Ajay Binay Institute of Technology, Cuttack V. Addl. CIT(TDS), Bhubaneswar

ITA 337/CTK/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4454 (ITAT-CUTTACK)
• Duration Of Justice: 7 month(s) 3 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: 2005-2006
• Appeal Filed On: 17-09-2010
• Court: TRIBUNAL
• Department Lawyers: J KHANRADR
• Keywords: Bonafide belief; Non-deduction of tax; Reasonable cause
• Section: 194C; 201(1)

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. 337,338, 339 AND 340/CTK/2010 / ASSESSMENT YEAR S 2005 - 06, 2006 - 07, 2007 - 08 AND 2008 - 09 AJAY BINAY INSTITUTE OF TECHNOLOGY, PILLOO MODY COLLEGEL OF ARCHTECTURE, CUTTACK. PA N: AAATA 9185 G - - - VERSUS - ADDL.COMMISSIONER OF INCOME - TAX (TDS), BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI KESHAV DUBEY, AR / FOR THE RESPONDENT: / SHRI J.KHA NRA,DR / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THESE APPEALS BY THE ASSESSEE ARE AGAINST ORDERS DT.12.7.2010 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) CONFIRMING THE PENALTY LEVIED U/S.271C OF THE INCOME - TAX ACT ,1961 FOR THE AYS 2005 - 06, 2006 - 07, 2007 - 08 AND 2008 - 09 . 2. DURING THE ASSESSMENT YEARS UNDER CONSIDERATION, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON PAYMENTS MADE TO MESS CONTRACTOR S FOR THE HOSTEL RUN BY THE ASSESS EE FOR ITS STUDENTS AND ALSO ON PAYMENT MADE TO CERTAIN SUPPLY CONTRACTORS, LABOUR CONTRACTORS, AND CONSULTANTS, AS REQUIRED U/S.194C AND 194J. THE ASSESSING OFFICER THEREFORE, RAISED DEMAND U/S.201(1) AND ALSO LEVIED INTEREST U/S.201(1A) AND THE ASSESSEE PAID THE SAME. THE ASSESSING OFFICER ALSO INITIATED PENALTY PROCEEDINGS U/S.271C. IN RESPONSE TO SHOW CAUSE, THE ASSESSEE EXPLAINED THAT DUE TO HONEST AND BONAFIDE BELIEF THAT NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE FROM THE PAYMENTS MADE TO MESS CONTR ACTORS, THE ASSESSEE DID NOT 2 DEDUCT TAX AT SOURCE. IN RESPECT OF NON - DEDUCTION OF TAX AT SOURCE ON THE PAYMENTS MADE TO LABOUR CONTRACTORS, CONSULTANTS, THE ASSESSEE EXPLAINED THAT IT WAS DUE TO OVERSIGHT OF THE ACCOUNTANT OF THE ASSESSEE. THE ASSESSING OF FICER DID NOT ACCEPT SUCH EXPLANATION TO BE A REASONABLE CAUSE FOR THE FAILURE TO DEDUCT TAX AT SOURCE. ACCORDINGLY HE LEVIED PENALTY U/S.271C. IN APPEAL, THE LEARNED CIT(A) CONFIRMED THE SAME AND THE ASSESSEE IS IN APPEALS BEFORE THE TRIBUNAL. 3. BEFORE U S, THE LEARNED AR OF THE ASSESSEE CONTENDED THAT THE ASSESSEE HAD MADE THE PAYMENTS IN QUESTION TO MESS CONTRACTOR FOR THE HOSTEL RUN BY THE ASSESSEE FOR ITS STUDENTS AND ALSO ON PAYMENT MADE TO SUPPLY CONTRACTORS, LABOUR CONTRACTORS, AND CONSULTANTS BUT T HE ASSESSEE HAD AN HONEST AND BONAFIDE BELIEF THAT NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE ON SUCH PAYMENTS U/S.194C IN CASE OF PAYMENTS TO MESS CONTRACTOR AND DUE TO MISTAKE DUE TO OVERSIGHT OF THE ACCOUNTANT IN CASE OF OTHER PAYMENTS. THEREFORE, THE ASSESSEE HAS PAID THE DEMAND MADE U/S.201(1) AND ALSO THE INTEREST U/S.201(1A) AS SOON AS RAISED BY THE DEPARTMENT. 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. 4. THE LEARNED DR, ON THE OTHER HAND, CONTENDED THAT THE PAYMENTS IN QUESTION IS SUBJECT TO TDS UNDER THE PROVISIONS UNDER SECTION 194C AND U/S.194J, WHICH HAS 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 NO SUFFICIENT 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, PERUS ED THE MATERIAL AVAILABLE ON RECORD . WE FIND THAT AS PER THE RELEVANT PROVISIONS OF SECTION 194C AND 194J, 3 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 LEVIED THE IMPUGNED PENALTY. IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. V. CIT [2002] 253 ITR 745 (DELHI) , IT IS HELD 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 INITIAL 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 DE ALING 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 D ESCRIBED 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 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 H AND, WE FIND THAT THOUGH THE ASSESSEE STATED TO HAVE DEDUCTED TAX AT SOURCE ON PAYMENTS OF SALARY, RENT, PROFESSIONAL SERVICES, CONTRACTORS LIKE SECURITY GUARDS, TRANSPORTERS, BUILDING CONTRACTORS, ADVERTISEMENT AGENCIES ETC., UNDER THE HONEST AND BONAFIDE BELIEF THE ASSESSEE WAS UNDER IMPRESSION THAT NO SUCH TAX AT SOURCE IS REQUIRED TO BE DEDUCTED ON THE PAYMENTS MADE TO MESS CONTRACTORS TOWARDS FOOD EXPENSES FOR THE STUDENTS OF THE COLLEGE. FURTHER, NO TAX WAS 4 DEDUCTED AT SOURCE IN RESPECT OF OTHER PAYME NTS IN QUESTION DUE TO THE MISTAKE OF THE ACCOUNTANT OF THE ASSESSEE. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY 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 CAUTIOUS 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 MADE TO MESS CONTRACTORS AND DUE TO MISTAKE COMMITTED BY THE ACCOUNTANT IN RESPECT OF OTHER PAYMENTS IN QUESTION. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE NON - DEDUCTION OF TAX AT SOURCE ON SUCH PAYMENTS CANNOT BE SAI D TO BE WITHOUT A REASONABLE CAUSE WI THIN THE MEANING OF SECTION 273 B . 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 S OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL S OF THE ASSESSEE ARE 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. ( ) DAT E: 21 ST APRIL, 2011 ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY. 5 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : 2 / THE RESPONDENT: 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY