I.T.O. (TDS) WARD 2(1), NAGPUR V. M/S RAMANI TIMBER MART, NAGPUR

ITA 346/NAG/2017

• Counselvise Citation: [2014] 117 COUNSELVISE.COM (IT) 8900 (ITAT-NAGPUR)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 23-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 20-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bonafide belief; Question of law; Non-deduction of tax; Reasonable cause; TDS; Set aside
• Section: 273B; 201(1); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.346/NAG./2017 ( ASSESSMENT YEAR : 201011 ) INCOME TAX OFFICER (TDS) WARD2(1), NAGPUR APPELLANT V/S M/S. RAMANI TIMBERS MART PROP: SHRI PANCHAN PREMJI PATEL LAKADGANJ, NAGPUR 440 008 PAN AAOPP5335R TAN NGPRO0382E . RESPONDENT ITA NO.348/NAG./2017 ( ASSESSMENT YEAR : 201112 ) INCOME TAX OFFICER (TDS) WARD2(1), NAGPUR APPELLANT V/S M/S. RAMANI TIMBERS MART PROP: SHRI PANCHAN PREMJI PATEL LAKADGANJ, NAGPUR 440 008 PAN AAOPP5335R TAN NGPRO0382E .... RESPONDENT 2 M/S. RAMANI TIMBERS MART ITA NO.347/NAG./2017 ( ASSESSMENT YEAR : 201213 ) INCOME TAX OFFICER (TDS) WARD2(1), NAGPUR APPELLANT V/S M/S. RAMANI TIMBERS MART PROP: SHRI PANCHAN PREMJI PATEL LAKADGANJ, NAGPUR 440 008 PAN AAOPP5335R TAN NGPRO0382E .... RESPONDENT REVENUE BY : SHRI GITESH KUMAR ASSESSEE BY : SHRI ABHAY AGRAWAL DATE OF HEARING 07.05.2017 DATE OF ORDER 11.05 .2018 O R D E R PER BENCH THE AFORESAID APPEALS AT THE INSTANCE OF THE REVENU E ARE DIRECTED AGAINST COMMON ORDERS DATED 30 TH JUNE 2017, PASSED BY THE LEARNED COMMISSIONER (APPEALS)2, NAGPUR, FOR THE ASSESSMEN T YEARS 2010 11, 201112 AND 201213. 2. THE COMMON GROUNDS RAISED BY THE REVENUE ARE REPROD UCED BELOW: A.Y. 201011 I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE' ID C!T(A) ERRED IN DELETING THE PENALTY U/S 271CA OF T HE ACT OF RS.16,97,450/-, RS.23,24,297/- & RS.32,39,415/- FOR A. YRS 2010- 11, 2011-12 & 2012-13 RESPECTIVELY. 3 M/S. RAMANI TIMBERS MART II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) ERRED IN HOLDING THAT THERE IS A REASONABLE CAUSE FOR THE DEFAULT WHEREAS THE ASSESSEE COULD NOT MAKE OUT A R EASONABLE CAUSE FOR THE SAID DEFAULT BY SUBSTANTIATING THE CL AIMS WITH ANY COGENT EVIDENCE. III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. C!T(A) HAS ERRED IN NOT CONSIDERING THE FACTS OF TH E LAW, WHEREUPON, THE DETERMINATION HAD BEEN MADE BY THE A .O. SECTION 271CA IS PLAIN AND SIMPLICITER. IT STATES IN NO AMB IGUOUS TERMS THAT' IF ANY PERSON FAILS TO COLLECT THE WHOLE OR A NY PART OF THE TAX AS REQUIRED BY OR UNDER THE PROVISIONS OF CHAPTER X VII-BB, THEN, SUCH PERSON SHALL BE LIABLE TO PAY, BY WAY OF PENAL TY, A SUM EQUAL TO THE AMOUNT OF TAX WHICH SUCH PERSON FAILED TO CO LLECT AS AFORESAID. THE PENALTY IMPOSABLE UNDER SECTION 271C A IS, THUS, MANDATORY, UNLESS THE ASSESSEE IS ABLE TO PROVE THE REASONABLE CAUSE. IT WAS FOR THIS REASON THAT THE SUPREME COUR T IN HINDUSTAN COCA COLA (JUDGEMENT DATED 16/08/2007 IN CIVIL APPE AL NUMBER 3675/2007) HAD STATED THAT INTEREST AND PENALTY WOU LD STILL BE LIABLE EVEN IF AN ASSESSEE IS ABLE TO SHOW THAT TAX ES DUE HAVE BEEN PAID BY THE DEDUCTEE-ASSESSEE. 2. BRIEF FACTS OF THE CASE LEVYING PENALTY ARE THAT THE ASSESSEE IS ENGAGED IN TIMBER BUSINESS AND IMPORTS RAT TIMBER L OGS FROM OTHER COUNTRIES, PROCESS IT INTO PLANKS (CUT TO SIZE) AND SELL THE SAME IN THE OPEN MARKET. ON A PERUSAL OF THE ORDER UNDER SECTIO N 201(1)/201(1A) R/W SECTION 206C OF THE ACT, IT IS NOTICED THAT THE ASSESSING OFFICER HAD CARRIED OUT A SPOT VERIFICATION AT THE BUSINESS PRE MISES OF THE ASSESSEE ON 4 TH DECEMBER 2013 AND THE HE FOUND THAT THE ASSESSEE H AD FAILED TO COLLECT THE TAX FROM THE BUYERS OF TIMBER AS PER THE REQUIREMENTS OF SECTION 206C OF THE ACT. IT WAS EXPLAINED BY THE AS SESSEE BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE HAS BEEN IMPORT ING LOGS OF TIMBERS, CUTTING THEM INTO DIFFERENT SIZES AND WAS SELLING THE CUT TIMBER PLANKS TO THE BUYERS. THUS, THE APPELLANT CO NTENDED THAT TCS IS 4 M/S. RAMANI TIMBERS MART APPLICABLE ON SALE OF TIMBER LOGS AND NOT ON SALE O F TIMBER PLANKS CUT INTO VARIOUS SIZES AND SOLD IN THE MARKET. IT WAS A LSO EXPLAINED BY THE ASSESSEE THAT THE DEDUCTEE / BUYERS HAD INCLUDED TH E CORRESPONDING PURCHASES IN THEIR BOOKS OF ACCOUNT AND HAVE PAID T AXES THEREON. THE ASSESSEE IN THIS REGARD HAS ALSO FILED CONFIRMATION S AND ACKNOWLEDGEMENT OF RETURN OF INCOME IN RESPECT OF M OST OF THE CASES OF DEDUCTEE ASSESSEES. THE ASSESSING OFFICER CONSID ERING THE SUBMISSIONS OF THE ASSESSEE AND KEEPING IN VIEW THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN SREE MANJUNATH WINE S V/S CIT, ACCEPTED THE CONTENTION OF THE ASSESSEE TO THE EXTE NT OF CONFIRMATION / ITR ACKNOWLEDGMENT OF DEDUCTEE FILED BY THE ASSESSE E. THE ASSESSING OFFICER, HOWEVER, IN RESPECT OF REMAINING SALES MAD E BY THE ASSESSEE HAS HELD ASSESSEE TO BE ASSESSEE IN DEFAULT IN RESPECT OF TAX AND INTEREST. THE ASSESSEE HAS ACCEPTED THE ORDER OF TH E ASSESSING OFFICER PASSED UNDER SECTION 201(1) AND HAS DULY PAID THE T AXES INCLUDING THE INTEREST IN RESPECT OF TCS AMOUNT OF ` 54,83,450 IN RESPECT OF WHICH THE ASSESSEE HAS BEEN HELD TO BE ASSESSEE IN DEFAULT UNDER SECTION 201(1) OF THE ACT. THE ASSESSING OFFICER HAS LEVIED PENALTY AMOUNTING TO ` 16,97,450 FOR THE ASSESSMENT YEAR 201011, ` 32,39,415 FOR THE ASSESSMENT YEAR 201112 AND ` 32,39,415 FOR THE ASSESSMENT YEAR 201213 RESPECTIVELY. BEING AGGRIEVED BY THE ORDER SO PASSED BY THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEALS B EFORE THE FIRST APPELLATE AUTHORITY. 5 M/S. RAMANI TIMBERS MART 3. BEFORE THE LEARNED CIT(A) THE ASSESSEE REITERATING T HE STAND TAKEN BEFORE THE ASSESSING OFFICER MADE ELABORATE S UBMISSIONS. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE DELETED THE PENALTY BY OBSERVING AS UNDER: 9.1 ON CAREFUL EXAMINATION OF THE MATERIAL FACTS, IT IS SEEN THAT THE AO HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE IN RESPECT OF SALE AMOUNTING TO RS.12,40,93,199/- ON THE BASIS OF THE CONFIRMATIONS SUBMITTED BY THE TAN HOLDER TREATING THE ASSESSEE 'AS NOT AN ASSESSEE IN DEFAULT'. BUT THE AO HAS TRE ATED THE ASSESSEE AS AN ASSESSEE IN DEFAULT FOR NON-COLLEC TION OF TCS ON THE AMOUNT OF SALE TO THE TUNE OF RS. 54,83,410/-. THE AO HAS ACCEPTED THE EXPLANATION OF THE ASSESSEE IN VIEW OF THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF HINDUSTAN COC A COLA BEVERAGES PVT. LTD. IN THE CIVIL APPEAL NO.3675/200 7 DATED 16.08.2007. IN ITS DECISION, THE HON'BLE APEX COURT HAS HELD THAT THE CIRCULAR NO.275/201/95-IT(B) DATED 29.01.1997 I SSUED BY CBDT PUT AN END TO THE CONTROVERSY. THE SAID CIRCUL AR DECLARES THAT 'NO DEMAND VISUALIZED UNDER SECTION 201 (1) OF THE INCOME TAX ACT SHOULD BE ENFORCED AFTER THE TAX DEDUCTOR H AS SATISFIED THE OFFICE-IN-CHARGE OF TDS, THAT TAXES DUE HAVE BEEN P AID BY THE DEDUCTEE-ASSESSEE. HOWEVER, THIS WILL NOT ALTER THE LIABILITY TO CHARGE INTEREST UNDER SECTION 201 (1A) OF THE ACT T ILL THE DATE OF PAYMENT OF TAXES BY THE DEDUCTEE-ASSESSEE OR THE LI ABILITY FOR PENALTY UNDER SECTION 271C OF THE INCOME TAX ACT.' 9.2 THE RELEVANT FINDING RECORDED BY THE AO IN PARA -3 OF THE ORDER U/S -201(1) IS REPRODUCED BELOW: 'BASED ON THE SUBM ISSION MADE BY THE TAN HOLDER FROM TIME TO TIME, SHORT COLLECTI ON OF TCS HAS BEEN WORKED OUT. IN SOME OF THE CASES, IT WAS SUBMI TTED THAT SHORT COLLECTION OF TAX IS LEVIABLE. IN SOME CASES, ALTHOUGH THE TAN HOLDER HAS TRIED TO PRODUCE NECESSARY EVIDENCE TO PROVE THAT THE BUYERS HAVE PAID TAXES DUE ON SUCH TRANSACTIONS OF SALE OF TIMBER, THE SAME HAS NOT BEEN CONSIDERED AS ENOUGH BY THE AO, FOR THE REASONS MENTIONED IN THE ORDER SHEET AND AG REED TO IT BY THE TAN HOLDER. AFTER VERIFICATION OF ALL THE EVIDE NCES SUBMITTED BY THE TAN HOLDER, THE TAN HOLDER IS TREATED AS AN ASSESSEE IN DEFAULT FOR NON COLLECTION OF TCS ON SALE AMOUNTING TO RS.54,83,410/-. CONFIRMATIONS SUBMITTED BY THE TAN HOLDER RELATED TO SALE AMOUNTING TO RS. 12,40,93,199/- HAV E BEEN ACCEPTED AND THE TAN HOLDER IS NOT TREATED AS AN AS SESSEE IN DEFAULT FOR THIS AMOUNT. THE RECONCILIATION OF SALE AND CALCULATION OF DEFAULT IS GIVEN IN ANNEXURE 1, WHICH FORMS PART OF THIS ORDER.' 6 M/S. RAMANI TIMBERS MART 9.3 IT IS THUS SEEN FROM THE ABOVE THAT THE ID. AO HAS TREATED THE ASSESSEE AS AN ASSESSEE IN DEFAULT' U/S 201(1) IN RESPECT OF THE AMOUNT OF RS.54,83,410/- ONLY. HOWEVER, THE AO HAS LEVIED THE PENALTY U/S 271CA IN RESPECT OF THE ENTIRE SALE AMO UNT OF RS.12,95,76,609/-(RS.12,40,93,199 + RS.54,83,410). 9.4 ON PERUSAL OF THE BOARD'S CIRCULAR REFERRED BY THE HON'BLE APEX COURT, IT BECOMES ABUNDANTLY CLEAR THAT THE PR OCEEDINGS FOR LEVY OF PENALTY U/S 271CA OF THE I.T. ACT, ARE INDE PENDENT OF SUBSTANTIVE PROVISIONS OF LAW AS STIPULATED U/S 201 (1) OF THE ACT. PENALTY CAN BE LEVIED ONLY IN CASE OF VIOLATION OF SUBSTANTIVE PROVISIONS OF LAW. THUS THE LEVY OF PENALTY U/S 271 CA IS A CONSEQUENTIAL ACT WHICH HAS ARISEN FROM THE VIOLATI ON OF SUBSTANTIVE PROVISIONS OF SECTION 201(1) OF THE ACT . SECTION 201(1) OF THE ACT PROVIDES THAT IN CASE OF FAILURE ON THE PART OF THE ASSESSEE TO MAKE TCS/TDS, AN ASSESSEE SHALL BE TREA TED AS AN 'ASSESSEE IN DEFAULT'. THUS TREATING THE ASSESSEE A S AN ASSESSEE IN DEFAULT IS A CONDITION PRECEDENT FOR LEVY OF PENALT Y U/S 271CA OF THE ACT. IN THE INSTANT CASE OF THE APPELLANT, THE AO HAS HELD THE ASSESSEE AS ASSESSEE IN DEFAULT IN RESPECT OF SALE AMOUNTING TO RS.54,83,410/- ONLY WITHIN THE MEANING OF SECTION 2 01(1) OF THE ACT AND THE AO HAS NOT TREATED THE ASSESSEE AS AN A SSESSEE IN DEFAULT FOR NON-COLLECTION OF TCS IN RESPECT OF SAL E AMOUNTING TO RS.12,40,93,199/- ON THE BASIS OF THE CONFIRMATIONS FILED BY THE TAN HOLDER WHICH HAS BEEN ACCEPTED BY THE AO IN VIE W OF THE DECISION OF HON'BLE APEX COURT IN THE CASE OF HINDU STAN COCA COLA (SUPRA). IN OTHER WORDS, SINCE THE ASSESSEE HAS SAT ISFIED THE ASSESSING OFFICER THAT TAXES DUE HAVE BEEN PAID BY THE DEDUCTEE - ASSESSEE IN RESPECT OF SALE AMOUNTING TO RS.12,40,9 3,199/-, THEREFORE, THE AO HAS TREATED THE ASSESSEE AS AN AS SESSEE NOT IN DEFAULT WITHIN THE MEANING OF SECTION 201(1) OF THE ACT. BUT IN RESPECT OF THE BALANCE AMOUNT OF SALE OF RS.54,83,4 10/- SINCE THE ASSESSEE COULD NOT SATISFY THE ASSESSING OFFICER, T HE ASSESSEE HAS BEEN TREATED AS AN ASSESSEE IN DEFAULT U/S 201(1) O F THE ACT. THUS ONCE THE ASSESSEE HAS BEEN HELD TO BE 'NOT AN ASSES SEE IN DEFAULT' WITH REFERENCE TO THE SALE AMOUNT OF RS. 12,40, 93, 199/-, THE LD. AO WAS NOT JUSTIFIED IN LEVYING THE PENALTY IN RESP ECT OF THE SALE AMOUNT OF RS. 12,40,93,199/- AND THE LEVY OF PENALT Y AT THE MOST COULD HAVE BEEN CONTEMPLATED ONLY IN RESPECT OF THE AMOUNT OF RS.54,83,410/- IN RESPECT OF WHICH ASSESSEE HAS BEE N HELD TO BE AS AN 'ASSESSEE IN DEFAULT' WITHIN THE MEANING OF S ECTION 201(1) OF THE ACT FOR WANT OF NON FURNISHING OF CONFIRMATI ONS AND COPIES OF RETURNS OF DEDUCTEE ASSESSEES. HOWEVER, THE LD. AO HAS LEVIED THE PENALTY IN RESPECT OF ENTIRE AMOUNT OF SALE WHI CH CANNOT BE HELD TO BE JUSTIFIED. 9.5 THE BOARD'S CIRCULAR IS CLARIFICATORY IN NATURE AND LEVY OF PENALTY IS NOT MANDATORY AND AUTOMATIC AND IT DEPEN DS ON FACTS 7 M/S. RAMANI TIMBERS MART AND CIRCUMSTANCES OF EACH CASE. THEREFORE, TO MY CO NSIDERED OPINION, THE LEVY OF PENALTY ON THE AMOUNT OF SALE IN THIS CASE U/S 271C, WHEN THE ASSESSEE HAS BEEN HELD TO BE NOT AN ASSESSEE IN DEFAULT IN RESPECT OF THE SUBSTANTIAL AMOUNT OF SAL E OF RS.12,40,93,199/- BY THE AO IS NOT JUSTIFIED. 9.6 THE APPELLANT HAS ALSO CHALLENGED THE LEVY OF P ENALTY U/S 271CA ON THE GROUND THAT THE PENALTY HAS BEEN LEVIE D WITHOUT CONSIDERING THE REASONABLE CAUSE PROVIDED BY THE AS SESSEE U/S 273B OF THE ACT. IN THIS REGARD, THE APPELLANT HAS SUBMITTED THAT BY VIRTUE OF CLARIFICATION ISSUED BY THE MINISTRY O F FINANCE VIDE NOTIFICATION NO. F.N0.150/131/88-TPL DATED 22.06.19 88 TO THE NAGPUR TIMBER MERCHANTS ASSOCIATION, THE ASSESSEE W AS UNDER THE BONA-FIDE BELIEF THAT THE PROVISIONS OF SECTION 206C ARE NOT APPLICABLE TO THE ASSESSEE. THE RELEVANT POINT RAIS ED AND THE CLARIFICATION GIVEN IS AS UNDER: WHETHER SAW MILL OWNERS AFTER PURCHASING AND CUTTI NG IT INTO VARIOUS SIZES WILL BE COVERED UNDER SECTION 44AC AN D 206C., REPLY - 'ROUND TIMBER PROCESSED AND CUT INTO VARIOU S SIZES AS PER ORDERS FROM MARKETS WILL AMOUNT TO PROCESSING AND A S SUCH PROVISION OF SECTION 44AC WILL NOT APPLY TO SAW MIL L OWNERS. HENCE NO TAX IS TO BE COLLECTED AT SOURCE FRON THEM BY A 'SELLER'. (COPY OF THE NOTIFICATION IS ENCLOSED HEREWITH).' 9.7 THE APPELLANT IS IN TIMBER BUSINESS. ASSESSEE PURCHASES RAW TIMBER LOGS FROM OTHER COUNTRIES AND MAINLY PROCESS ES IT INTO PLANKS AND THEREAFTER, SELLS IT IN OPEN MARKET. AFT ER PROCESSING THE LOGS INTO CUT-TO-SIZE PLANKS AND ON ITS FURTHER SAL E, THE APPELLANT HAS NOT COLLECTED TCS NOR OBTAINED FORM NO 27C AS A PPELLANT HAD BONA-FIDE BELIEF BASED ON VIEW PREVALENT AT THAT TI ME THAT TCS WAS NOT APPLICABLE ON PROCESSED PLANKS. THE APPELLA NT HAD FURTHER RELIED ON CBDT CIRCULAR NO.660 ISSUED ON 15 /09/1993 WHEREIN IT WAS CLARIFIED THAT TCS IS NOT APPLICABLE TO ANY BUYER WHO OBTAINS THE SPECIFIED GOODS FOR SUBSEQUENT OR S ECOND SALE. HOWEVER, OUT OF ABUNDANT PRECAUTION, IN CASE OF LOG S TO LOGS SALE, THE APPELLANT HAD COLLECTED FORM 27C OR TCS WAS COL LECTED AND PAID ACCORDINGLY. THE APPELLANT HAS FURTHER SUBMITT ED THAT SUBSEQUENTLY, THE APPELLANT HAD ATTENDED ONE SEMINA R ORGANIZED IN THE TIMBER BHAWAN, NAGPUR DURING APRIL/MAY 2012 WHEREIN VARIOUS ISSUES WERE DISCUSSED AND CLARIFICATIONS WE RE PROVIDED AND APPELLANT TO BE ON A SAFER SIDE STARTED COLLECTING TCS OR FORM NO. 27C FROM 01.04.2012 AND ONWARDS ON PLANKS SALE AS W ELL. ON 04/02/2013, SURVEY PROCEEDING HAD BEEN CARRIED OUT BY TDS CELL OF THE DEPARTMENT. THE APPELLANT HAS SPECIFICALLY S OUGHT THE CLARIFICATION FROM DEPARTMENT REGARDING APPLICABILI TY OF TCS PROVISIONS IN HIS CASE. IN SUPPORT OF HIS CONTENTIO NS, THE APPELLANT HAS FILED COPY OF SUBMISSIONS FILED BEFORE THE ASSE SSING OFFICER 8 M/S. RAMANI TIMBERS MART (TDS) WARD-1(1), NAGPUR ON 07/02/2013 & 15/04/2013 ANNEXED AT PAGE 1 TO 10 OF THE SUBMISSION DATED 11 TH APRIL, 2013 WHEREIN THE APPELLANT HAS ALSO REFERRED TO BOARD'S CIRCULAR NO.660. HOWEVER, THERE WAS NO RESPONSE TO THE CLARIFICATION QUERIES TO THE ASSESSEE BY THE AO. 9.8 THE APPELLANT HAS THUS SUBMITTED THAT THE REASO N FOR NON- TIMELY COMPLIANCE IN COLLECTION OF TCS WAS DUE TO L ACK OF CLARITY ON APPLICABILITY OF TCS PROVISIONS ON SALE OF PROCESSE D CUT-TO-SIZE PLANKS AND APPELLANT'S BONA-FIDE BELIEF BASED ON LE GAL OPINION OF SUPREME COURT ADVOCATE WHICH TOGETHER CONSTITUTES A REASONABLE CAUSE UNDER SECTION 273B FOR NON-LEVY OF PENALTY UN DER SECTION 271CA OF THE ACT. THE APPELLANT FURTHER SUBMITS THA T THERE WAS CONFUSION PREVAILING IN THE INDUSTRY WITH RESPECT T O APPLICABILITY OF TCS PROVISIONS ON CUT-SIZE WOODEN PLANKS. THE APPEL LANT HAD SOUGHT CLARIFICATIONS FROM THE DEPARTMENT FROM TIME -TO-TIME BUT NO CLARIFICATION WAS PROVIDED. THE APPELLANT SUBMIT S THAT THE DEPARTMENT HAS NOT PROVIDED ANY CLARIFICATION ON AP PELLANT'S EXPRESS REQUESTS MADE IN THIS REGARD, THAT THE TCS PROVISIONS WERE NOT APPLICABLE ON SALE OF PROCESSED CUT-TO-SIZ E PLANKS. COPIES OF SUBMISSIONS FILED BEFORE THE LOWER AUTHOR ITIES ARE FOUND TO HAVE BEEN ANNEXED AT PAGE NO.L TO 10 OF APPELLAN T'S SUBMISSION DATED 11.04.2017. THE APPELLANT THUS CON TENDED THAT DUE TO LACK OF CLARITY, THE APPELLANT HAD RELIED ON THE LEGAL OPINION SOUGHT BY TIMBER MERCHANT ASSOCIATION AND HENCE, BA SED ON THE OPINION OF THE LEGAL EXPERT, THE APPELLANT WAS UNDE R A BONA-FIDE BELIEF THAT TCS WAS NOT TO BE COLLECTED ON CUT-SIZE WOODEN PLANKS. THE COPY OF LEGAL OPINION SOUGHT IS ALSO FO UND ANNEXED AT PAGE 01 TO 15 OF SUBMISSION DATED 27.04.2017. 9.9 THE APPELLANT DURING THE PENALTY PROCEEDINGS HA S SUBMITTED BEFORE THE AO THAT THE ASSESSEE WAS UNDER THE BONA- FIDE BELIEF THAT SINCE THEY WERE DEALING INTO CUT SIZE TIMBERS WHICH ARE DIRECTLY USED FOR THE PURPOSE OF MAKING OF FURNITUR E ETC. HENCE ARE NOT LIABLE TO TCS. THUS CONTENDED THAT THEY ARE INV OLVED IN THE MANUFACTURING PROCESS OF CUT SIZE TIMBERS WHICH ARE DIFFERENT FROM LOGS PURCHASED IN AUCTION OR IMPORTED FROM OUTSIDE INDIA. IT IS FURTHER SUBMITTED THAT THE ASSESSEE IS NOT LIABLE T O COLLECT TAX AT SOURCE U/S 206C OF INCOME TAX ACT 1961 AS E SALES M ADE IN THE CASE OF ASSESSEE IS NOT TIMBER AS IT IS BUT CUT AND PROCESSED TO CUSTOMIZED SIZE AS PER REQUIREMENTS OF THE CUSTOMER S. THE APPELLANT THUS CONTENDED THAT IN VIEW OF CLARIFICAT ION GIVEN BY MINISTRY OF FINANCE VIDE NOTIFICATION DATED 22.06.1 988 TO THE NAGPUR TIMBER MERCHANTS ASSOCIATION, THE ASSESSEE B EING A DEALER OF TIMBER PRODUCTS IS NOT LIABLE TO COLLECT TAX AT SOURCE AND THE PROVISIONS OF SECTION 206C ARE NOT APPLICABLE I N THE CASE OF ASSESSEE. IT IS FURTHER SUBMITTED THAT THE ASSESSEE IS NOT SELLING TIMBER LOGS AS ENVISAGED U/S 206C OF INCOME TAX ACT 1961 BUT TIMBER PRODUCTS WHICH ARE DIFFERENT FROM TIMBER LOG S. 9 M/S. RAMANI TIMBERS MART 9.10 IN SUPPORT OF HIS CONTENTION OF BONA FIDE BELI EF THAT TCS IS NOT APPLICABLE ON PROCESSING OF TIMBER LOGS BY CUTT ING THEM INTO DIFFERENT SIZE OF PLANKS, THE APPELLANT HAS RELIED ON THE LEGAL OPINION SOUGHT IN THIS REGARD FROM SRI VIJAY H. PAT IL, ADVOCATE, SUPREME COURT. THE RELEVANT FINDING OF HIS LEGAL OP INION IS REPRODUCED BELOW: 'AS IT IS, ONLY FEW SPECIFIED GOODS ARE COVERED BY THE PROVISIONS FOR COLLECTION OF TAX AT SOURCE. TIMBER IS ONE OF S UCH ITEMS. IF ANYTHING IS SOLD WHICH IS BASICALLY NOT A TIMBER, B UT TIMBER MADE ARTICLE, AS LONG AS WHAT IS SOLD IS NOT TIMBER, THE N THE PROVISIONS DEALING WITH COLLECTION OF TAX AT SOURCE WILL NOT B E APPLICABLE. THEREFORE, IF THE SAW MILL CONVERTS THEM INTO SOME OTHER ARTICLE WHICH THOUGH MADE OUT OF TIMBER, IT CANNOT BE CALLE D TIMBER, THOUGH IT IS AN ARTICLE MADE OUT OF TIMBER. THEREFO RE, ARTICLE PREPARED BY PROCESSING TIMBER, SUCH AS WOODEN PLANK S THOUGH CANNOT BE CALLED TIMBER; IT MAY BE A TIMBER ARTICLE . THE SECTION DOES NOT CLASSIFY TIMBER OR ANY ARTICLE MADE OUT OF TIMBER. IT SIMPLY SPECIFIED ABOUT TIMBER. IN THE ORDINARY SENS E, TIMBER MEANS RAW TIMBER AND IF IT IS PROCESSED AND CONSTIT UTES SOME ANOTHER ARTICLE, THE SAME THOUGH MAY BE OF TIMBER C AN NO LONGER BE CALLED TIMBER. AS SUCH, IF THE SAW MILL PROCESSE S THE TIMBER, AND CONVERTS IT INTO SOME OTHER ARTICLE AND IF IT I S SOLD NOT AS TIMBER BUT AS A PROCESSED ARTICLE, THEN IN MY OPINI ON, THE QUESTION OF APPLICATION OF THE PROVISIONS OF COLLEC TION OF TAX AT SOURCE WILL NOT ARISE.' 9.11 IN THIS REGARD, THE APPELLANT HAS RELIED ON TH E FOLLOWING JUDICIAL DECISIONS: 9.12 CIT V. MITSUI & COMPANY LTD & ANR (272 ITR 054 5) (DELHI HC) : IN THIS CASE THE HON'BLE HIGH COURT HAS HELD THAT 'BONA-FIDE BELIEF OF THE ASSES SEE-COMPANY BASED ON LEGAL OPIN ION OF ITS INTERNAL LEGAL CELL THAT THE RETENTION/CONTINUATION PAY PAID BY IT IN JAPAN TO ITS EXPATRIATE EMPLOYEES DEPUTED TO INDIA IS NOT TAXABLE IN INDIA AND ACCORDINGLY THE PROVISIONS OF CHAPTER XVII-B ARE NOT APPLICABLE, CONSTITUTED A REASONABLE CAUSE FOR NOT DEDUCTING TAX AT SOURCE AND, THEREFORE, THE TRIBUNAL WAS JUSTIFIED I N CANCELLING THE PENALTY UNDER S. 271C.' 9.13 CIT V. SENCMA SA FRANCE (288 ITR 0076) (DELH I HC) : IN THIS CASE ALSO THE HON'BLE HIGH COURT HAS HELD THAT 'ASSESSEE, A FOREIGN COMPANY, HAVING NOT DEDUCTED TAX AT SOURCE FROM THE SALARIES PAID BY IT OUTSIDE INDIA TO EXPATRIATE EMP LOYEES WORKING IN INDIA IN VIEW OF CERTAIN CONFUSION THAT EXISTED IN RELATION TO THE OBLIGATION TO MAKE SUCH DEDUCTIONS, TRIBUNAL WAS JU STIFIED IN HOLDING THAT PENALTY U/S 271C NOT LEVIABLE NO SUBST ANTIAL QUESTION OF LAW ARISES.' 10 M/S. RAMANI TIMBERS MART 9.14 THE APPELLANT IN THIS REGARD HAS ALSO RELIED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT VS. ELI LI LLY & COMPANY (INDIA) (P) LTD. & ORS . , (2009) 223 CTR 0020. IN THIS CASE THE HON'BLE APEX COURT HAS HELD THAT: 'PENALTY UNDER S. 271C-FAILURE TO DEDUCT TAX AT SOU RCE- REASONABLE CAUSE-SEC. 271C CANNOT BE HELD TO BE MAN DATORY OR COMPENSATORY OR AUTOMATIC BECAUSE S. 273B STATES TH AT PENALTY SHALL NOT BE IMPOSED IN CASE FALLING THERE UNDER- I N THE INSTANT CASES, NON-DEDUCTION OF TAX AT SOURCE TOOK PLACE ON ACCOUNT OF THE CONTROVERSIAL ADDITION-FURTHER, IN MOST OF THE CASE S, THE ASSESSEES HAVE NOT CLAIMED DEDUCTION UNDER S. 40 (A) (HI) -IN SOME CASES, THE EXPATRIATE EMPLOYEES HAVE DIRECTLY PAID THE TAX ES DUE ON FOREIGN SALARY BY WAY OF ADVANCE TAX/SELF ASSESSMEN T TAX- ASSESSEES WERE UNDER GENUINE AND BONA FIDE BELIEF T HAT THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE FROM THE HOME SALARY PAID BY THE FOREIGN COMPANY/HEAD OFFICE-CONSEQUENTLY, PE NALTY UNDER S.271C IS NOT LEVIABLE IN ANY CASE.' 9.15 THE APPELLANT HAS ALSO RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF WOODWARD GOVERNERS INDIA PVT. LTD., WHEREIN THE HONBLE HIGH COURT HAS HELD THAT PENALTY UNDER S. 271CFAILURE TO DEDUCT TAX AT SOURCEREASONABLE CAUSESEC. 273B STARTS WITH A NON OBSTANTE CLAUSE WHICH MEANS THAT IT HAS AN OVERRIDING EFFECT OVER OTHER PROVISIONS OF THE A CTINITIAL BURDEN IS ON THE ASSESSEE TO SHOW THAT THERE EXISTED REASO NABLE CAUSE WHICH WAS THE REASON FOR THE FAILURE REFERRED TO IN S. 271C THEREAFTER THE OFFICER DEALING WITH THE MATTER HAS TO CONSIDER THE EXPLANATION OFFERED BY THE ASSESSEE AND ASCERTAIN A S TO WHETHER THE FAILURE WAS ON ACCOUNT OF REASONABLE CAUSENON CONSIDERATION OF PLEA RAISED BY ASSESSEE ABOUT EXISTENCE OF REASO NABLE CAUSE VITIATED THE CITS ORDER UNDER S. 264IMPUGNED ORDE R SET ASIDE CIT DIRECTED TO REEXAMINE THE MATTER. 'NON CONSIDERATION OF PLEA RAISED BY ASSESSEE ABOUT EXISTENCE OF REASONABLE CAUSE FOR FAILURE TO DEDUCT TAX AT SOURC E UNDER S. 192 VITIATED THE CIT'S ORDER UNDER S. 264 UPHOLDING THE PENALTY UNDER S. 271C; CIT DIRECTED TO RE-EXAMINE THE MATTER.' 9.16 THUS IF, THE RELEVANT PROVISIONS OF THE LAW AS STIPULATED U/S 206C, AND THE NOTIFICATIONS ISSUED BY THE MINISTRY OF FINANCE, JUDICIAL DECISIONS RELIED UPON BY THE APPELLANT AND THE LEGAL OPINION OF ADVOCATE OF SUPREME COURT ARE CONSIDERED TOGETHER WITH REFERENCE TO THE NATURE OF ACTIVITY OF CUTTING THE TIMBER LOGS INTO PLANKS BY THE ASSESSEE, IT, TO MY CONSIDERED O PINION, CONSTITUTE A REASONABLE CAUSE WITHIN SECTION 273B O F THE ACT, ATTRIBUTABLE TO THE NON-COLLECTION OF TAX AT SOURCE ON SALE OF PROCESSED TIMBER BY THE APPELLANT. THE RATIO OF THE DECISION OF THE 11 M/S. RAMANI TIMBERS MART HON'BLE APEX COURT IN THE CASE OF CIT VS. ELI LILLY & COMPANY INDIA PVT. LTD. (SUPRA) IS APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT. 9.17 THUS, ON CAREFUL EXAMINATION OF THE M ATERIAL FACTS, IT IS SEEN THAT THE SUBMISSIONS MADE BY THE APP ELLANT ALONG WITH THE DOCUMENTARY EVIDENCES SUCH AS COPY OF LEG AL OPINION OF SUPREME COURT ADVOCATE AND CORRESPONDENCE WITH THE AO SEEKING CLARIFICATION FROM TIME TO TIME ON THE ISSU E OF MAKING TCS CONSTITUTE A REASONABLE CAUSE THAT THE APPELLANT WA S UNDER A BONA FIDE BELIEF THAT TCS WAS NOT TO BE COLLECTED ON CUT SIZE WOODEN PLANKS. THEREFORE, TO MY CONSIDERED OPINION, UNDER THE FACTS AND CIRCUMSTANCES, THIS IS NOT A FIT CASE FOR LEVY OF P ENALTY U/S. 271CA FOR THE REASONS FIRSTLY; THAT THE LD. AO HAS TREATE D THE APPELLANT AS 'AN ASSESSEE NOT IN DEFAULT' U/S. 201 IN RESPECT OF SUBSTANTIAL AMOUNT OF SALE IN VIEW OF THE SUPREME COURT DECISIO N IN THE CASE OF HINDUSTAN COCA COLA (SUPRA) AND SECONDLY; THAT T HE APPELLANT HAS SATISFACTORILY DEMONSTRATED THAT HIS CASE FALLS WITHIN THE AMBIT OF REASONABLE CAUSE U/S. 273B OF THE ACT WHICH IS A TTRIBUTABLE FOR NON COLLECTION OF TCS BY THE APPELLANT DUE TO HIS B ONA-FIDE BELIEF THAT THE CUT TO SIZE PLANKS OF TIMBER LOGS IS NOT L IABLE TO TCS. THEREFORE, THE PENALTY IS NOT LEVIABLE ON THIS GROU ND AS WELL AND ACCORDINGLY, THE PENALTY LEVIED BY THE AO IS DIRECT ED TO BE DELETED. 4. THE REVENUE, BEING AGGRIEVED BY THE AFORESAID ORDER PASSED BY THE LEARNED CIT(A), IS IN APPEAL BEFORE US. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 6. PERCONTRA, THE LEARNED COUNSEL FOR ASSESSEE SUBMIT TED THAT THE ASSESSING OFFICER HIMSELF HAS NOT TREATED THE ASSES SEE AS ASSESSEE IN DEFAULT . FOR THIS PROPOSITION, HE REFERRED TO THE ORDERS P ASSED BY THE INCOME TAX OFFICER (TDS) FOR ASSESSMENT YEARS 2010 11, 201112 AND 201213 RESPECTIVELY WHICH ARE PLACED IN PAPER BOOK. FURTHERMORE, THE LEARNED COUNSEL FOR ASSESSEE SUBMI TTED THAT THERE 12 M/S. RAMANI TIMBERS MART WAS A REASONABLE CAUSE FOR THE ASSESSEE FOR NONCOM PLIANCE OF THE CONCERNED PROVISIONS. IN THIS REGARD, HE REFERRED T O THE LEGAL OPINION OBTAINED FROM AN ADVOCATE OF HONBLE SUPREME COURT A COPY OF WHICH IS PLACED IN PAPER BOOK. THE LEARNED COUNSEL FOR AS SESSEE FURTHER SUBMITTED THAT THE LEARNED CIT(A) AFTER APPRECIATIN G ALL THESE DOCUMENTS / MATTERS HAS RIGHTLY DELETED THE PENALTY . THE LEARNED COUNSEL FOR ASSESSEE, IN SUPPORT OF HIS CONTENTIONS , RELIED UPON THE FOLLOWING CASE LAWS: I) CIT V/S BANK OF NOVA SCOTIA, 380 ITR 550 (SC); II) CIT V. ELI LILLY & COMPANY (INDIA) (P) LTD & ORS (3 12 ITR 225) (SC); III) CIT V. MITSUI & COMPANY LTD. 272 ITR 545 (DELHI HC) ; IV) CIT V. SENCMA SA, FRANCE (DELHI HC); V) WOODWARD GOVERNORS INDIA (P) LTD V. CIT (253 ITR 74 5) (DELHI HC); VI) HINDUSTAN STEEL LTD V. STATE OF ORISSA (83 ITR 26) (SUPREME COURT); VII) ITO V. THE DISTRICT COLLECTOR, AMRAVATI (ITA NO.379 /NAG/ 2016) (NAGPUR TRIBUNAL); VIII) ITO (TDS) V. OM PRAKASH GUPTA (HUF) (47 CCH 0269) (CHANDIGARH TRIBUNAL); IX) JAIHIND PROJECTS V. ADDL.CIT (65 TAXMANN.COM 254) (AHMEDABAD TRIBUNAL); X) ITO V. SAMPATLAL BADRILAL SOMANI (ITA NO. 382 & 523/RJT/205) (AHMEDABAD TRIBUNAL); XI) WIPRO GE MEDICAL SYSTEMS LTD V. ITO (24 CCH 0001) (BANGALORE TRIBUNAL); 13 M/S. RAMANI TIMBERS MART XII) CIT V. HINDUSTAN COCA COLA BEVERAGE (P) LTD V. CIT (293 ITR 226) (SC). 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT, IN THIS CASE, TH E ASSESSING OFFICER HAS HELD THE ASSESSEE AS ASSESSEE IN DEFAULT IN RESPECT OF SALE AMOUNTING TO ` 54,53,414 ONLY WITHIN THE MEANING OF SECTION 201(1 ) OF THE ACT AND THE ASSESSING OFFICER HAS NOT TREATED T HE ASSESSEE AS ASSESSEE IN DEFAULT FOR COLLECTION OF TCS IN RESPECT OF SALE AMOUNTING TO ` 12,40,93,199 ON THE BASIS OF CONFIRMATION FILED BY TAN HOLDER WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN HINDUSTAN COCO COLA (SUPRA). THUS, IT IS CLEAR THAT THE ASSESSEE HAS SATISFIED T HE ASSESSING OFFICER THAT TAX HAVE BEEN PAID BY THE DEDUCTED / ASSESSEE IN RESPECT OF SALE OF ` 12,40,93,199. IT IS ONLY IN RESPECT OF BALANCE AMO UNT OF SALE OF ` 54,83,410, THE ASSESSEE COULD NOT SATISFY THE ASSES SING OFFICER AND THE ASSESSEE HAS BEEN TREATED AS ASSESSEE IN DEFAULT UNDER SECTION 201(1) OF THE ACT. IN THESE CIRCUMSTANCES, WE AGREE WITH THE LEARNED COMMISSIONER (APPEALS) THAT ONCE THE ASSESSEE HAS B EEN HELD TO BE NOT AN ASSESSEE IN DEFAULT WITH REFERENCE TO SALE A MOUNT OF ` 12,40,93,199, THERE IS NO JUSTIFICATION OF LEVYING PENALTY IN RESPECT OF SALE AMOUNTING TO ` 12,40,93,199 AND ONLY THE LEVY OF PENALTY IN RESPECT OF AN AMOUNT OF ` 54,83,410 REMAINS. 14 M/S. RAMANI TIMBERS MART 8. IN THIS REGARD, WE NOTE THAT THE ASSESSEE HAS MADE A REASONABLE CAUSE FOR ITS FAILURE TO COMPLY TO THE CONCERNED PR OVISIONS ON THE TOUCH STONE OF SECTION 273B OF THE ACT. PROVISIONS OF SECT ION 273B OF THE ACT POSTULATE THAT CONCERNED PENALTY NEED NOT BE LEVIED IF THE REASONABLE CAUSE FOR THE FAILURE OF THE ASSESSEE TO COMPLY WIT H THE CONCERNED PROVISIONS OF THE ACT IS PROVED. IN THIS REGARD, TH E ASSESSEE HAS SUBMITTED THE EXTANT LEGAL OPINION OF AN ADVOCATE O F HONBLE SUPREME COURT WHO HAD OPINED THAT THE ASSESSEE WAS NOT LIAB LE TO COLLECT THE TCS ON THE ITEMS IT DEALT WITH. SIMILARLY, THE ASSE SSEE HAS REFERRED TO THE CORRESPONDENCE WITH THE ASSESSING OFFICER SEEKI NG CLARIFICATION FROM TIME TO TIME. HENCE, IT CAN BE REASONABLY CONS TRUED THAT THE ASSESSEES CASE FALLS UNDER THE AMBIT OF SECTION 27 3B OF THE ACT WHICH IS ATTRIBUTABLE FOR NONCOLLECTION OF TCS BY THE AS SESSEE DUE TO HIS BONAFIDE BELIEF THAT THE CUT TO SIZE PLANKS OF TIMB ER LOGS ARE NOT LIABLE TO TCS. FURTHERMORE, WE FIND THAT THE DECISION REFE RRED TO BY THE LEARNED COUNSEL FOR ASSESSEE IN SUPPORT OF HIS CASE ARE GERMANE AND SUPPORT THE CASE OF THE ASSESSEE. EVEN AT THE COST OF REPETITION, WE MAY REFER TO THE DECISION OF THE HONBLE SUPREME CO URT IN HINDUSTAN STEEL LTD. (SUPRA) RENDERED BY A LARGER BENCH OF THE HONBLE SUPREME COURT COMPRISING OF THREE OF THEIR LORDSHIPS. IN TH IS CASE, IT WAS EXPOUNDED THAT WHEN THE CONDUCT OF THE ASSESSEE IS NOT CONTUMACIOUS, THE ASSESSEE NEED NOT BE VISITED WITH THE RIGORS OF PENALTY. IN THE BACKGROUND OF THE AFORESAID DISCUSS IONS AND PRECEDENT, 15 M/S. RAMANI TIMBERS MART WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED C OMMISSIONER (APPEALS) HAS CORRECTLY DELETED THE PENALTY AND, HE NCE, WE AFFIRM HIS ORDER FOR THE ALL THE ASSESSMENT YEARS UNDER CONSID ERATION. 9. IN THE RESULT, REVENUES APPEALS FOR ASSESSMENT YEA RS 201011, 201112 AND 201213 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.05.2018 SD / - RAM LAL NEGI JUDICIAL MEMBER SD/ - SHAMIM YAHYA ACCOUNTANT MEMBER NAGPUR, DATED: 11.05.2018 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, NAGPUR CITY CONCERNED; (5) THE DR, ITAT, NAGPUR; (6) GUARD FILE. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. P.S./P.S.) ITAT, NAGPUR