Ortel Communications Ltd, Bhubaneswar V. Addl. CIT(TDS), Bhubaneswar

ITA 294/CTK/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4458 (ITAT-CUTTACK)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 11-04-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 02-08-2010
• Court: TRIBUNAL
• Department Lawyers: S K DASH
• Assessee Lawyers: B K MAHAPATRAA K SABAT ARS
• Keywords: Bonafide belief; Reasonable cause

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO , JUDICIAL MEMBER / I.T.A.NO. 294/CTK/2010 / ASSESSMENT YEAR 2008 - 09 ORTEL COMMUNICATIONS LIMITED, C - 1, CHANDRASEKHARPUR, BEHIND RMRC,NEAR BDA COLONY, BHUBANESWAR 751 016 PAN: BBNO 0184 C - - - VERSUS - ADDL.COMMISSIONER OF INCOME - TAX (TDS), BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI B.K.MAHAPATRA/A.K.SABAT, ARS / FOR THE RESPONDENT: / SHRI S.K.DASH, DR / ORDE R . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST ORDER DT.10.12.2009 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) CONFIRMING THE PENALTY OF 23,17,155 LEVIED U/S.271C OF THE INCOME - TAX ACT,1961 FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE FACTS, IN BRIEF, ARE THAT DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE PAYMENTS MADE TO BROADCASTERS OF DIFFERENT TV CHANNELS AS AIR T IME CHARGES. THE ASSESSING OFFICER HELD SUCH PAYMENTS AS PAYMENTS TOWARDS WORKS CONTRACT AND THEREFORE FALLS WITHIN THE AMBIT OF EXPLANATION III OF THE PROVISO TO SECTION 194C(2). THEREFORE, THE ASSESSING OFFICER, VIDE ORDERS U/S.201(1)/201(1A) RAISED A DEMAND OF 23,17,155, WHICH THE ASSESSEE HAS PAID. THE ASSESSING OFFICER ALSO LEVIED PENALTY OF 23,17,155 BEING 100% OF THE DEMAND RAISED U/S.201(1) AND INTEREST THEREON U/S.201(1A). IN APPEAL, THE LEARNED CIT(A) CONFIRMED THE SAID PENALTY. I.T.A.NO. 294/CTK/2010 2 3. BEFORE US , THE LEARNED AR OF THE ASSESSEE CONTENDED THAT THE ASSESSEE HAD MADE THE PAYMENTS IN QUESTION FOR AIR TIME CHARGES TO TV CHANNEL OWNERS/THEIR DISTRIBUTORS, WHICH WERE IN THE NATURE OF CONTENT PURCHASE AND THE ASSESSEE IS ONLY A SUBSCRIBER TO THE PROGRAM ME WHICH IS ALREADY BEING BROADCASTED AND TELECASTED BY DIFFERENT TV CHANNELS. THE ASSESSEE HAD AN HONEST AND BONAFIDE BELIE F THAT NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE ON SUCH PAYMENTS U/S.194C. SUCH BELIEF WAS FULLY SUPPORTED BY THE ACCEPTANCE O F THE INTERPRETATION BY AUDITORS AND ALSO OPINION OF CHARTERED ACCOUNTANT (COPY PLACED AT PAGE 65 AND 66 OF THE PAPER BOOK). HOWEVER, THE ASSESSEE PAID THE DEMAND AS RAISED U/S.201(1) AND ALSO THE INTEREST LEVIED U/S.201(1A) IN ORDER TO BUY PEACE AND TO AV OID ANY FURTHER LITIGATION. THUS, THERE BEING REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B, LEVY OF PENALTY U/S.271C WAS NOT JUSTIFIED AND THEREFORE, DIRECTED TO BE CANCELLED. IN SUPPORT OF SUCH PROPOSITION, THE LEARNED AR OF THE ASSESSEE PLACED REL IANCE ON SEVERAL JUDICIAL AUTHORITIES AS ENUMERATED IN PARAGRA PH 19 OF HIS WRITTEN SUBMISSION, AS UNDER: 1 ) WOODWARD GOVERNOR INDIA (P) LTD. VS. CIT (2002) 253 ITR 745 (DELHI) 2 ) HINDUSTHAN STEEL LTD. VS. STATE OF ORISSA 83 ITR 26 (SC) 3 ) ASHOK PAI VS. CIT (2007) 292 ITR 11 (SC) 4 ) AZADI BACHAO ANDOLON VS. UNION OF INDIA (2001) 252 ITR 471 (DELHI) 5 ) SENIOR ACCOUNTS OFFICER, THERMAL POWER PROJECT, ANPARA.VS ACIT 66 TTJ (ITA TALLAHABAD,) 6 ) KAMAL INDUSTRIES VS. JCIT (22005) 100 TTJ 45 1 (ITAT, JODHPUR) 7 ) CIT VS ITOCHA CORPORAT ION (2004) 268 ITR 172 (DELHI) 8 ) CIT VS MITSUI AND CO. (2005) 272 ITR 545 (DELHI) 9 ) CIT VS NHK JAPAN BROADCASTING CORPORATION (2006) 284 ITR 357 (DELHI) 10 ) ITO VS. MUTHOOT FINANCIERS (2006) 286 ITR (AT) 71 (COCHIN) 11) A. SOLOICITOR, IN RE (1945) KB 368 (CA) 12) CIT V. FOURWAYS INTERNATIONAL(2008) 166 TAXMAN 461 (DEL) 4. THE LEARNED DR, ON THE OTHER HAND, CONTENDED THAT THE PAYMENTS IN QUESTION IS SUBJECT TO TDS UNDER THE PROVISIONS OF EXPLANATION III BELOW THE PROVISO TO SUB - SECTION (2) TO SECTION 194C, WHICH ALSO BEEN ACCEPTED BY THE ASSESSEE BY MAKING PAYMENT OF THE DEMAND RAISED U/S.201(1) AND 201(1A). BUT THE ASSESSEE HAS SHOWN I.T.A.NO. 294/CTK/2010 3 NO REASONABLE CAUSE AS TO WHY IT DID NOT DEDUCT TAX AT SOURCE AT THE TIME OF MAKING SUCH PAYMENTS. THEREFORE, THE PENALTY IMPOSED U/S.271C IS JUSTIFIED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE DECISIONS RELIED ON BY THE LEARNED AR OF THE ASSESSEE. WE FIND THAT AS PER THE RELEVANT PROVISIONS OF EXPLANATION III BELOW THE PR OVISO TO SECTION 194C(2), THE PAYMENTS IN QUESTION IS SUBJECT TO DEDUCTION OF TAX AT SOURCE AND THE ASSESSEE HAS PAID THE DEMAND RAISED U/S.201(1) AND 201(1A) IN THIS REGARD. FOR NON - DEDUCTION OF TAX AT SOURCE ON SUCH PAYMENTS, THE AUTHORITIES BELOW HAVE L EVIED THE IMPUGNED PENALTY. IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. V. CIT [2002] 253 ITR 745 (DELHI) , IT IS H ELD THAT LEVY OF PENALTY UNDER SECTION 271C IS NOT AUTOMATIC. BEFORE LEVYING PENALTY, THE CONCERNED OFFICER IS REQUIRED TO FIND OUT THAT EVEN IF THERE WAS ANY FAILURE REFERRED TO IN THE CONCERNED PROVISION THE SAME WAS WITHOUT A REASONABLE CAUSE. THE INITI AL BURDEN IS ON THE ASSESSEE TO SHOW THAT THERE EXISTED REASONABLE CAUSE WHICH WAS THE REASON FOR THE FAILURE REFERRED TO IN THE CONCERNED PROVISION. THEREAFTER THE OFFICER DEALING WITH THE MATTER HAS TO CONSIDER THE EXPLANATION OFFERED BY THE ASSESSEE OR THE PERSON, AS THE CASE MAY BE. REASONABLE CAUSE AS APPLIED TO HUMAN ACTION IS THAT WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE. IT CAN BE DESCRIBED AS PROBABLE CAUSE. IT MEANS AN HONEST BELIEF FOUNDED UPON REASONABLE GRO UNDS, OF THE EXISTENCE OF A STATE OF CIRCUMSTANCES, WHICH ASSUMING THEM TO BE TRUE, WOULD REASONABLY LEAD ANY ORDINARY