.E., ` 6,05,62,488/-, AS ALSO LIABLE FOR INTEREST U/S. 201(1A) THEREON, AND WHICH STOOD WORKED TO ` 1,58,97,630/-. RELIANCE WAS PLACED BY HIM FOR THE PURPOSE ON THE DECISION IN THE CASE OF CIT VS. RAMESH ENTERPRISES , 250 ITR 464 (MAD.) AND CHHOGMAL CHIRANJI LAL VS. CIT , 257 ITR 51 (RAJ.). IN THE FIRST APPEAL, THE ASSESSEE FURNISHED DETAILED SUBMISSIONS, WHICH WERE FORWARDED BY THE LD. CIT(A) TO THE ASSESSING OFFICER (AO) VIDE LETTER DATED 26.8.2 005 FOR HIS COMMENTS, AND WHICH WERE RECEIVED VIDE THE LATTERS REMAND REPORT DATED 6.10 .2005. BOTH THE ASSESSEES STATEMENTS AS WELL AS THE REMAND REPORT FIND REPRODUCTION IN T HE IMPUGNED ORDER. FURTHER THERE-TO, TWO FURTHER REMAND REPORTS STOOD CALLED FOR BY THE LD. CIT(A), REQUIRING THE AO TO, AFTER AFFORDING AN OPPORTUNITY TO THE ASSESSEE, FILE THE DETAILS OF THE INFIRMITIES FROM WHICH FORM 15H FOR THE RELEVANT YEAR, WHICH WERE FOUND TO HAVE BEEN FILED BEFORE THE CCIT, TRICHUR IN JUNE, 2005, SUFFERED. THE CONTENTS OF TH E FINAL REMAND REPORT DATED 25.1.2006 STAND ALSO REPRODUCED AT PARA 6 OF THE IMPUGNED ORD ER. THE AO, I.E., ITO(TDS) PROFILED ALL THE DECLARATIONS (FORM 15H) IN 6 SEPARATE CATEG ORIES, WHICH STOOD LISTED IN SEPARATE ANNEXURES, I.E., (ANNEXURE D1 TO D6), OF THE REMAND REPORT, AND THE TOTAL INTEREST IN RESPECT OF WHICH WORKED TO ` 3,44,68,514/- AND WHICH, IN HIS OPINION, COULD NOT, THEREFORE, BE CONSIDERED AS VALID. THE LD. CIT(A) THEN PROCEE DED TO BESTOW HIS ATTENTION ON EACH OF THOSE CATEGORIES, AND ISSUED HIS ADJUDICATION IN RE SPECT OF EACH OF THEM. HOWEVER, BEFORE DOING SO, HE REJECTED THE AOS PRELIMINARY OBJECTIO N THAT THE FORMS HAVING BEEN FILED WITH THE OFFICE OF THE CIT, TRICHUR AFTER THE DUE D ATE, WHICH IS LATEST BY 7.4.2003, BEING FILED ONLY IN JUNE, 2005, NONE OF THE 54525 DECLARA TIONS COULD BE ACCEPTED. IN HIS VIEW, AS THE ACT PROVIDED FOR SEPARATE PENAL CONSEQUENCE FOR THE DELAYED FILING OF THE DECLARATIONS RECEIVED U/S. 197A, I.E., VIDE S. 272 A(2)(F), THE SAID DELAY COULD NOT BE PENALISED U/SS. 201 AND 201(A), WHICH THE NON-ACCEP TANCE OF THE DEFAULT OF THE LATE DELIVERY OF FORMS 15H WITH THE OFFICE OF THE CIT WO ULD AMOUNT TO. 3.3 THE FIRST DEFECT, WHICH WAS, AGAIN, BASIC, AND EXTENDED TO ALL THE 54525 DECLARATIONS, WAS IN RESPECT OF THE MINOR IRREGULAR ITIES. WITHOUT GOING INTO THE MERITS, AS I.T.A. NO. 265/COCH/2006 (ASSTT. YR.: 2003-04) 4 THIS WOULD REQUIRE EXAMINING THE NATURE OF THE DEFE CT, HE ISSUED A PRELIMINARY FINDING THAT THE VENIAL OR MINOR NATURE OF DEFECT WOULD NOT VITI ATE THE AUTHENTICITY OF THE DECLARATIONS SUBMITTED BONA FIDE . IN OTHER WORDS, NO MALA FIDES COULD BE ATTRIBUTED TO THE DECLARATIONS FOUND SUFFERING FROM MINOR DISCREPANCIES, EVEN AS H ELD IN THE CASE OF VIJAY HEMANT FINANCE AND ESTATES LTD. VS. ITO , 238 ITR 282 (MAD.), AND THE ASSESSEE OUGHT TO BE ALLOWED AN OPPORTUNITY TO RECTIFY THE DEFECTS FOUND , EVEN IF THERE WAS NO SUCH PROVISION UNDER THE ACT FOR THE SAME. THIS WAS AS THE PRINCIP LES OF NATURAL JUSTICE, OTHER THAN WHERE SPECIFICALLY EXCLUDED OR BY WAY OF NECESSARY IMPLIC ATION, OUGHT TO BE READ INTO THE PROVISIONS OF THE ACT ENTAILING CIVIL LIABILITY. A S SUCH, THE ASSESSEE OUGHT TO, IN THE INTEREST OF JUSTICE, BE ALLOWED AN OPPORTUNITY TO R ECTIFY THOSE DEFECTS. THE ITO IN THE PRESENT CASE HAD REJECTED ALL THE FORMS WITHOUT DIS CRIMINATING THE NATURE OF THE DISCREPANCY, I.E., VENIAL OR SERIOUS. THE FIRST SE RIOUS DISCREPANCY IN FORM 15H FOUND BY HIM WERE IN RESPECT OF 127 CASES WHEREIN TDS HAD NO T BEEN DEDUCTED EVEN THOUGH THE INTEREST EXCEEDED THE MINIMUM TAXABLE INCOME ( ` 75,09,836/-). CLEARLY, THE TDS OUGHT TO HAVE BEEN DEDUCTED IN SUCH CASES AS FORM 15H, PER S . 197A (1B) COULD NOT POSSIBLY BE ISSUED IN SUCH A CASE. THE SECOND CATEGORY OF CASES IS IN RESPECT OF 176 FORM 15H, INVOLVING A TAX DEDUCTION OF ` 1850664/- WHICH WERE WITHOUT THE SIGNATURE OF THE DEDUCTEE/DECLARANT. CLEARLY, NO SANCTITY COULD BE PLACED ON SUCH FORMS AND, RATHER, HAD TO BE CONSIDERED AS NOT EXISTING. THE THIRD CATEGORY INCLUDED 517 FORM 15H, WHICH WERE NEITHER FILLED UP NOR SIGNED. THESE WERE, AGAIN, C ONSIDERED AS NON EST BY THE LD. CIT(A). THE FOURTH CATEGORY, AGAIN, WAS OF 52 CASES POINTED OUT BY THE ITO(TDS), WHICH WERE NEITHER FILED UP NOR THE VERIFICATION SIGNED. THES E WERE, AGAIN, ONLY BE CONSIDERED AS NON EST . THE FIFTH CATEGORY WAS IN RESPECT OF 1768 CASES, WHERE THE DECLARATION WAS MADE IN NEW FROM 15G/FORM 15H, I.E., AS INTRODUCED BY I.T.R ULES, 2003, WITH EFFECT FROM 01.8.2003. THE UNMISTAKABLE CONCLUSION WAS THAT TH E FORMS WERE SIGNED ONLY AFTER 31.3.2003 AND, THUS, INVALID. THE SIXTH AND FINAL CATEGORY OF CASES (156) WERE WHERE THE FORMS, AS SUBMITTED, WERE VERIFIED IN THE YEAR 1999 OR 2000. HOW COULD, THAT BEING SO, THE SAME BE APPLICABLE FOR THE CURRENT YEAR; MORE SO AS THE FORM HAS TO BE SUBMITTED ON AN ANNUAL BASIS SEPARATELY FOR EACH YEAR. CLEARLY THE FORMS SUBMITTED CANNOT BE CONSIDERED AS ACCEPTABLE FOR THE RELEVANT FINANCIAL YEAR, I.E. , 2002-03. SECONDLY, THE NON-DEDUCTION I.T.A. NO. 265/COCH/2006 (ASSTT. YR.: 2003-04) 5 AND CONSEQUENTLY NON-DEPOSIT OF TAX LIABLE FOR DEDU CTION, LEADING TO THE LEVY OF TAX TAX U/S. 201 OF THE ACT WAS CONFIRMED FOR THE AMOUNT OF TAX ON INTEREST AMOUNT OF ` 344.69 LAKHS. THE CONSEQUENTIAL INTEREST LEVIED U/S. 201(1 A) IN ITS RESPECT WAS ALSO CONFIRMED, FOLLOWING THE DECISION BY THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS. DHANALAKSHMY WEAVING WORKS, 245 ITR 13(KER.) AS WELL AS PENTAGON ENGINEERING PVT. LTD. VS. CIT , 212 ITR 92, 94 (BOM.) AND CIT VS. RATHI GUN INDUSTRIES , 213 ITR 98, 101 (RAJ.). AGGRIEVED, THE ASSESSEE IS IN APPEAL. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE FACTS OF THE CASE ARE UNDISPUTED. THE A SSESSEES ONLY CASE BEFORE THE AUTHORITIES BELOW AS WELL AS BEFORE US IS THAT IT BE ALLOWED AN OPPORTUNITY TO RECTIFY THE DEFECTS IN FORM 15H. THE LEGAL POSITION IS EXCEPTIONAL AND ST ANDS REITERATED MORE RECENTLY BY THE HONBLE APEX COURT IN THE CONTEXT OF S. 142(2A), WH ICH PROVISION, AGAIN, DOES NOT REQUIRE OR STIPULATE A REFERENCE TO THE ASSESSEE BY THE COM PETENT AUTHORITY BEFORE PASSING THE ORDER REQUIRING IT TO OBTAIN AN AUDIT REPORT THERE- UNDER. HOWEVER, THAT IS NOT THE ISSUE HERE IN AS MUCH AS THE LD. CIT(A) HAS, AT THE VERY OUTSET, ACCEPTED THE ASSESSEES CASE FOR BEING GRANTED AN OPPORTUNITY FOR REMOVAL OF DEFECTS OR DISCREPANCIES IN THE FORMS/DECLARATIONS. IN FACT, WE OBSERVE THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS BEEN INDULGENT IN THE SENSE THAT THE ASSESSEE HAS ADMITTEDLY BEEN UNABLE TO REMOVE THOSE DEFECTS DURING THE 2 YEARS THE FORMS WERE WITH IT PRIOR TO BEING SUBMITTED TO THE REVENUE IN JUNE, 2005, I.E., AFTER BEING OBTAINED, EVEN ASSUMING THE SAME TO HAVE BEEN SO ONLY BY THE LAST DATE OF THE Y EAR (31.3.2003). CLEARLY, NO PROPER VERIFICATION OF THE FORMS WAS DONE, AND THESE WERE GATHERED (FROM THE VARIOUS BRANCHES) AND, PERHAPS, EVEN OBTAINED FROM THE DEPOSITORS/SUB SCRIBERS AFTER THE SURVEY OF FEBRUARY, 2005, AND SUBMITTED IN JUNE, 2005. THIS IS ALSO BO RNE OUT BY SOME OF THE DECLARATIONS BEING IN FORMS WHICH WERE INTRODUCED ONLY FROM JUNE , 2003 ONWARDS. RATHER, IT WOULD TAKE SOME TIME FOR THE FIRMS TO BE PUBLISHED AND CO ME IN CIRCULATION, I.E., IN THE PUBLIC DOMAIN. THE UNSIGNED FORMS, AS WELL AS THOSE OBTAI NED DURING THE PRECEDING YEARS, AGAIN, CONFIRM THE PRACTICE OF NON-DEDUCTION OF TAX AT SOU RCE ON THE BASIS OF THE ASSUMPTION THAT I.T.A. NO. 265/COCH/2006 (ASSTT. YR.: 2003-04) 6 THE FORMS WOULD FOLLOW AND/OR OBTAINED IN DUE COURS E. LIKEWISE, FOR THE SPLITTING OF THE DEPOSITS TO ESCHEW THE LIABILITY FOR DEDUCTION OF T AX AT SOURCE. FURTHER, THE LD. CIT(A), IN RESPECT OF FORMS, OTHER THAN THAT NON CURABLE, FOR WHICH THE AOS ACTION STANDS CONFIRMED BY HIM, NOT SPECIFICALLY RESTORED THE MATTER BACK T O THE FILE FOR NECESSARY RECTIFICATION, BUT, AS IT APPEARS, ALLOWED RELIEF TO THE ASSESSEE UPFRONT, AND NOT SUBJECT TO THE RECTIFICATION OF THE DEFECT. 4.2 AS REGARDS THE FORM 15H CONSIDERED INVALID OR N ON CURABLE BY THE LD. CIT(A), WE ARE IN TOTAL AGREEMENT WITH HIM OF THE SAME BEING S O AND, RESULTANTLY, THE RELEVANT FORMS 15H BEING NON EST . SURELY, UNSIGNED OR UNVERIFIED FORMS OR WHICH CO ULD NOT BE LEGALLY SUBMITTED, AS WHERE THE DEDUCTEES INCOME INTEREST EXCEEDED THE MAXIMUM AMOUNT NOT CHARGEABLE TO TAX OR THOSE WHICH CAME INTO EXISTEN CE ONLY SUBSEQUENT TO THE CLOSE OF THE RELEVANT YEAR, COULD NOT POSSIBLY BE CURED, AND HAV E TO BE REJECTED. THE CHARGE OF INTEREST U/S. 201(1A) IS, AGAIN, WITHOUT DOUBT, CONSEQUENTIA L, BEING COMPENSATORY, EVEN AS CLARIFIED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DHANALAKSHMY WEAVING WORKS (SUPRA). WE, ACCORDINGLY, UPHOLD THE IMPUGNED ORD ER. 5. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 21 ST OCTOBER, 2011 GJ COPY TO: 1 THE KERALA STATE FINANCIAL ENTERPRISES LTD., BHA DRATHA MUSEUM ROAD, THRISSUR- 680 020. 2. THE INCOME TAX OFFICER (TDS), THRISSUR. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, TRICHUR. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .