The ITO,(Intl.Taxn.)-II, Ahmedabad V. M/s. Ahmedabad Vadodara Express Co.Ltd., Ahmedabad

ITA 4081/AHD/2008

• Counselvise Citation: 408120514 RSA 2008
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-07-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 19-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SOURYAVANSHI
• Keywords: Rectification of order; Question of law; Wholly owned subsidiary; Non-deduction of tax; Reasonable cause
• Section: 273B; 194C; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI T. K. SHARMA, JM AND A. MOHAN ALANKA MONY, AM ) ITA NO.4051/AHD/2008 A. Y.: 2003-04 AHMEDABAD VADODARA EXPRESSWAY CO. LTD., JAYRAJ, 7/8 BHANU CHANDER SOCIETY, JIVRAK PARK, AHMEDABAD VS THE JT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), AHMEDABAD PA NO. AADCA 3349 L (APPELLANT) (RESPONDENT) ITA NO.4081/AHD/2008 A.Y.: 2003-04 THE ITO (INTERNATIONAL TAXATION)-II, 4 TH FLOOR, NATURE VIEW BUILDING, ASHRAM ROAD, AHMEDABAD VS AHMEDABAD VADODARA EXPRESSWAY CO. LTD., JAYRAJ, 7/8 BHANU CHANDER SOCIETY, JIVRAK PARK, AHMEDABAD PA NO. AADCA 3349 L (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI SUMANT CHADHA, AR DEPARTMENT BY SHRI G. S. SOURYAVANSHI, SR. DR DATE OF HEARING : 07.07.2011 DATE OF PRONOUNCEMENT : 26.08.2011 O R D E R PER T. K. SHARMA: THESE CROSS APPEALS ARE AGAINST COMMON ORDER OF THE CIT(A)-XI, AHMEDABAD DATED 19-09-2008 SUSTAININ G THE PENALTY U/S 271C OF THE IT ACT TO THE EXTENT OF RS.1,73,50,660/- OUT OF PENALTY OF RS.3,52,96,067/- LEVIED BY THE JOINT DIRECTOR OF INCOME TAX FOR ASSE SSMENT YEAR 2003-04. ITA NOS. 4051 AND 4081/AHD/2008 AHEMDABAD VADODARA EXPRESSWAY CO. LTD. 2 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE INDIAN COMPANIES ACT, 1956 AND IS A 100% SUBSIDIARY OF NATIONAL HIGHWAY AUTHORITY OF INDIA (NHAI). IT WAS INCORPORA TED AS SPECIAL PURPOSE VEHICLE TO CONSTRUCT, OPERATE AND MAINTAIN EXPRESSW AY BETWEEN AHMEDABAD AND VADODARA. IT WAS IMPLEMENTING CONSTRUCTION CONTRACT AS PER TERMS OF CONTRACT DATED 11THJULY, 2000 ENTERED INTO BETWEEN NHAI AND CONTRACTOR FOR THE PROJECT M/S. P. T. SUMBER MITRA JAYA, INDONESIA. TO REPLACE THE COMPANY IN PLACE OF NHAI, A NOVATIO AGREEMENT DATED 7 TH AUGUST, 2002 WAS ENTERED INTO AMONG THE ASSESSEE COMPANY, NHAI AND M/S. P. T. SUMBER MITRA JAYA. BY VIRTUE OF THIS AGREEMENT, THE ASSESSEE (AVEXCL) BECOMES THE PRINCI PAL OF P. T. SUMBER MITRA JAYA FOR THE SAID CONTRACT. DURING THE IMPLEMENTAT ION OF THE CONTRACT, THE ASSESSEE COMPANY HAD RECEIVED THE CERTIFICATE FROM P. T. SUM BER MITRA JAYA, FOR LOWER DEDUCTION OF TAX FROM THE PAYMENTS TO BE MADE TO IT UNDER THE ABOVE MENTIONED CONTRACT. THE DCIT (INTERNATIONAL TAXATION), CHENNA I, BEING ASSESSING OFFICER OF THE CONTRACTOR COMPANY, ISSUED CERTIFICATE DATED 07 -06-2002 FOR NIL DEDUCTION OF TAX AT SOURCE U/S 194 C (4) OF THE IT ACT. THIS CERTIFICATE WAS VALID TILL 31-03- 2003. THIS WAS SECOND SUCH CERTIFICATE ISSUED BY TH E AO. A SIMILAR CERTIFICATE ON 24-01-2001 WAS ISSUED BY THE AO OF THE CONTRACTOR C OMPANY AND WHICH WAS VALID FOR THE PERIOD ENDING ON 31-03-2002. THE ABOV E STATED CERTIFICATES WERE ADDRESSED TO THE PROJECT IMPLEMENTATION UNIT, AHMED ABAD OF NHAI FOR ALL THE PAYMENTS TO BE MADE UNDER THE CONTRACT DATED 11-07- 2000. FURTHER, THE CONCERNED AO THE DICT (INTERNATIONAL TAXATION), CHENNAI CON FIRMED THAT THE COMPANY IS A NON-RESIDENT ASSESSEE WHICH IS BEING ASSESSED UND ER HIS AUTHORITY AND THAT HE HAS ISSUED SUCH CERTIFICATE. AFTER, SUCH CONFIRMATION F ROM THE AO, THE COMPANY HAS ACTED ACCORDINGLY AND NOT DEDUCTED TAX FROM THE PAY MENTS MADE TO THE CONTRACTOR COMPANY UNDER THE SPECIFIED CONTRACT. FOR THE AY 2 003-04, THE AO- ITO, TDS-3, AHMEDABAD HAS HELD THAT CERTIFICATE WAS REQUIRED TO BE OBTAINED U/S 195 AS THE CONTRACTOR IS A NON-RESIDENT COMPANY. THE AO FURTHE R HELD THAT SINCE THE APPLICABLE SECTION IN THE CASE IS 195, A CERTIFICAT E OBTAINED U/S 194C (4) IS NOT VALID CERTIFICATE. HENCE, HE IGNORED THE CERTIFICATE IS SUED U/S 194C (4) OF THE IT ACT BY ITA NOS. 4051 AND 4081/AHD/2008 AHEMDABAD VADODARA EXPRESSWAY CO. LTD. 3 THE CONCERNED AUTHORITY. FURTHER, HE HAS ALSO IGNOR ED THE FACT THAT THE CONCERNED AUTHORITY HAS CONFIRMED THAT THE CONTRACTOR IS A NO N-RESIDENT COMPANY AND IS ASSESSED UNDER HIS AUTHORITY. THE AO FURTHER HELD T HAT SINCE, APPLICABLE SECTION IN THE CASE IS 195C (4) OF THE IT ACT, THE CERTIFICATE OBTAINED U/S 194C (4) OF THE IT ACT IS NOT VALID CERTIFICATE. HENCE, THE AO IGNORED THE CERTIFICATE ISSUED U/S 194C (4) OF THE IT ACT BY THE CONCERNED AUTHORITIES AND LEVIED INTEREST OF RS.56,96,317/- U/S 201 (1A) OF THE IT ACT. THEREAFTER, THE AO ISSU ED A RECTIFICATION ORDER U/S 154 OF THE IT ACT DATED 08-08-2006 AND REVISED THE DEMA ND FROM RS.56,96,317/- TO RS.71,16,256/-. THIS REVISION WAS MADE DUE TO AN E RROR HAPPENED IN CONSIDERATION OF RATE OF TDS WHILE GIVING THE ORIGINAL ORDER. THE JCIT (TDS), AHMEDABAD RANGE ALSO ISSUED PENALTY NOTICE U/S 271C OF THE IT ACT. IN RESPONSE TO THIS NOTICE THE ASSESSEE CONTENDED AS UNDER: (I) A NOVATIO AGREEMENT DATED 07-08-2002 WAS ENTERED IN TO BY THE ASSESSEE COMPANY, NHAI AND M/S. P. T. SUMBER MITRA JAYA. THE DDIT (INTNL. TAXN.), CHENNAI, WHO WAS THE ASSESSING OFFICER OF THE CONTRACTOR COMPANY HAD ISSUED CERTIFICATE U/S 194C (4) FOR NIL DEDUCTION DATED 07/06/2002. THIS CERTIFICATE WAS VA LID TILL 31/03/2003. PREVIOUSLY, ANOTHER CERTIFICATE DATED 2 4/01/2001 WAS ISSUED WHICH WAS VALID UP TO 31/03/2002. THEREFORE, IT IS SUBMITTED BY THE ASSESSEE THAT IT WAS NOT LIABLE TO DEDUCT TH E TDS ON PAYMENT MADE TO THE CONTRACTOR COMPANY. (II) IT IS ARGUED THAT DDIT (INTL. TAXN.), CHENNAI HAD M ISTAKENLY ISSUED CERTIFICATE U/S 194 C AND NOT U/S 195. (III) THE LD. CIT(A) APPLIED THE RATIO OF HONBLE GUJARAT HIGH COURT IN THE CASE OF RISHIKESH APARTMENTS CO-OP. HOUSING SOC IETY LTD. (253 ITR 311). WHILE APPLYING THE SAID RATIO, THE LD. CI T(A) HAS FAILED TO TAKE INTO ACCOUNT THE FACT THAT TAX AND INTEREST WE RE ALREADY PAID BY THE ASSESSEE. (IV) THE FACT THAT DDIT (INTL. TAXN.), CHENNAI HAD ISSUE D THE CERTIFICATE PROVES THAT THE CONTRACTOR COMPANY IS A NON-RESIDEN T AND THE ASSESSEE SHOULD NOT BE PENALIZED FOR THE MISTAKE OF THE REVENUE. (V) FINALLY, THE ASSESSEE HAS ARGUED THAT AN APPEAL IS PENDING BEFORE THE ITAT, AHMEDABAD AND THEREFORE, THE PENALTY SHOULD B E KEPT IN ABEYANCE. ITA NOS. 4051 AND 4081/AHD/2008 AHEMDABAD VADODARA EXPRESSWAY CO. LTD. 4 AFTER CONSIDERING THE AFORESAID SUBMISSION, THE JCI T(INTERNATIONAL TAXATION), VIDE ORDER DATED 26-03-2008, LEVIED PENA LTY U/S 271 C OF RS.3,52,96,067/-, BEING 100% OF SHORTFALL OF DEDUCT ION OF THE FOLLOWING 4 ITEMS: DATE OF PAYMENT AMOUNT PAID (RS.) 18-04-2002 10501825 03-05-2002 30078105 18-05-2002 13407259 31-03-2003 19076613 3. IN APPEAL AGAINST THE PENALTY ORDER UNDER SECTIO N 271C BEFORE THE LEARNED CIT(A), THE ASSESSEE CONTENDED THAT IT RECEIVED NI L DEDUCTION CERTIFICATE ISSUED BY DDIT (INTERNATIONAL TAXATION), CHENNAI BEING THE ASSESSING OFFICER OF THE CONTRACTOR COMPANY AND THE CERTIFICATE WAS DATED 07 -06-2002. FURTHER, THE ASSESSEE COMPANY OBTAINED CONFIRMATION LETTER DATED 12-07-2002 FROM THE DDIT(INTERNATIONAL TAXATION), CHENNAI CONFIRMING TH E ABOVE CERTIFICATE WHICH WAS VALID UP TO 31-03-2003. ON THIS BASIS, IT WAS A RGUED THAT THE ASSESSEE ACTED BONA FIDELY AND NOT DEDUCTED TAX FROM PAYMENT MADE TO THE CONTRACTOR COMPANY UNDER THE SPECIFIC CONTRACT. A REFERENCE WAS ALSO M ADE TO THE ORDER U/S 201 (1) R.W.S. 201(1A) OF THE IT ACT FOR THIS ASSESSMENT YE AR AND IT WAS CONTENDED THAT THOUGH THE APPLICABLE SECTION IS 195 BUT AS THE AO OF THE CONTRACTOR COMPANY ISSUED THE CERTIFICATE U/S 194C OF THE IT ACT AND C ONFIRMED THAT THE RECIPIENT IS A NON-RESIDENT COMPANY, THE ASSESSEE COMPANY CANNOT B E PUNISHED FOR MISTAKE DONE BY THE DDIT(INTERNATIONAL TAXATION), CHENNAI. 3.1 AFTER CONSIDERING THE AFORESAID ARGUMENTS, THE LEARNED CIT(A) IN THE IMPUGNED ORDER CONFIRMED THE PENALTY LEVIED U/S 271 C OF THE IT ACT TO THE EXTENT OF RS.1,73,50,660/- AND DELETED THE BALANCE PENALTY IN RESPECT OF FOLLOWING TWO PAYMENTS. A) 03.05.2002 RS.3,00,78,105/- B) 18.05.2001 - RS.1,34,04,259/- 3.2 AGGRIEVED WITH THE ORDER OF THE LEARNED CIT(A), THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. ITA NOS. 4051 AND 4081/AHD/2008 AHEMDABAD VADODARA EXPRESSWAY CO. LTD. 5 4. AT THE TIME OF HEARING, ON BEHALF OF THE REVENU E, SHRI G. S. SOURYAVANSHI, LEARNED DR APPEARED AND CONTENDED THAT THE LEARNED CIT(A) ERRED IN EXCLUDING THE TWO PAYMENTS MADE ON 31-03-2002 AND FROM JUNE,2002 TO MARCH, 2003 FOR THE PURPOSE OF PENALTY STATING THAT THEY WERE COVERED B Y THE NIL DEDUCTION CERTIFICATE ISSUED U/S.194C FOR THE YEAR 31-03-2002 AND THE PAY MENT FROM JUNE, 2002 TO MARCH,2003 STATING THAT THEY WERE COVERED BY NIL D EDUCTION CERTIFICATE ISSUED U/S 194C OF THE IT ACT. THE LEARNED DR FURTHER POINTED OUT THAT FOR PAYMENT MADE TO NON-RESIDENT, SECTION 195 OF THE IT ACT IS APPLICAB LE BECAUSE THESE WERE MADE TO NON-RESIDENT. THE ASSESSEE WAS REQUIRED TO DEDUCT T AX (TDS) U/S 195 OF THE IT AT @48% AND NOT @ 2% U/S 194C OF THE IT ACT, 1961. WIT H REGARD TO CONFIRMATION OF PENALTY U/S 271C OF THE IT ACT IN RESPECT OF TWO PAYMENTS, HE POINTED OUT THAT THE VIEW TAKEN BY THE LEARNED CIT(A) BE UPHELD AS T HERE IS NO REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B OF THE IT ACT, 1 961. 5. ON THE OTHER HAND, SHRI SUMANT CHANDA, APPEARING ON BEHALF OF THE ASSESSEE, POINTED OUT THE VIEW TAKEN BY THE LEARNED CIT(A) IN ALLOWING PARTIAL RELIEF BY CANCELING THE PENALTY IN RESPECT OF TWO PAYMENTS BE UPHELD AS THERE WAS REASONABLE CAUSE, WITHIN THE MEANING OF SECTION 273 B OF THE I.T. ACT IN DEDUCTING THE TAX UNDER SECTION 194C OF THE I.T. ACT. WITH RE GARD TO CONFIRMATION OF PENALTY U/S 271C OF THE IT ACT IN RESPECT OF TWO PAYMENTS M ADE IN THE MONTH OF MAY, 2002, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THERE WAS REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273 B OF THE IT ACT FOR DEDUCTING THE TAX @2%. FOR REASONABLE CAUSE, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT MAJORITY OF THE PAYMENT PRIOR TO THE DATE NIL CER TIFICATE WAS ISSUED I. E. PRIOR TO 07-02-2002. ON THIS BASIS, THE ASSESSEE WAS NOT REQ UIRED TO DEDUCT THE TDS. AS A MATTER OF FACT, THE ASSESSEE COMPANY HAS DEDUCTED T AX ON THESE PAYMENTS MADE, TILL THE DATE OF CERTIFICATE WAS RECEIVED BY IT, @2% AND THEREAFTER RELYING ON THE NIL DEDUCTION CERTIFICATE, IT CEASED TO DEDUCT TAX. TH E LEARNED JOINT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) HAS NOT CONSIDERED THE SAME MAJOR ISSUES REGARDING THE CASE WHICH ARE AS UNDER: ITA NOS. 4051 AND 4081/AHD/2008 AHEMDABAD VADODARA EXPRESSWAY CO. LTD. 6 A) THE CONFIRMATION LETTER DATED 12 TH JULY 2002 ISSUED BY DEPUTY DIRECTOR OF INCOME TAX (INTL. TAXATION), CHENNAI CO NFIRMING THAT HE HIMSELF HAS ISSUED THE SAID CERTIFICATE AND FURT HER THE SAID CONTRACTOR COMPANY IS A NON RESIDENT COMPANY AND IS BEING ASSESSED UNDER HIS AUTHORITY. THIS IMPLIES THAT THE ISSUING AUTHORITY WAS FULLY AWARE THAT THE CONTRACTOR COMPA NY IS A NON RESIDENT COMPANY, BUT HE ERRONEOUSLY ISSUED CERTIFI CATE UNDER A DIFFERENT SECTION. B) FURTHER, NHAI, WHILE IMPLEMENTING THE CONTRACT, DUR ING FINANCIAL YEAR 2001-02, HAD ALSO RECEIVED A SIMILAR CERTIFICA TE FROM THE SAID AUTHORITY AND ALSO THERE WAS SIMILAR CONFIRMATION L ETTER FROM THE SAID AUTHORITY DATED 11 TH MARCH 2002. C) IN SUCH CIRCUMSTANCES, THE COMPANY WAS ACTUALLY MIS GUIDED TOWARDS THE SECTION 194C BY THE TWO CONSECUTIVE CER TIFICATES AND HAD DEDUCTED TAX AS PER THE REQUIREMENTS OF SECTION 194 C DURING THE PERIOD, IT DID NOT HAVE NIL DEDUCTION CERTIFI CATE. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THERE WAS A REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B OF THE IT ACT, THE LEARNED CIT(A) OUGHT TO HAVE CANCELLED THE ENTIRE PENALTY L EVIED U/S 271C OF THE IT ACT. FOR REASONABLE CAUSE, THE LEARNED COUNSEL FOR THE A SSESSEE RELIED ON THE FOLLOWING DECISIONS: (I) HINDUSTAN STEEL LTD. VS STATE OF ORISSA, 83 ITR 26( SC) FOR THE PROPOSITION, THAT EVEN A MINIMUM PENALTY IS PRESCRIBED, THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE J USTIFIED IN REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNIC AL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT OR WHERE THE BR EACH FLOWS FROM A BONA FIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE. (II) CIT VS MITSUI & CO. LTD. AND ANOTHER, 272 ITR 545(D ELHI) - HELD, THAT THE ASSESSEE-COMPANY WAS REQUIRED TO PRO VE THE EXISTENCE OF A REASONABLE CAUSE BY PREPONDERANCE OF PROBABILI TY ONLY AND NOT BY WAY OF ADDUCING ANY PROOF BEYOND REASONABLE DOUB T. ITA NOS. 4051 AND 4081/AHD/2008 AHEMDABAD VADODARA EXPRESSWAY CO. LTD. 7 SO FAR AS THE LEVY OF PENALTY UNDER SECTION 271C IS CONCERNED THESE ARE EXTRANEOUS CONSIDERATIONS AS WHAT THE REVENUE A UTHORITIES ARE REQUIRED TO CONSIDER WHILE LEVYING SUCH PENALTY IS EXISTENCE OF REASONABLE CAUSE FOR NON-DEDUCTION OF TAX AT SOURCE AND THE REASONABLE CAUSE AS SHOWN BY THE ASSESSEE-COMPANY H AS NOT BEEN PROPERLY APPRECIATED AND DELIBERATED BY THE LOWER A UTHORITIES. (III) WOODWARD GOVERNOR INDIA (P) LTD. VS CIT & ORS. 253 ITR 745 (DELHI) HELD, THAT SECTION 273B STARTS WITH A NON OBSTANTE CLAUSE AND PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN SEVERAL PROVISIONS ENUMERATED THEREIN INCLUDING S.271C, NO PENALTY SHALL BE IMPOSABLE ON THE PERSON OR THE ASSESSEE, AS THE CAS E MAY BE, FOR ANY FAILURE REFERRED TO IN THE SAID PROVISIONS, IF HE P ROVES THAT THERE WAS REASONABLE CAUSE FOR THE SAID FAILURE. THEREFORE, I N ORDER TO BRING IN APPLICATION OF S. 271C IN THE BACKDROP OF S.273B, A BSENCE OF REASONABLE CAUSE, EXISTENCE OF WHICH HAS TO BE ESTA BLISHED BY THE ASSESSES, IS THE SINE QUA NON. THE INITIAL BURDEN I S 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 WHE THER THE EXPLANATION OFFERED BY THE ASSESSEE OR THE PERSON, AS THE CASE MAY BE, AS REGARDS THE REASON FOR FAILURE, WAS ON ACCOU NT OF REASONABLE CAUSE. THE CAUSE SHOWN HAS TO BE CONSIDERED AND ONL Y IF IT IS FOUND TO BE FRIVOLOUS, WITHOUT SUBSTANCE 1 , OR FOUNDATION, THE PRESCRIBED CONSEQUENCES FOLLOW. ABOVE BEING THE POSITION, THE CIT'S NON- CONSIDERATION OF THE PLEA RAISED BY THE ASSESSEE AB OUT THE EXISTENCE OF REASONABLE CAUSE VITIATED THE ORDER. ON THAT SCO RE, THE ORDER PARSED BY THE CIT IS NOT MAINTAINABLE. REASONABLE CAUSE' AS APPLIED TO HUMAN ACTION IS TH AT WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGENCE AND ORDI NARY PRUDENCE. IT CAN BE DESCRIBED AS A PROBABLE CAUSE. IT MEANS AN H ONEST BELIEF FOUNDED UPON REASONABLE GROUNDS, OF THE EXISTENCE O F A STATE, OF CIRCUMSTANCES, WHICH ASSUMING THEM TO BE TRUE, WOUL D REASONABLY LEAD ANY ORDINARILY PRUDENT AND CAUTIOUS MAN, PLACE D IN THE POSITION OF THE PERSON CONCERNED, TO COME TO THE CONCLUSION THAT SAME WAS THE RIGHT THING TO DO. (IV) DILIP N. SHROFF VS JOINT CIT, 291 ITR 519 (SC) - HELD, THAT IT IS NOW A WELL-SETTLED PRINCIPLE OF LA W THAT MORE STRINGENT THE LAW, MORE STRICT CONSTRUCTION THEREOF WOULD BE NECESSARY. EVEN WHEN THE BURDEN IS REQUIRED TO BE D ISCHARGED BY AN ITA NOS. 4051 AND 4081/AHD/2008 AHEMDABAD VADODARA EXPRESSWAY CO. LTD. 8 ASSESSEE, IT WOULD NOT BE AS HEAVY AS THE PROSECUTI ON. [P. N. KRISHNA LAL V. GOVERNMENT OF KERALA 1995 SUPPL. (2) SCC 187 ] (V) CIT VS FOURWAYS INTERNATIONAL, 166 TAXMAN 461 (DEL) - HELD, THAT THE ISSUE THAT ARISES IN THIS CASE CONCE RNS THE LEVY OF PENALTY ON THE ASSESSEE UNDER SECTION 271C OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HAD MADE CERTAIN PAYMENTS FOR FABRICAT ION CHARGES BUT HAD NOT DEDUCTED THE TAX AT SOURCE. THE CONTENTION OF THE ASSESSEE WAS THAT IT WAS NOT ADVISED BY ITS CHARTERED ACCOUN TANT THAT IT WAS LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTIO N 194C OF THE ACT. THE ASSESSEE WAS ANEW FIRM, THE PARTNER WAS A MATRICULATE AND THEREFORE DEPENDED ENTIRELY ON THE ADVICE GIVEN BY THE CHARTERED ACCOUNTANT. IT APPEARS THAT THE CHARTERED ACCOUNTAN T DID NOT CORRECTLY ADVISE THE ASSESSEE. THE TRIBUNAL FOUND THIS EXPLANATION TO BE BONA FIDE . IT ACCORDINGLY CANCELLED THE LEVY OF PENALTY IMPOSED BY THE ASSESS ING OFFICER, WHICH HAD BEEN UPHELD BY THE COMMISSIONER OF INCOME -TAX (APPEALS). ANOTHER FACTOR HELD AGAINST THE ASSESSEE WAS THAT A FTER THE MISTAKE WAS REALISED, HE DID NOT DEPOSIT THE TAX DUE. THE T RIBUNAL FOUND THIS TO BE INCORRECT BECAUSE THE ASSESSEE HAD DEPOSITED TWO CHEQUES OF RS. 4 LAKHS AND RS. 3.4 LAKHS DURING THE SURVEY PRO CEEDINGS. THE TRIBUNAL CONCLUDED ON THESE FACTS THAT THE ASSESSEE WAS NOT AVOIDING ITS LIABILITY AND HAD CO-OPERATED WITH THE REVENUE IN THE PAYMENT OF TAX. IT ALSO HELD THAT THE ASSESSEE HAD NOT BEEN CO RRECTLY ADVISED BY ITS CHARTERED ACCOUNTANT IN REGARD TO ITS LIABILITY . WE MAY NOTE THAT SECTION 273B OF THE ACT DOES NOT MAKE A LEVY OF PENALTY UNDER SECTION 271C OF THE ACT MANDATORY. THE ASSESSEE WOULD NOT BE LIABLE TO PENALTY IF HE IS ABLE TO PRO VE THAT THERE WAS A REASONABLE CAUSE FOR FAILING TO DEDUCT THE TAX. THE ASSESSEE IN THE PRESENT CASE HAD GIVEN AN EXPLANATION WHICH FOUND F AVOUR WITH THE TRIBUNAL. WE THINK THAT THE VIEW TAKEN BY THE TRIBU NAL IS ONE THAT COULD HAVE POSSIBLY BEEN TAKEN IN THE MATTER. IT IS NOT PERVERSE AS TO WARRANT INTERFERENCE OR WHICH GIVES RISE TO A SUBST ANTIAL QUESTION OF LAW 7. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THE MONTH OF APRIL 2002 A ND MAY, 2002, NO CERTIFICATE U/S ITA NOS. 4051 AND 4081/AHD/2008 AHEMDABAD VADODARA EXPRESSWAY CO. LTD. 9 194C(4) OF THE IT ACT FOR DEDUCTING TAX AT NIL OR LOWER RATE WAS AVAILABLE. IN THE ASSESSMENT YEARS 2000-01 AND 2001-02, THE DDIT (INT ERNATIONAL TAXATION), CHENNAI ISSUED CERTIFICATE UNDER SECTION 194C(4) OF THE I.T. ACT, 1961 OF NIL TAX DEDUCTED AT SOURCE FROM THE BILL AMOUNT PAYABLE TO THE CONTRACTOR, NAMELY, M/S. P.T. SUMBER MITRA JAYA. THE ASSESSEE, IN THESE CIRC UMSTANCES, KEEPING IN VIEW THE CERTIFICATE EARLIER ISSUED U/S 194C (4) OF THE IT A CT AND CLARIFICATION THEREOF ISSUED BY DDIT (INTERNATIONAL TAXATION), CHENNAI, WAS OF T HE BONA FIDE BELIEF THAT IT WAS REQUIRED TO DEDUCT TDS U/S 194C OF THE IT ACT AND N OT U/S 195 OF THE IT ACT WHICH IS APPLICABLE IN CASE OF NON-RESIDENT. IT IS TRUE T HAT THE ASSESSEE KNEW THAT HE WAS MAKING PAYMENT TO NON-RESIDENT, BUT IN OUR CONSIDER ED OPINION, THIS WILL NOT MAKE ANY DIFFERENCE BECAUSE THE ASSESSEE OBTAINED CLARIF ICATION IN THIS REGARD FROM THE DDIT (INTERNATIONAL TAXATION), CHENNAI. THE LEVY OF PENALTY UNDER SECTION 271C IS NOT AUTOMATIC. THE HONBLE DELHI HIGH COURT, IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. VS CIT & ORS.( SUPRA ), HELD THAT REASONABLE CAUSE AS APPLIED TO HUMAN ACTION IS THAT WHICH WOULD CONSTRA IN A PERSON OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE. IT CAN BE DESCR IBED AS A PROBABLE CAUSE. IT MEANS AN HONEST BELIEF FOUNDED UPON REASONABLE GROU NDS, 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 THE CONCLUSION THAT SAME WAS THE RIGHT THING TO DO. IF WE APPLY THIS PRINCIPLE TO THE FACTS OF THE ASSESSEES CASE, WHEN NO CERTIFICATE UNDER SECTION 194C WAS AVAILABLE, THE ASSESSEE WAS OF THE BONA FIDE BELIEF THAT IT REQUIRED TO DEDUCT TDS @2%. WHEN THE ASSESSEE MADE TWO PAYMENTS TO THE CONTRACTOR, NAMELY, M/S. P.T. SUMBER MITRA JAYA IN THE MONTH OF MAY, IT DEDUCTED TAX AT SOURCE @2% UNDER SECTION 194C BECAUSE NO CER TIFICATE UNDER SECTION 194C WAS AVAILABLE. THE ASSESSEE HAS DEDUCTED THE TAX AT SOURCE UNDER SECTION 194C. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THERE IS NO JUSTIFICATION WHATSOEVER FOR CONFIRMING THE PENALTY BY THE LD. CIT(A), IN TH E IMPUGNED ORDER, IN RESPECT OF FOLLOWING TWO PAYMENTS. ITA NOS. 4051 AND 4081/AHD/2008 AHEMDABAD VADODARA EXPRESSWAY CO. LTD. 10 A) 03.05.2002 RS.3,00,78,105/- B) 18.05.2001 - RS.1,34,04,259/- WE, ACCORDINGLY, CANCEL THE SAME IN RESPECT OF BOTH THE AFORESAID PAYMENTS. 7.1 WITH REGARD TO DIRECTION OF THE LD. CIT(A) FOR EXCLUDING THE PAYMENTS MADE ON 31.03.2002 AND FROM JUNE TO MARCH, 2003 FOR THE PURPOSE OF PENALTY UNDER SECTION 271C STATING THAT THE PAYMENTS WERE COVERED BY THE CERTIFICATE ISSUED FOR THE YEAR ENDED ON 31.03.2002 AND FROM JUNE TO MARCH , 2003 STATING THAT THEY WERE COVERED BY THE NIL DEDUCTION CERTIFICATE ISSUED UND ER SECTION 194C, WE ARE OF THE VIEW THAT THE VIEW TAKEN BY THE LD. CIT(A) IS FAIR AND REASONABLE. WE, THEREFORE, DECLINE TO INTERFERE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 26-08-2011 SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (T. K. SHARMA) JUDICIAL MEMBER D ATED : 26/08/2011 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A)-JAMNAGAR 5. THE DR, ITAT, RAJKOT 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD TALUKDAR (SR.P.S.)