PRUDENT AND CAUTIOUS MAN, PLACED IN THE POSITION OF THE PERSON CONCERNED, TO COME TO THE CONCLUSION THAT THE SAME WAS THE RIGHT THING TO DO. THE CAUSE SHOWN HAS TO BE CONSIDERED AND ONLY IF IT FOUND TO BE FRIVOLOUS, WITHOUT SUBSTANCE OR FOUNDATION, THE PRESCRIBED CONSEQUENCES FOLLOW . NOW COMING TO THE CASE ON HAND, WE FIND THAT IT IS THE CONTENTION OF THE ASSESSEE RIGHT FROM THE BEGINNING T HAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON SUCH PAYMENTS UNDER THE BONAFIDE BELIEF THAT THE PAYMENTS IN QUESTION BEING AIR TIME CHARGES PAID TO TV CHANNEL OWNERS WERE IN THE NATURE OF CONTENT PURCHASE AND THEREFORE, NOT LIABLE TO TDS U/S.194C , WHICH HAS ALSO BEEN ACCEPTED BY THE AUDITOR AND ALSO I.T.A.NO. 294/CTK/2010 4 SUBSEQUENTLY OPINED BY THE CHARTERED ACCOUNTANT GIVING HIS OPINION (SUPRA) FOR NOT TO BE DISALLOWED U/S.40(A)(IA) . THE ISSUE WAS THEN NEW ONE IN THE COUNTRY AND DEBATABLE AND IT WAS ON THE BASIS OF PUNJA B & HARYANA HIGH COURT DECISION IN THE CASE OF KURUKSHETRA DARPANS (P) LTD., V. CIT (169 TAXMAN 344),( REPORTED IN MAY, 2008), THE ASSESSEE STARTED DEDUCTING TAX AT SOURCE ON SUCH PAYMENTS FROM 1.4.2008. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED B Y THE AUTHORITIES BELOW AS REASONABLE CAUSE. BUT WE ARE OF THE OPINION THAT AN HONEST BELIEF FOUNDED UPON REASONABLE GROUNDS, OF THE EXISTENCE OF A STATE OF CIRCUMSTANCES, WHICH ASSUMING THEM TO BE TRUE, WOULD REASONABLY LEAD ANY ORDINARY PRUDENT AND C AUTIOUS MAN, PLACED IN THE POSITION OF THE PERSON CONCERNED, TO COME TO THE CONCLUSION THAT THE SAME WAS THE RIGHT THING TO DO. OUR ABOVE VIEW FINDS SUPPORT FROM THE VARIOUS DECISIONS CITED BY THE LEARNED AR OF THE ASSESSEE. THE ASSESSEE IN THE PRESENT CASE HAS GIVEN EXPLANATION BEFORE THE AUTHORITIES BELOW THAT THE DUE TO CIRCUMSTANCES PREVAILING AND UNDER BONAFIDE BELIEF THAT TAX WAS NOT REQUIRED TO BE DEDUCTED AT SOURCE U/S.194C ON THE PAYMENTS IN QUESTION. C ONSIDERING THE FACTS AND CIRCUMSTANCES OF T HE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE NON - DEDUCTION OF TAX AT SOURCE ON SUCH PAYMENTS CANNOT BE SAID TO BE WITHOUT A REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273C . THEREFORE, THE PENALTY LEVIED U/S.271C IN THE INSTANT CASE IS NOT JUSTIFIED AND AS SUCH, WE CANCEL THE SAME BY ALLOWING THE APPEAL OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 21 ST APRIL, 2011 S D/ - S D/ - ( . . . ) , ( K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 21 ST APRIL, 2011 ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 294/CTK/2010 5 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : ORTEL COMMUNICATIONS LIMITED, C - 1, CHANDRASEKHARPUR, BEHIND RMRC,NEAR BDA COLONY, BHUBANESWAR 751 016 2 / THE RESPONDENT: ADDL.COMM ISSIONER OF INCOME - TAX (TDS), BHUBANESWAR. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY