Mr. Thomas GeorgeMuthoot, Kozhencherry V. ACIT, Thiruvalla

ITA 31/COCH/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7238 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 25-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: R SRINIVASAN
• Keywords: Bonafide belief; Reasonable cause
• Section: 273B; 201(1)

Judgement Text

1 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO. 30 & 32/COCH/2013 (ASSESSMENT YEARS 2005-06 & 2007-08) SHRI THOMAS MUTHOOT VS ACIT, CIR.1 MUTHOOT HOUSE, KOZHENCHERRY THIRUVALLA PAN : AEAPM0424L (APPELLANT) (RESPONDENT) I.T.A NO. 31/COCH/2013 (ASSESSMENT YEAR 2006-07) SHRI THOMAS GEORGE MUTHOOT VS ACIT, CIR.1 MUTHOOT HOUSE, KOZHENCHERRY THIRUVALLA PAN : ABNPT4693G (APPELLANT) (RESPONDENT) I.T.A NO. 163 & 164 & 220/COCH/2013 (ASSESSMENT YEARS 2007-08 & 2009-10 & 2005-06) SHRI THOMAS JOHN MUTHOOT VS ACIT, CIR.1 MUTHOOT HOUSE, KOZHENCHERRY THIRUVALLA PAN : ABNPT4694B (APPELLANT) (RESPONDENT) APPELLANTS BY : SHRI R SRINIVASAN RESPONDENT BY : SMT. LATHA V KUMAR, JR DR DATE OF HEARING : 07-08-2014 DATE OF PRONOUNCEMENT : 24-09-2014 2 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 O R D E R PER N.R.S. GANESAN (JM) ALL THE APPEALS OF THE ASSESSEES RELATE TO THREE I NDEPENDENT ASSESSEES. ITA NO.164/COCH/2013 IS AGAINST THE LEV Y OF INTEREST U/S 201(1) & 201(1A) FOR THE ASSESSMENT YEAR 2009-10. ALL OTHER APPEALS ARE WITH REGARD TO LEVY OF PENALTY U/S 271C FOR NON DED UCTION OF TAX AT SOURCE ON THE INTEREST PAYMENT TO PARTNERSHIP FIRM. 2. LET US FIRST TAKE THE APPEAL PERTAINING TO LEVY OF INTEREST U/S 201(1) & 201(1A) IN APPEAL NO.164/COCH/2013 IN THE CASE OF S HRI THOMAS JOHN MUTHOOT. 3. SHRI R SRINIVASAN, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A PARTNER IN TWO FIRMS, VIZ. M /S MUTHOOT ESTATE & INVESTMENTS, TRIVANDRUM AND M/S MUTHOOT BANKERS, PU NNEL ROAD, TRIVANDRUM. THE ASSESSING OFFICER LEVIED INTEREST U/S 201(1) & 201(1A) ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX A ND THE SURCHARGE WHILE MAKING PAYMENT TO THE FIRMS. ON APPEAL BY TH E ASSESSEE, THE CIT(A) FOUND THAT THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE DATED 12-10-2012 IS NOT APPLICABLE. ACCORDING TO T HE LD.REPRESENTATIVE, THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA 383 TO 384 & 386/COCH/2011 ORDER 3 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 DATED 11-01-2013 FOUND THAT IT IS TO BE VERIFIED WH ETHER THE RECIPIENT OF THE INCOME IS LIABLE TO PAY TAX ON THE INTEREST INCOME. ACCORDING TO THE LD.REPRESENTATIVE, IN VIEW OF THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE, THE COMMISSIONER (APPEALS) IS NOT JUSTIFIED I N CONFIRMING THE ORDER OF INTEREST U/S 201(1) & 201(1A) OF THE ACT. THE LD.RE PRESENTATIVE FURTHER SUBMITTED THAT THERE WAS A REASONABLE CAUSE FOR NON DEDUCTION OF TAX. THE LD.REPRESENTATIVE ALSO SUBMITTED THAT THE RECIPIENT OF THE INCOME HAS ALREADY PAID THE TAX AND SURCHARGE, THEREFORE, THE ASSESSEE CANNOT BE TREATED AS ASSESSEE IN DEFAULT. MOREOVER, THE INCO ME OF THE RECIPIENT HAS NOT EXCEEDED RS.1 CRORE, THEREFORE, ASSESSEE NEED N OT DEDUCT TAX ON SURCHARGE. 4. ON THE CONTRARY, SMT. LATHA V KUMAR, THE LD.DR S UBMITTED THAT ADMITTEDLY, THE ASSESSEE IS A PARTNER IN TWO PARTNE RSHIP FIRMS. UNDER THE INCOME-TAX ACT, PARTNERS AND PARTNERSHIP FIRMS ARE TWO SEPARATE AND INDEPENDENT ASSESSABLE UNITS, THEREFORE, ANY TRANSA CTION BETWEEN THE PARTNERS AND PARTNERSHIP FIRM IS TAXABLE UNDER THE INCOME-TAX ACT. ACCORDING TO THE LD.DR, WHEN THE ASSESSEE PAYS INTE REST TO THE PARTNERSHIP FIRM, THE ASSESSEE IS LIABLE TO DEDUCT TAX U/S 194A OF THE ACT. THE NON DEDUCTION OF TAX, ACCORDING TO THE LD.DR, RESULTS I N LEVY OF PENALTY U/S 271C AND INTEREST U/S 201(1A) OF THE ACT. ON A QUERY FR OM THE BENCH, HOW 4 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 SECTION 194A IS APPLICABLE FOR INDIVIDUAL ASSESSEES , THE LD.DR, AFTER READING THE PROVISIONS OF SECTION 194A SUBMITTED TH AT SHE WOULD LEAVE THE MATTER TO THE DISCRETION OF THE COURT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CASE OF THE DEPARTMENT IS THAT THE ASSESSEE HAD TO DEDUCT TAX U/S 194A IN RES PECT OF INTEREST PAID TO THE PARTNERSHIP FIRM IN WHICH THE ASSESSEE IS A PAR TNER. FOR THE PURPOSE OF CONVENIENCE, WE ARE REPRODUCING THE PROVISIONS OF S ECTION 194A OF THE ACT BELOW: 194A. (1) ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF INTEREST OTHER THAN INCOME BY WAY OF INTEREST ON SECURITIES, SHALL, AT THE TIME OF CREDI T OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME O F PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THERE ON AT THE RATES IN FORCE: PROVIDED THAT AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL 5 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 YEAR IN WHICH SUCH INTEREST IS CREDITED OR PAID, SH ALL BE LIABLE TO DEDUCT INCOME-TAX UNDER THIS SECTION. 6. A BARE READING OF SECTION 194A CLEARLY SAYS THAT ANY PERSON NOT BEING AN INDIVIDUAL OR HUF, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF INTEREST SHALL, AT THE TIME OF CRE DIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE, DEDUCT INCOME-TAX THEREON AT THE RATE WHICH IS IN FORCE. THEREFORE, IT IS OBVIOUS THAT INDIVIDUAL AN D HUF ARE EXEMPTED FROM THE PROVISIONS OF SECTION 194A OF THE ACT. THE USE OF THE WORDS ANY PERSON NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY CLEARLY EXEMPTS INDIVIDUALS AND HUFS. THEREFORE, THE ASSESSEE BEIN G AN INDIVIDUAL IS NOT EXPECTED TO DEDUCT TAX WHILE MAKING INTEREST PAYMEN T TO ANY PERSON INCLUDING THE FIRM IN WHICH HE IS A PARTNER. HOWEV ER, THE PROVISO TO SECTION 194A(1) OF THE INCOME-TAX ACT MAKES AN EXCEPTION IN RESPECT OF INDIVIDUAL WHOSE THE GROSS RECEIPTS EXCEEDS THE LIMIT PRESCRIB ED U/S 44AB OF THE ACT. IN THIS CASE, THE GROSS RECEIPT OF THE ASSESSEE HAS EXCEEDED THE PRESCRIBED LIMIT U/S 44AB, THEREFORE, THE ASSESSEE HAS TO DEDUCT TAX U/S 194A(1) AT THE TIME OF MAKING PAYMENT. 7. NOW COMING TO THE CONTENTION OF THE ASSESSEE THA T THERE WAS A REASONABLE CAUSE FOR NON DEDUCTION OF TAX ON SURCHA RGE, THIS TRIBUNAL IS OF 6 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 THE OPINION THAT THE QUESTION OF REASONABLE CAUSE H AS TO BE CONSIDERED IN THE LIGHT OF THE PROVISIONS OF SECTION 273B AT THE TIME OF LEVY OF PENALTY. THERE IS NO QUESTION OF REASONABLE CAUSE FOR NON DE DUCTION OF TAX. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE CONTENTION OF THE ASSESSEE HAS NO MERIT. 8. IT IS WELL SETTLED PRINCIPLES OF LAW THAT TAX IN CLUDES SURCHARGE. THEREFORE, THE CIT(A) IS NOT CORRECT IN SAYING THAT THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA 385 & 391/COCH/20 11 ORDER DATED 11- 01-2013 IS NOT APPLICABLE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ORDER OF THIS TRIBUNAL IN RESPECT OF NON DEDUCT ION OF TAX IS EQUALLY APPLICABLE IN RESPECT OF NON DEDUCTION OF TAX ON SU RCHARGE ALSO. THEREFORE, THE CIT(A) IS NOT JUSTIFIED IN DISTINGUISHING THE O RDER OF THIS TRIBUNAL. 9. THE NEXT CONTENTION OF THE ASSESSEE IS THAT THE RECIPIENT OF THE AMOUNT HAS ALREADY PAID THE TAX AND SURCHARGE. THI S CONTENTION OF THE ASSESSEE NEEDS TO BE EXAMINED IN THE LIGHT OF THE J UDGMENT OF THE APEX COURT IN HINDUSTAN COCA COLA BEVERAGE P LTD VS CIT (2007) 293 ITR 226 (SC). MOREOVER, THE DECISION OF THIS TRIBUNAL IN A SSESSEES OWN CASE IN ITA 383, 384 & 386/COCH/2011 ORDER DATED 12-10-2012 IS ALSO APPLICABLE TO THE FACTS OF THIS CASE. ACCORDINGLY, THIS TRIBU NAL IS OF THE CONSIDERED 7 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 OPINION THAT THE ASSESSING OFFICER NEEDS TO RECONSI DER THE MATTER. THEREFORE, THE ORDER OF THE LOWER AUTHORITIES ARE S ET ASIDE AND THE ISSUE OF NON DEDUCTION OF TAX IS REMITTED BACK TO THE FILE O F THE ASSESSING OFFICER TO VERIFY WHETHER THE RECIPIENT OF THE AMOUNT HAS ALRE ADY PAID TAXES OR NOT INCLUDING SURCHARGE AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO T HE ASSESSEE IN THE LIGHT OF THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA 383, 384 & 386 & 391/COCH/2011 ORDER DATED 12-10-2012. 10. NOW COMING TO THE REMAINING APPEALS WHICH ARE I N RESPECT OF LEVY OF PENALTY U/S 271C, THE LD.REPRESENTATIVE FOR THE ASS ESSEE, SHRI R SRINIVSAN SUBMITTED THAT ALL THE THREE ASSESEES ARE PARTNERS IN THE PARTNERSHIP FIRM AND THE ASSESSEES PAID INTEREST TO THE PARTNERSHIP FIRM ON THE OVERDRAWING / LOAN FROM THE FIRM IN WHICH THEY ARE PARTNERS. T HE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX AS REQUIRED U/S 194A AT THE TIME OF MAKING PAYMENT. ACCORDINGLY PENALTY WAS LEVIED U/S 271C OF THE ACT. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEES W ERE UNDER THE BONA FIDE IMPRESSION THAT THEY NEED NOT DEDUCT TAX. ON AN ID ENTICAL CIRCUMSTANCE, THIS TRIBUNAL IN ITA NO.385 & 391/COCH/2011 IN THE CASE OF SHRI THOMAS MUTHOOT AND MR. THOMAS JOHN MUTHOOT ORDER DATED 11- 01-2013 FOUND THAT THERE WAS A REASONABLE CAUSE FOR NOT DEDUCTING TAX. ACCORDING TO THE 8 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 LD.REPRESENTATIVE, THE PAYMENT OF INTEREST BY THE P ARTNERSHIP FIRM TO THE PARTNER IS EXCLUDED FROM SECTION 194A(3)(IV) OF THE ACT. THEREFORE, THE ASSESEES WERE UNDER THE BONA FIDE IMPRESSION THAT T HE PAYMENT BY THE PARTNERS TO THE FIRM IS ALSO EXEMPTED. THIS TRIBUN AL ACCEPTED THE CONTENTION OF THE ASSESSEES AND FOUND THAT THERE WA S A REASONABLE CAUSE U/S 273B OF THE ACT. THEREFORE, THE PENALTY WAS D ELETED UNDER IDENTICAL CIRCUMSTANCES. 11. ON THE CONTRARY, SMT. LATHA V KUMAR, THE LD.DR SUBMITTED THAT ADMITTEDLY, THE ASSESSEES PAID INTEREST ON THE OVER DRAWINGS / LOAN AND TAX WAS NOT DEDUCTED. WHAT WAS EXEMPTED UNDER THE INCO ME-TAX ACT IS PAYMENT BY THE FIRM TO THE PARTNER AND NOT BY THE P ARTNER TO THE FIRM. THERE WAS NO REASONABLE CAUSE FOR NOT DEDUCTING TAX . THEREFORE, THE CIT(A) RIGHTLY CONFIRMED ADDITION. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THIS TRI BUNAL CONSIDERED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN ITA N O.385/COCH/2011 FOR ASSESSMENT YEAR 2006-07. THE TRIBUNAL OBSERVED AS FOLLOWS: 9 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. THE PENALTY U/S 271C OF THE AC T SHALL BE LEVIED IF THERE IS FAILURE ON THE PART OF A PERSON TO DEDUCT THE WHOLE OR ANY PART OF THE TAX AS REQUIRED BY OR UNDE R THE PROVISIONS OF CHAPTER XVII-B OF THE ACT. APPARENTL Y, THE ASSESSEES HEREIN HAVE NOT DEDUCTED TAX AT SOURCE U/ S 194A OF THE ACT ON THE INTEREST PAID BY THEM TO THE PARTNER SHIP FIRM IN WHICH THEY ARE PARTNERS. THEY PAID THE INTEREST TO THE PARTNERSHIP FIRM, SINCE THEY HAVE DRAWN FUNDS FROM THE PARTNERSHIP FIRM OVER AND ABOVE THEIR RESPECTIVE CA PITAL. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E PROVISIONS OF SEC.194A HAS PROVIDED EXEMPTION FROM DEDUCTION O F TAX AT SOURCE ONLY IN RESPECT OF INTEREST CREDITED OR PAID BY A PARTNERSHIP FIRM TO ITS PARTNERS. THE PROVISIONS O F SEC.194A DO NOT PROVIDE SUCH KIND OF EXEMPTION TO THE INTEREST PAID BY A PARTNER TO THE PARTNERSHIP FIRM IN WHICH HE IS A PA RTNER. 7. THE RIGOURS OF PROVISIONS OF SEC.271C IS SOFTENE D BY THE PROVISIONS OF SEC.273B, WHICH PROVIDE THAT THE PENA LTY UNDER THAT SECTION SHALL NOT BE IMPOSABLE OF THE PERSON, IF HE PROVES THAT THERE WAS REASONABLE CAUSE FOR THE SAID FAILUR E. NOW, THE QUESTION THAT ARISES IS WHETHER THE EXPLANATION GIV EN BY THE ASSESSEE CAN BE CONSIDERED AS A REASONABLE CAUSE IN TERMS OF SEC.273B OF THE ACT. THE EXPLANATION OF THE ASS ESSEES WAS THAT THEY WERE UNDER THE BONAFIDE BELIEF THAT THEY NEED NOT DEDUCT TAX AT SOURCE ON THE INTEREST PAID BY THEM T O THE PARTNERSHIP FIRM, AS THE FIRM IS ONLY A COMPENDIOUS EXPRESSION 10 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 FOR ITS PARTNERS AND IS NOT A LEGAL ENTITY THOUGH I T IS A SEPARATE TAXABLE ENTITY. 8. THE TAX AUTHORITIES HAVE DISMISSED THE SAID EXPL ANATION ON THE GROUND THAT THESE ASSESSEES WERE AWARE OF TH E FACT THAT SIMILAR PENALTIES WERE LEVIED ON THE SISTER CO NCERNS AND FURTHER THEY WERE ASSISTED BY A CHARTERED ACCOUNTAN T. APPARENTLY, THE TAX AUTHORITIES HAVE REFERRED TO TH E PENALTY U/S 271C LEVIED ON THE SISTER CONCERNS VIZ., M/S MUTHOO T FINANCIERS AND M/S MUTHOOT BANKERS. BOTH THE CASES CAME UP BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS DELETED THE PENALTY LEVIED U/S 271C OF THE ACT IN BOTH THE HAND S. THE CASE OF M/S MUTHOOT FINANCIERS IS REPORTED IN (2006 ) (286 ITR (AT) 71). THE ASSESSEE HAS FILED A COPY OF ORDER D ATED 123- 09-2011 PASSED IN THE CASE OF M/S MUTHOOT BANKERS I N ITA NO.280/COCH/2011. IN BOTH THE CASES, THE ASSESSEES THEREIN, WHICH ARE PARTNERSHIP FIRMS, HAD PAID INTEREST TO T HEIR SISTER CONCERNS. THERE WAS NO DISPUTE WITH REGARD TO THE FACTS THAT THESE TWO ASSESSEES WERE LIABLE TO DEDUCT TAX AT SO URCE FROM THE INTEREST SO PAID BY THEM. 9. HOWEVER, IN THE INSTANT CASES, THE FACT REMAINS THAT THE ASSESEES HEREIN, BEING INDIVIDUALS, HAVE PAID INTER EST TO THE PARTNERSHIP FIRM, IN WHICH THEY ARE PARTNERS. IN V IEW OF THE LEGAL POSITION THAT THE PARTNER AND FIRMS RE NOT TW O LEGAL ENTITIES AND FURTHER IN VIEW OF THE EXEMPTION PROVI DED IN SEC.`194A IN RESPECT OF INTEREST CREDITED OR PAID B Y A 11 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 PARTNERSHIP FIRM TO ITS PARTNERS, THE ASSESSEES HER EIN WERE UNDER THE BELIEF THAT THEY ARE NOT LIABLE TO DEDUCT TAX AT SOURCE. HENCE, IN OUR VIEW, THE SAID VIEW ENTERTAINED BY TH E ASSESSEES HEREIN CANNOT BE ALTOGETHER BE DISCOUNTED WITH AS UNTENABLE, SINCE THE ISSUE THAT THE TDS PROVISIONS SHALL NOT APPLY TO THE PAYMENT MADE BY A PARTNER TO THE PARTN ERSHIP FIRM IS A DEBATABLE ONE. HENCE THE FACTS PREVAILING IN THE CASE OF M/S MUTHOOT BANKERS AND M/S MUTHOOT FINANCIERS BEIN G DIFFERENT, IT CANNOT BE SAID THAT THE ASSESSEES WER E AWARE OF THE TDS LIABILITY, IN THE CONTEXT OF FACTS PREVAILI NG IN THE INSTANT CASE. 10. THE FULL BENCH OF HONBLE ANDHRA PRADESH HIGH C OURT HAD AN OCCASION TO INTERPRET THE TERM REASONABLE C AUSE IN THE CONTEXT OF THE THEN EXISTING PROVISIONS OF SEC. 271 IN THE CASE OF ADDL.CIT VS DARGAPANDARINATH TULJAYYA 7 CO. (107 ITR 850). AT PAGE 890, THE HONBLE HIGH COURT HAS OBSERVED AS UNDER: IT MAY ALSO BE EMPHASIZED THAT, HAVING REGARD TO THE PENALTY CONSEQUENCES, THE EXPRESSION REASONABLE CAUSE HAS TO BE LIBERALLY CONSTRUED IN FAVOUR OF THE ASSESSEE IDENTICAL VIEWS HAVE BEEN EXPRESSED BY OTHER HIGH C OURTS ALSO IN THE FOLLOWING CASES:- 12 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 (A) SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD (12 15 ITR 27)(GUJ) (B) NEMICHAND GANESHMAL VS CIT (124 ITR 438)(MP) (C) CIT VS. PATRAM DASS RAJA RAM BERI (1981)(132 IT R 671)(P&H) 11. THE HONBLE DELHI HIGH COURT HAS EXPLAINED THE TERM REASONABLE CAUSE AS UNDER IN THE CASE OF WOODWARD GOVERNOR INDIA P LTD VS. CIT (253 ITR 745) AS UNDER :- 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 GROUNDS, OF THE EXISTENCE OF A STATE OF CIRCUMSTANCES, WHICH ASSUMING THEM TO BE TRUE, WOULD REASONABLY LEAD ANY ORDINARILY PRUDENT AND CAUTIOUS MAN, PLACED IN THE POSITION OF THE PERSON CONCERNED, TO COME TO TH E CONCLUSION THAT THE SAME WAS THE RIGHT THING TO DO. THE CAUSE SHOWN HAS TO BE CONSIDERED AND ONLY IF IT IS FOUND TO BE FRIVOLOUS, WITHOUT SUBSTANCE OR FOUNDATION, THE PRESCRIBED CONSEQUENCES FOLLOW. 12. IN THE CASE OF MUTHOOT FINANCIERS (SUPRA), THE TRIBUNAL HAD TAKEN A VIEW THAT THE PENALTY SHOULD BE AVOIDED , IF THERE IS NO LOSS TO REVENUE. IN THE INSTANT CASE ALSO, IT I S REPRESENTED 13 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 THAT THE PARTNERSHIP FIRMS HAS DECLARED THE INTERES T PAID BY THE ASSESSEES HEREIN AS ITS INCOME AND THEY WERE NOT LI ABLE TO PAY ANY TAX, SINCE THE SAID PARTNERSHIP FIRM ENDED UP WITH A LOSS. 13. IF WE CONSIDER THE EXPLANATION FURNISHED BY THE ASSESEES, IN THE CONTEXT OF THE LEGAL DECISIONS REF ERRED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE BELIEF ENTER TAINED BY THE ASSESSEES THAT THEY WERE NOT LIABLE TO DEDUCT T AX AT SOURCE ON THE INTEREST PAID BY THEM TO THE PARTNERSHIP FIR M IN WHICH THEY ARE PARTNERS, CAN BE CONSIDERED AS A REASONAB LE CAUSE IN VIEW OF THE LEGAL POSITION EXISTING BETWEEN A PA RTNER AND THE PARTNERSHIP FIRM. AS STATED EARLIER THE PARTNERS A ND PARTNERSHIP FIRM ARE NOT TWO DIFFERENT LEGAL ENTITI ES, THOUGH THEY ARE TWO DIFFERENT TAXABLE ENTITIES. FURTHER, IT IS STATED THAT THE PARTNERSHIP FIRM, WHICH RECEIVED INTEREST FROM THE ASSESSEES HEREIN HAVE DULY INCLUDED THE SAME IN ITS RETURN OF INCOME FILED BEFORE THE DEPARTMENT AND THE SAID PARTNERSHIP FIRM WAS NOT LIABLE TO PAY ANY TAX, SINCE IT DECLARED LOSS. HEN CE, AS OBSERVED IN THE CASE OF M/S MUTHOOT FINANCIERS, NO LOSS IS CAUSED TO THE REVENUE. 14. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THE EXPLANATION OFFERED BY THE ASSESSEE FITS IN THE CATEGORY OF REASONABLE CAUSE IN TERMS OF SEC.273B OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORDERS PASSED BY LD. CIT(A) IN THE HANDS OF BOTH THE ASSESEES AND DIRECT THE ASSESSING OFFICER TO 14 ITA NO.30-32/COCH/2013 ITA NO. 163-164/COCH/2013 ITA NO.220/COCH/2013 DELETE THE PENALTY LEVIED U/S 271C OF THE ACT IN TH E HANDS OF BOTH THE ASSESSEES. 13. IN VIEW OF THE ABOVE ORDER OF THE CO-ORDINATE B ENCH, THIS TRIBUNAL COULD NOT FIND ANY JUSTIFICATION TO CONFIRM THE ORD ERS OF THE CIT(A). ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET SIDE AND THE PENALTY LEVIED U/S 271C IN ALL APPEALS IS DELETED. 14. IN THE RESULT, ALL THE APPEALS FILED BY THE ASS ESSEES ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH SEPTEMBER, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 24 TH SEPTEMBER, 2014 PK/- COPY TO: 1. THOMAS MUTHOOT / THOMAS JOHN MUTHOOT / THOMAS GE ORGE MUTHOOT, MUTHOOT HOUSE, KOZHENCHERRY 2. THE CIT, CIR.1, THIRUVALLA / JT.CIT (TDS), TRIVA NDRUM 3. THE COMMISSIONER OF INCOME-TAX (TDS), TRIVANDRUM 4. THE COMMISSIONER OF INCOME-TAX(A)-III, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH