United Breswaries Ltd, Srikakulam V. JCIT, TDS, Range, Visakhapatnam

ITA 456/VIZ/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8676 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 03-08-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEBAKUMAR SONOWAL
• Keywords: Bonafide belief; Question of law; Non-deduction of tax; Reasonable cause; Wrong claim; Tax effect
• Section: 273B; 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , ! . . # , & BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER& SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ I.T.A.NO.454-456/VIZ/2017 ( / ASSESSMENT YEAR:2008-09, 2009-10 AND 2010-11) M/S UNITED BREWERIES LTD., (SUCCESSOR TO M/S UNITED MILLENIUM BREWERIES LTD.,) BANTUPALLI VILLAGE RANASTHALAM MANDALAM SRIKAKULAM DT. [PAN :AAACU6053C] VS. JT. COMMISSIONER OF INCOME TAX TDS RANGE VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI Y.A.RAO, AR / RESPONDENT BY : SHRI DEBA KUMAR SONOWAL, DR / DATE OF HEARING : 27 .02.2018 / DATE OF PRONOUNCEMENT : 14 .0 3 .2018 2 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) [CIT(A)]-2, VI SAKHAPATNAM VIDE ITA NO.145-147/2015-16/CIT(A)-2/JCIT(TDS)/VSP/2017-18 D ATED 22.05.2017 FOR THE ASSESSMENT YEAR 2007-08 TO 2009-10. 2. IN THIS CASE, THE ASSESSEE MADE SHORT DEDUCTION OF TAX AT SOURCE IN RESPECT OF BRAND FEE PAID TO M/S UNITED BREWERIES L TD (UBL) AND MILLENNIUM BREWERIES INDIA LTD (MBIL)(PARENT COMPANY) . THE ASSESSEE IS REQUIRED TO DEDUCT TAX AT SOURCE @10% ON PAYMENTS MADE TO THE P ARENT COMPANY U/S 194 J OF I.T ACT BUT DEDUCTED THE TDS @2% U/S194C O F THE I.T. ACT. THE ASSESSEE POSSESSED THE MANUFACTURING FACILITY ALONG WITH LICENSE OF MANUFACTURING OF BEER BUT DID NOT OWN ANY BRAND OF ITS OWN AND THE BEER IS SOLD ON BRAND NAME, HENCE IT HAD ENTERED INTO AGREE MENT TO MANUFACTURE THE BEER IN THE BRAND NAME OF PARENT COMPANY UNDER THE CONTRACTUAL AGREEMENT WITH MBIL GROUP OF COMPANIES AND IT SOLD THE GOODS TO APBCL UNDER ITS OWN NAME. IT HAD ALSO PAID EXCISE DUTY AND SALE TAX. I N EFFECT, IT HAD PRODUCED AND MARKETED THE BEER ON ITS OWN IN THE BRAND NAME OF T HE PARENT COMPANY AND 3 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM DEDUCTED THE TAX AT SOURCE U/S 194C OF THE ACT BY T REATING THE PAYMENT AS CONTRACT PAYMENT. THE AO TOOK THE VIEW THAT THE BR AND FEE IS IN THE NATURE OF ROYALTY FOR USE OF BRAND NAME AND TAX SHOULD BE DED UCTED U/S 194J OF I.T. ACT. SINCE THE RATE AT WHICH THE TAX IS REQUIRED TO BE D EDUCTED U/S 194C IS LOWER THAN THE RATE PRESCRIBED U/S 194J OF THE ACT, THE A O TREATED THE ASSESSEE AS ASSESSEE IN DEFAULT IN RESPECT OF SHORT DEDUCTION OF TAX AT SOURCE AND RAISED THE DEMAND. HOWEVER, THE ASSESSEE CLAIMED BEFORE TH E LD. CIT(A) FOR NOT TREATING THE ASSESSEE IN DEFAULT U/S 201 AS PER THE JUDGEMENT OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF HINDUSTAN COC O-COLA BEVERAGES PVT. LTD. VS. CIT [ 293 ITR 226 ] (SC). THE LD.CIT(A) CONSIDERED THE SUBMISSION MADE BY THE ASSESSEE AND HELD THAT THE AO IS JUSTIFIED IN LEVYING THE INTEREST U/S 201(1A) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASS ESSEE FILED APPEAL BEFORE THE ITAT, VISAKHAPATNAM AND THE ITAT VISAKHAPATNAM UPHELD THE ORDER THE OF THE LD.CIT(A) AND HELD THAT THE PAYMENT WAS IN T HE NATURE OF ROYALTY AND PAYMENT OF BRAND FEE ATTRACTS THE TDS AT 10% U/S 19 4J OF I.T.ACT. FOR READY REFERENCE, WE EXTRACT RELEVANT PART OF HONBLE ITAT S ORDER VIDE ITA NO.103, 4 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM 104 & 105/VIZ/2014 DATED 10.08.2015 FOR THE ASSESSM ENT YEAR 2008-09 TO 2010-11 WHICH READS AS UNDER : 3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE MIGHT HAVEACTED AS CONTRACT MANUFACTURER, BUT THE FACTS R EMAINS THAT, FOR ALL PRACTICAL PURPOSES, IT HAS DECLARED ITSELF TO BE THE MANUFACT URE AND HAS ALSO SOLD THE PRODUCTS UNDER ITS INVOICE ONLY. THE FINANCIAL STAT EMENTS PREPARED BY IT ALSO VINDICATE THE SAME. WHEN, FOR ALL LEGAL REQUIREMENT S, THE ASSESSEE HAS CLAIMED ITSELF TO BE THE MANUFACTURER OF BEER AND HAS SOLD IT UNDER ITS OWN NAME BY USING THE BRAND NAME OF MAIN LINE COMPANIES, IT IS INCOMP REHENSIBLE AS TO HOW THE ASSESSEE COULD DIM FOR THE LIMITED PURPOSE OF SEC. 194J OF THE ACT THAT IT WAS A MERE CONTRACT MANUFACTURER MANUFACTURING BEERS FOR OTHER S. IT WAS NOT SHOWN TO US THAT THE PROPERTY AND RISK ATTACHED WITH THE MANUFA CTURED PRODUCTS ALWAYS REMAINED WITH THE CONTRACTEE. FURTHER, WE NOTICE TH AT THE ASSESSEE HAS CLAIMED TO HAVE EXECUTED CONTRACT FOR OTHERS, WHEREAS, ON THE PAYMENT OF 'BRAND FEE', IT HAS DEDUCTED TDS U/S 194C OF THE ACT TREATING THE SAME AS CONTRACT PAYMENT, AS IF IT HAS ENTRUSTED THE CONTRACT TO THE MAIN LINE COMPANI ES. HENCE THE PAYMENT MADE TO THE BRAND OWNERS UNDER BREWING AGREEMENT CANNOT BE A CONTRACT PAYMENT FAILING UNDER THE SCOPE OF SEC. 194C OF THE ACT. THOUGH THE LD A.R TRIED TO CONTEND THAT THE ENTIRE PAYMENT COULD NOT BE CONSIDERED AS PAYMENT O F ROYALTY, YET NO MATERIAL WAS PLACED TO SUBSTANTIATE THE SAID CONTENTIONS. IF THE CONTENTION OF THE LD AR THAT THE AMOUNT TRANSFERRED BY WAY OF 'BRAND FEE' WAS ACTUAL LY A TRANSFER OF BUSINESS PROFITS IS TO BE ACCEPTED, IT HAS TO BE SHOWN THAT THE PROPERTY AND RISK ATTACHED WITH THE PRODUCTS REMAINED WITH THE CONTRACTEE. IN ANY CASE, IT IS A NEW ARGUMENT RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL AND H ENCE WE ARENOT INCLINED TO APPRECIATE THE SAID CONTENTIONS OF ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE ACTION OF THE TAX AUTHORITIES IN T REATING THE PAYMENT OF BRAND FEE AS PAYMENT OF ROYALTY FALLING WITHIN THE SCOPE OF SEC. 194C OF THE ACT. 4. THE LD. JT. CIT HAS IMPOSED PENALTY U/S 271C OF I.T. ACT FOR SHORT DEDUCTION OF TAX AT SOURCE AFTER GIVING OPPORTUNITY TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE JT.CIT, THE ASSESSEE WENT ON AP PEAL BEFORE THE CIT(A) AND THE LD.CIT(A) CONFIRMED THE PENALTY LEVIED U/S 271 C OF THE ACT. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSESSEE IS IN APPE AL BEFORE THIS TRIBUNAL. THE 5 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM LD. CIT(A) CONFIRMED THE PENALTY LEVIED U/S 271C AN D THE RELEVANT PART OF THE LD.CIT(A) IS EXTRACTED WHICH READS ASUNDER: 6.1 THE FACTS ON RECORD SHOW THAT THE ASSESSEE PAID BRAND FEE TO M/S MBIL & M/S UBL UNDER THE BREWING AGREEMENT AS FOLLOWS FOR THE SUBJ ECT YEARS:- ASSESSMENT YEAR AMOUNT 2008 - 09 9,13,64,139 2009 - 10 4,17,26,245 2010 - 11 2,26,48,247 6.2 THE ASSESSEE HAD DEDUCTED TDS AT 2% U/S 194C ON THE SAID PAYMENTS AND IT WAS CONTENDED THAT IT WAS MERELY A CONTRACTUAL PAYMENT. IN THIS REGARD, IT IS RELEVANT TO REFER TO THE TERMS OF THE BREWING AGREEMENT WHERE THE CONSID ERATION FOR THE SAID PAYMENT WAS STATED AS UNDER 7.CONSIDERATION: IN TERMS OF THE CONDITIONS AGREED SUPRA, BREWER AGR EES TO PAY BY WAY OF CONSIDERATION TOWARDS REPRESENTATIONAL RIGHTS FOR M ANUFACTURE AND SUPPLY OF BEER UNDER LABELS MENTIONED IN ANNEXURE A FEE OF RS .5 PER CASE. SUCH PAYMENT SHALL BE MADE ON A MONTHLY BASIS AND NOT LA TER THAN 10 'TH DAY OF THE FOLLOWING MONTH. 10. REPRESENTATIONAL RIGHTS UBL HAS PERMITTED BREWER TOUSE THE LABELS FOR BRAND ING OF THE UBL BEER FOR SALE PURSUANT TO THE TERMS AND CONDITIONS CONTA INED IN THIS AGREEMENT AND SUCH REPRESENTATIONAL RIGHT IS GRANTED ONLY FOR MANUFACTURE AND SUPPLY OF BEER AND FOR NO OTHER PURPOSE, ANY STEPS TAKEN B Y BREWER OR UBL FOR RECORDAL UNDER THE RELEVANT PROVISIONS OF THE TRADE MARKS ACTS SHALL BE TO THE BENEFIT OF UBL ALONE. THIS AGREEMENT SHALL BE USED BY EITHER PARTY FOR RE GISTRATION OF LABELS UNDER VARIOUS LAWS. 10.1 UBL HEREBY PERMITS BREWER TO USE THE TRADEMARK S IN RELATION TO ONLY BEER LABELS, BEER PACKAGING MATERIALS, BEER CROWN C ORKS. UPON THE CONDITION THAT THE BEER SHALL BE PRODUCED ACCORDING TO THE KN OW-HOW AND STANDARDS 6 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM PRESCRIBED BY UBL INCLUDING FOR STORING AND PACKAG ING. 10.2 PERMITTING BREWER TO USE THE TRADEMARKS BELONG ING TO UBL WILL NOT IN ANY WAY AFFECT THE RIGHTS OF UBL TO USE THE MARKS BY ITSELF OR PERMITTING THE USE OF THE SAME MARK TO! BY OTHER CONTRACT BOTTLING UNITS; 10.3. IN VIEW OF THE PROVISIONS OF SECTION 48(2) O F THE TRADEMARKS ACT 1999, PERMITTED USE OF THE TRADEMARKS OF UBL BY BREWER IS DEEMED TO BE USED BY UBL ITSELF, NOT ONLY FOR THE PURPOSE OF TRADEMAR KS ACT, 1999 BUT FOR ANY OTHER LAW. 10.4. NO AMOUNT SHALL BE PAYABLE TO UBL FOR THE PE RMITTED USE OF THE TRADEMARK BY BREWER EXCEPT FOR THE BRAND FEE AS MEN TIONED IN CLAUSE 7. 10.5 BREWER WILL AT ALL TIMES RECOGNIZE THE VALIDI TY OF THE TRADEMARKS AND UBL'S OWNERSHIP THEREOF AS WELL AS THE EXCLUSIVE RI GHT OF UBL TO TAKE ALL APPROPRIATE MEASURES FOR PROTECTION OF THE TRADEMAR KS AND WILL NOT AT ANY TIME PUT IN ISSUE THE VALIDITY OF THE TRADEMARKS NOR SHA LL DO ANY ACT CALCULATED TO PREJUDICE SUCH VALIDITY. THE PERMITTED USE OF THE T RADEMARKS SHALL NOT CONFER ON BREWER ANY OWNERSHIP IN THE TRADEMARKS. FROM THE PERUSAL OF THE AGREEMENT, IT IS PATENTLY C LEAR THAT THE SUBJECT PAYMENTS ARE MADE TOWARDS CONSIDERATION FOR USE OF TRADEMARK ETC. AND ARE IN THE NATURE OF ROYALTY AND THAT THE PROVISIONS OF SEC 194J ARE ATTRACTED. THE ASSESSEE'S CONTENTION THAT THEY REPRESENT CONTRACTUAL PAYMENT U/S 194C WAS REJECTED BY BOTH THE APPELLATE AUTHORITIES. THE HON'BLE ITAT VIZAG WHILE REJECTING THE ASSESSEE 'S CONTENTION OBSERVED AS UNDER:- WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE REC ORD. THE ASSESSEE MIGHT HAVE ACTED AS CONTRACT MANUFACTURER BUT THE FACTS R EMAIN THAT, FOR ALL PRACTICAL PURPOSES, IT HAS DECLARED ITSELF TO BE THE MANUFACT URER AND HAS SOLD THE PRODUCT UNDER ITS INVOICE ONLY. THE FINANCIAL STATE MENTS PREPARED BY IT ALSO VINDICATE THE SAME. WHEN, FOR ALL LEGAL REQUIREMENT S, THE ASSESSEE HAS CLAIMED ITSELF TO BE THE MANUFACTURER OF BEER AND H AS SOLD IT UNDER ITS OWN NAME BY USING THE BRAND NAME OF MAIN LINE COMPANIES , IT IS INCOMPREHENSIBLE AS TO HOW THE ASSESSEE COULD CLAIM FOR THE LIMITED PURPOSE OF SEC, 194J OF THE ACT THAT IT WASMERE CONTRACT MANUFACTURER MANUFACTU RING BEERS FOR OTHERS. IT WAS NOT SHOWN TO US THAT THE PROPERTY AND RISK A TTACHED WITH THE MANUFACTURED PRODUCTS ALWAYS REMAINED WITH THE CONT RACTEE, FURTHER, WE NOTICE THAT THE ASSESSEE HAS CLAIMED TO HAVE EXECUT ED CONTRACT FOR OTHERS, WHEREAS, ON THE PAYMENT OF 'BRAND FEE', IT HAS DEDU CTED TOS U/S 194C OF THE ACT TREATING THE SAME AS CONTRACT PAYMENT, AS IF IT HAS ENTRUSTED TH E CONTRACT TO THE MAIN LINE COMPANIES. HENCE THE PAYMENT MADE TO THE BRAND OWNERS UNDER BREWING / AGREEMENT CANNOT BE A CONTRACT PAYMENT FA LLING UNDER THE SCOPE 7 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM OF SEC 194C OF THE ACT THOUGH THE LD A.R. TRIED TO CONTEND THAT THE ENTIRE PAYMENT COULD NOT BE CONSIDERED AS PAYMENT OF ROYAL TY, YET NO MATERIAL WAS PLACED TO SUBSTANTIATE THE SAID CONTENTIONS. IF THE CONTENTION OF THE LD A.R. THAT THE AMOUNT TRANSFERRED BY WAY OF 'BRAND' WAS ACTUALLY A TRANSFER OF BUSINESS PROFITS IS TO BE ACCEPTED, IT HAS TO BE SH OWN THAT THE PROPERTY AND RISK ATTACHED WITH THE PRODUCTS REMAINED WITH THE C ONTRACTEE, IN ANY CASE, IT IS A NEW ARGUMENT RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL AND HENCE WE ARE NOT INCLINED TO APPRECIATE THE SAID CONTENTIONS OF LD A.R. ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE A CTION OF THE TAX AUTHORITIES IN TREATING THE PAYMENT OF 'BRAND FEE' AS PAYMENT OF R OYALTY FAILING WITHIN THE SCOPE OF SEC 194J OF THE ACT. 6.3 THE LEGAL POSITION AS TO EXISTENCE OF 'REASONAB LE CAUSE' U/S 273B WAS EXPLAINED BY THE HON'BLE DELHI HIGH COURT IN THE CA SE OF WOODWARD GOVERNOR INDIA P LTD V CIT (253 ITR 745), AS UNDER: - THE OFFICER DEALING WITH THE MATTER HAS TO CONSIDER WHETHER 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. REASONABLE CAUSE AS APPLIED TO HUMAN ACTIO N IS THAT WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGENCE AN D ORDINARY PRUDENCE. IT CAN BE DESCRIBED AS PROBABLE CAUSE. IT MEANS AN HONEST BELIEF FOUNDED UPON REASONABLE GROUNDS, OF T HE EXISTENCE OF A STATE OF CIRCUMSTANCES, WHICH ASSUMING THEM TO BE T RUE 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, WITH IT SUBSTANCE OR FOUNDATION, THE PRESCRIBED CONSEQUENCES FOLLOW. 6.4 THUS IT HAS TO BE SEEN WHETHER THE ASSESSEE HAD REASONABLE CAUSE. THE ASSESSEE CONTENDS THAT IT WAS UNDER THE BONAFID E BELIEF THAT THE IMPUGNED PAYMENTS WERE NOT MADE TOWARDS ROYALTY AND THAT THE PROVISIONS OF SECTION 194C ARE APPLICABLE SINCE PAY MENTS WERE MADE IN PURSUANCE OF 'CONTRACT', AND THAT THE MISAPPLICATIO N OF THE PROVISIONS CANNOT BE CONSIDERED AS MALAFIDE INTENTION; THAT SU CH BONAFIDE BELIEF WAS SOUGHT TO BE REITERATED WITH REFERENCE TO THE S TATUTORY AUDIT REPORT WHERE NO MENTION OF SUCH DEFAULT WAS MADE. THUS IT WAS ARGUED THAT THE ASSESSEE HAD 'REASONABLE CAUSE' AND THE VARIOUS JUDICIAL PRONOUNCEMENTS REFERRED ABOVE WERE RELIED ON. IT HA S TO BE SEEN AS TO 8 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM THE EXISTENCE OF A STATE OF CIRCUMSTANCES, WHICH AS SUMING THEM TO BE TRUE WOULD REASONABLY LEAD ANY ORDINARILY PRUDENT M AN TO COME TO THE CONCLUSION THAT IT WAS THE RIGHT THING TO DO. IN TH IS CONTEXT, IT MAY BE RELEVANT TO REFER TO THE TERMS OF THE BREWING AGREE MENT UNDER WHICH THE IMPUGNED PAYMENTS WERE MADE AND NOTE THAT THE P LAIN TERMS OF THE BREWING AGREEMENT CLEARLY SHOW THAT THE IMPUGNE D PAYMENTS WERE MADE TOWARDS BRAND FEE. THE ASSESSEE IS A SIGNATORY TO THE AGREEMENT AND IT IS AN ADMITTED POSITION THAT THE IMPUGNED AM OUNTS WERE CALCULATED AND PAID AS PER THE BREWING AGREEMENT. T HE AR COULD NOT POINT TO ANY CLAUSE IN THE BREWING AGREEMENT TO INF ER OR UNDERSTAND THAT THE IMPUGNED PAYMENTS WERE NOT MADE TOWARDS BR AND FEE, OR THAT THE CONDITIONS FOR ROYALTY PAYMENT WAS NOT EXISTING . THE PLEA THAT THE ASSESSEE UNDER BONAFIDE BELIEF THAT THE IMPUGNED PA YMENT WAS MADE FOR EXECUTION OF CONTRACT WORK IS ILLOGICAL AS UNDER THE TERMS OF BREWING AGREEMENT THE PAYEE IS NOT MADE TO WARDS BRAND FEE. THERE ARE NO CONDITIONS OR EXISTING FACTS OR C IRCUMSTANCES WHICH COULD LEAD TO THE BELIEF THAT THE PAYMENT UNDER THE BREWING AGREEMENT WAS NOT FOR BRAND FEE BUT FOR EXECUTING ANY CONTRAC T OR WORK. THE AR COULD NOT POINT TO ANY CONDITIONS OR CIRCUMSTANCES IN THE BREWING AGREEMENT THAT COULD LEAD TO SUCH BELIEF. THE ARGUM ENT THAT THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT THE PROVISI ONS OF SEC.194C WOULD BE APPLICABLE AS THE PAYMENTS WAS MADE PURSUA NCE TO A CONTRACT IS TOTALLY ILLOGICAL. IT WOULD BE FALLACIO US TO DEDUCE THAT ALL PAYMENTS MADE UNDER AN AGREEMENT / CONTRACT WOULD A TTRACT SEC.194C, AS TRANSACTIONS RELATING TO ROYALTY PAYMENT, RENT P AYMENT ETC WOULD BE INVARIABLY BASED ON WRITTEN AGREEMENT / CONTRACT IN THE CASE OF COMPANIES. THUS, THE PLEA THAT THE ASSESSEE WAS UND ER BONAFIDE BELIEF THAT THE IMPUGNED PAYMENTS WERE MADE TOWARDS EXECUT ION OF CONTRACT WORK AND NOT TOWARDS ROYALTY HAS NO FACTUAL OR LEGA L MERITS, AND 9 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM PATENTLY IT IS NOT A CASE OF APPLICATION OF WRONG S ECTION. IN VIEW OF THESE, I DO NOT FIND ANY MERIT IN THE ASSESSEE'S PL EA OF REASONABLE CAUSE FOR THE IMPUGNED DEFAULT. 6.5. DURING THE APPEAL PROCEEDINGS, THE AR RAISED A PLEA THAT THE STATUTORY AUDITORS DID NOT MENTION IN THEIR AUDIT R EPORT THAT TAX DEDUCTION WAS NOT MADE PROPERLY AND IS A CASE OF BO NAFIDE BELIEF BY THE COMPANY. IN SUPPORT, THE AR RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF PRICE W ATER COOPERS (348 JTR) 306). I HAVE EXAMINED THIS PLEA. AT THE O UTSET, IT IS TO BE NOTED THAT THIS IS A NEW PLEA NOT RAISED BEFORE THE AO. THE FACTS IN THE CASE OF PRICE WATER COOPERS ARE THAT THE TAX AUDIT REPORT REMARKED THAT CERTAIN PROVISION TOWARDS GRATUITY WA S NOT ALLOWABLE DEDUCTION, BUT THE ASSESSEE WRONGLY CLAIMED SUCH DE DUCTION IN THE RETURN OF INCOME, AND SUCH A WRONGFUL CLAIM WAS HEL D TO BE A BONAFIDE ERROR, BASED ON THE REPORT FILED BEFORE THE COURT E XPLAINING THE CIRCUMSTANCES UNDER WHICH THE ERROR WAS COMMITTED. IN THESE FACTUAL SITUATION, THE COURT CAME TO CONCLUDE THAT SUCH BON AFIDE ERROR WOULD NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME FOR THE PURPOSE OF CONCEALMENT PENALTY UNDER SEC 271(1)(C). HOWEVER, FACTUAL AND LEGAL MATRIX IN THE PRESENT CASE ARE TOTALLY DI FFERENT. FACTUALLY, AS ALREADY DISCUSSED ABOVE, THE PLAIN TERMS OF THE BRE WING AGREEMENT CLEARLY SHOW THAT THE IMPUGNED PAYMENTS WERE MADE T OWARDS ROYALTY AND NOT TOWARDS ANY CONTRACT WORK. THE ASSESSEE COM PANY IS A PARTY TO THE AGREEMENT AND HAS ALSO SUBMITTED THAT THE PAYME NTS WERE COMPUTED AND MADE AS PER THE TERMS OF BREWING AGREE MENT. THUS, THE ELEMENT OF BONFIDE ERROR DOES NOT EXIST. BESIDES, NO INFORMATION WAS PLACED ON RECORD TO SHOW THAT THE CA HAD ADVISED TH AT THE TAX HAD TO BE DEDUCTED U/S.194C IN REGARD TO THE IMPUGNED PAYM ENTS AND THAT 10 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM THE IMPUGNED PAYMENTS ARE NOT IN THE NATURE OF 'ROY ALTY'. IN THIS REGARD IT IS RELEVANT TO REFER TO THE OBSERVATION OF HON'B LE DELHI HC IN CIT V N G TECHNOLOGIES LTD (ITA NO.82/2012 DT.1 ST DECEMBER, 2014) IT IS MANDATORY AND COMPULSORY FOR A COMPANY TO GET THEIR ACCOUNTS AUDITED FROM A CHARTERED ACCOUNTANT, WHO IS REQUIRED TO SUBMIT AN AUDIT REPORT TO BE FILED WITH THE RETURN. WE CANNOT, THEREFORE, ACCEPT THE CONTENTION OF THE ASSESSEE AS UNIVERSAL AND COMPREHENSIVE THAT ALL CLAIMS HOWSOEV ER UNTENABLE, ONCE CERTIFIED BY A CHARTERED ACCOUNTANT OR THE DIRECTORS OF THE COMPANY, CANNOT BE MADE A SUBJECT MATTER OF PENALTY PROCEEDINGS. THIS WILL BE STRETCHING AND MAKING THE REQUIREMENT TO PROVE BONA TIDE CONDUCT ILLUSION ARY AND INEFFECTIVE AND WOULD FAIL TO, CHECK AND STOP F ANCIFUL AND INCREDIBLE CLAIMS. IT IS NOTICEABLE THAT MOST OF TH E INCOME TAX RETURNS ARE ACCEPTED WITHOUT SCRUTINY OR REGULAR AS SESSMENT AND SELF-COMPLIANCE OF TAX PROVISIONS IS A RULE REQ UIRED TO BE FOLLOWED THE VIEW, WHICH WE HAVE TAKEN, IS IN CONSO NANCE WITH THE RATIO EXPOUNDED IN RELIANCE PETRO PRODUCTS PVT. LTD. (SUPRA). IN THE CASE OF CIT V ARCATECH LTD. (ITA NO.71/2013, DT. 12TH SEPTEMBER, 2013), THE HON'BLE DELHI HC OBSERVED:- WE CANNOT STRETCH THE PLEA THAT THE ISSUE WAS DEBAT ABLE OR THERE WAS WRONG ADVICE BEYOND THE POINT TO BELIEVE OR ACCEPT CONTENTIONS WHEN THE CLAIM ITSELF IS IMPOSSIBLE TO ACCEPT AND IS CONTRAR Y TO FUNDAMENTALS OF TAX OR ACCOUNTANCY. INCOME TAX RETURNS ARE MOSTLY ACCEPTED WITHOUT SCRUTINY OR REGULAR ASSESSMENT. SELF AND DUE COMPLIANCE OF TAX PROVISIONS IS REQUIRED. THE ABOVE PRINCIPLES WERE FOLLOWED BY THE HON'BLE I TAT MUMBAI IN THE CASE OF STATEBANK OF MAURITIUS. (ITA NO. 3139/208 DT 30 SEP 2016) AND THE HON'BLE TRIBUNAL WENT ON TO OBSER VE THAT FANCIFUL CLAIMS UNDER THE GARB OF INTERPRETATION IS NOT BONA FIDE. THUS THE JUDICIAL AUTHORITIES HAVE LAID DOWN THE PRINCIPLE THAT PRIMA FACIE INADMISSIBLE OR PATENTLY WRONG CLAIMS WOULD NOT BE BONAFIDE; WHERE THE CLAIM WAS EX- FACIE WRONG BEING CONTRARY TO FUNDAMENTAL / BASIC P RINCIPLES OF ACCOUNTS AND ACT, SUCH CLAIM CANNOT BE SAID TO BE BONAFIDE, WHETHER OR NOT SUPPORTED BY CA CERTIFICATE; THAT THE PRETENCE OF L EGAL OPINION OF A CA IS ONLY A SMOKE SCREEN AND FACADE. 11 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM 6.9 IN THE LIGHT OF ABOVE FACTUAL AND LEGAL POSITIO N, I DO NOT FIND MERIT IN THE ASSESSEE'S CLAIM OF 'REASONABLE CAUSE'. THE HON 'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. MUTHOOT BANKERS (ARYASALA) 3 85 ITR 051 UPHELD LEVY OF PENALTY U/S.271C WHERE THE ASSESSEE FAILED TO ES TABLISH 'REASONABLE CAUSE'. IN VIEW OF THE ABOVE, I FIND THAT THE LEVY OF IMPUGNED PENALTIES U/S.271C FOR FINANCIAL YEARS 2007-08 TO 2009-10 ON THIS COUNT ARE HELD JUSTIFIED AND ACCORDINGLY CONFIRMED. 5. DURING THE APPEAL HEARING, THE LD.AR ARGUED THAT THE ASSESSEE WAS UNDER THE BONAFIDE IMPRESSION THAT THE PAYMENT WAS CONTRACTUAL PAYMENT BUT NOT THE BRAND FEE. THE LD.AR FURTHER ARGUED THAT TH E DEDUCTEE HAS ADMITTED THE INCOME IN ITS HANDS, HENCE, THERE IS NO REVENUE LOSS IN THIS CASE FOR IMPOSING THE PENALTY AND FURTHER SUBMITTED THAT ONC E THE INCOME IS ADMITTED IN THE HANDS OF THE DEDUCTEE, DEDUCTION OF TDS AT 1 0% DOES NOT HAVE ANY THE TAX EFFECT. LD.AR ALSO ARGUED THAT IN CASE THE PAY EE ADMITS THE TAX, THE ASSESSEE CANNOT BE TREATED AS ASSESSEE IN DEFAULT C ONSEQUENT TO THE AMENDMENT MADE TO SECOND PROVISO TO 40(A)(IA) OF I. T.ACT WHICH IS SAID TO BE RETROSPECTIVE BY HONBLE DELHI HIGH COURT IN THE CA SE OF CIT VS. ANSAL LANDMARK TOWNSHIPS LTD, THEREFORE TAKING CUE FROM T HE AMENDMENT MADE TO SECTION 40(A)(IA) OF THE ACT, THE PENALTY IS NOT EX IGIBLE U/S 271C. HENCE REQUESTED TO CANCEL THE PENALTY. 12 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM 6. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS O F THE LOWER AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. FOR FAILURE OF THE ASSESSEE TO DEDUCT THE TAX AS REQUIR ED AS PER CHAPTER XVIIB AND SECTION 194B, THE PENALTY U/S 271C ATTRACTS. WE R EPRODUCE HEREUNDER THE RELEVANT SECTION OF 271C WHICH READS ASUNDER: [ PENALTY FOR FAILURE TO DEDUCT TAX AT SOURCE. 71 271C. 72 [(1) IF ANY PERSON FAILS TO ( A ) DEDUCT THE WHOLE OR ANY PART OF THE TAX AS REQUIRED BY OR UNDER THE PROVISI ONS OF CHAPTER XVII-B; OR ( B ) PAY THE WHOLE OR ANY PART OF THE TAX AS REQUIRED BY OR UNDER ( I ) SUB-SECTION (2) OF SECTION 115-O ; OR ( II ) THE SECOND PROVISO TO SECTION 194B , THEN, SUCH PERSON SHALL BE LIABLE TO PAY, BY WAY OF PENALTY, A SUM EQUAL TO THE AMOUNT OF TAX WHICH SUCH PERSON FAILED TO DEDUCT OR PAY AS AFORES AID.] 73 [(2) ANY PENALTY IMPOSABLE UNDER SUB-SECTION (1) SH ALL BE IMPOSED BY THE 74 [JOINT] COMMISSIONER.] 8. PLAIN READING OF SECTION 271C INDICATES THAT FAI LURE TO DEDUCT WHOLE OR PART OF THE TAX OR FAILURE TO PAY WHOLE OR PART AMO UNT TO THE GOVERNMENT ACCOUNT ATTRACTS THE PENALTY UNDER SECTION 271C. W ITH REGARD TO THE BELIEF OF THE ASSESSEE THAT THE PAYMENT WAS IN THE NATURE OF CONTRACT PAYMENT THE AGREEMENT CLEARLY INDICATED THAT THE PAYMENT WAS BR AND FEE AND THE ASSESSEE HAD NOT ENTERED IN TO ANY CONTRACT FOR RENDERING TH E SERVICES BUT 13 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM MANUFACTURED THE GOODS ON ITS OWN IN THE BRAND NAM E OF PARENT COMPANY AND SOLD THE SAME TO APBCL. FOR USING THE BRAND NAME TH E ASSESSEE HAD MADE THE PAYMENT OF ROYALTY WHICH CLEARLY INDICATED BY THE A GREEMENT AND DISCUSSED IN DETAIL BY THE LD.CIT(A). THEREFORE THIS ARGUMENT O F THE ASSESSEE IS NOT TENABLE. THE ASSESSEE ARGUED THAT SHORT DEDUCTION O F TAX AT SOURCE @2% INSTEAD OF 10% DOES NOT PUT THE REVENUE AT LOSS, HE NCE REQUESTED TO CANCEL THE PENALTY PROCEEDINGS. THE ISSUE WHETHER THE REVENUE HAS SUSTAINED THE LOSS OR NOT IS NOT THE LOOK OUT OF THE ASSESSEE AND IT IS O BLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT THE CORRECT AMOUNT AND REMIT THE CORRECT ACCOUNT BEFORE THE DUE DATE. WHETHER THE REVENUE GETS LOSS OR NOT IS NOT A REASONABLE CAUSE FOR NOT TO LEVY THE PENALTY. SIMILARLY, THE ASSESS EE ARGUED THAT WITH REGARD TO THE AMENDMENT MADE TO SECTION 40(A)(IA) TREATING TH E ASSESSEE AS NOT IN DEFAULT FOR IMPOSING THE PENALTY U/S 271C. IN THIS CASE, THE ISSUE IS SHORT DEDUCTION OF TAX AT SOURCE BY TREATING THE BRAND FE E PAYABLE BY THE ASSESSEE TO THE PARENT COMPANY AS A CONTRACT PAYMENT U/S 194C O F I.T. ACT. BOTH THE PARENT COMPANY AS WELL AS THE ASSESSEE HAS THE SUPP ORT OF LEGAL ASSISTANCE OF TAX EXPERTS. THEREFORE PLAIN READING OF SECTION 27 1C CLEARLY SHOWS THAT NON DEDUCTION OF TAX AT SOURCE OR SHORT DEDUCTION ATTRA CTS THE PENALTY U/S 271C OF I.T. ACT. THE ARGUMENT OF THE ASSESSEE THAT SHORT D EDUCTION DOES NOT CAUSE LOSS 14 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM TO THE REVENUE IS NOT A REASONABLE EXPLANATION AND IT SHOWS THE WILLFUL DEFAULT OF THE ASSESSEE FOR SHORT DEDUCTION. HONBLE KERAL A HIGH COURT IN THE CASE OF CIT VS MUTHOOT BANKERS (ARYASALA) REPORTED IN 385 I TR 0051HELD AS UNDER: 5. HAVING HEARD THE SENIOR COUNSEL FOR THE REVENUE AN D ALSO GOING THROUGH THE ORDERS PASSED BY THE STATUTORY AUTHORITIES, WE FIND THAT IT WAS THE ADMITTED CASE OF THE ASSESSEE THAT THEY DID NOT DEDUCT TAX AT SOURCE AS REQUIRED BY THEM UNDER SECT ION 194A. WHEN THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE IN VIOLATIO N OF SECTION 194A, THE PENAL PROVISIONS OF SECTION 271C ARE ATTRACTED. IN SUCH A CASE, THE ONL Y WAY OUT FOR THE ASSESSEE IS TO TAKE THE BENEFIT OF SECTION 273B BY ESTABLISHING THAT THERE WAS REAS ONABLE CAUSE JUSTIFYING THEIR FAILURE TO COMPLY WITH SECTION 194A. REFERRING TO VARIOUS PRECEDENTS THIS COURT HAD OCCA SION TO DEAL WITH A SIMILAR CASE IN THE JUDGMENT IN ITA 139/2013 WHERE IT WAS HELD THAT THE BURDEN UNDER SECTION 273B IS ENTIRELY ON WITH THE ASSESSEE AND THAT A CASE WHICH IS BEYOND T HE CONTROL OF THE ASSESSEE AND WHICH PREVENTS A REASONABLE MAN OF ORDINARY PRUDENCE ACTING UNDER NORMAL CIRCUMSTANCES, WITHOUT NEGLIGENCE OR INACTION OR WANT OF BONA FIDES, ALONE MAKE OUT A REASONABLE CAUSE. IN THIS CASE, ANNEXURE A ORDER OF THE JOINT COMMISSIONER SHOWS THAT THE ASSE SSEE FAILED TO PRODUCE ANY EVIDENCE TO SUBSTANTIATE ITS CLAIMS. HOWEVER, THE COMMISSIONER (APPEALS) DECIDED THE ISSUE BY PUTTING THE BURDEN ON THE REVENUE, WHICH IS EVIDENT FROM THE EX TRACTED PORTION OF THE ANNEXURE B ORDER PASSED BY THE COMMISSIONER. THE ORDER OF THE TRIBUN AL SHOWS THAT THE TRIBUNAL HAS GIVEN TOTALLY DIFFERENT REASONS WHICH ARE MERE SURMISES AND ASSUM PTIONS MADE BY IT AND ARE NOT FOUNDED ON ANY MATERIALS THAT WERE MADE AVAILABLE BY THE ASSES SEE. ALL THIS THEREFORE SHOW THAT THE ASSESSEE HAD NOT ESTABLISHED A REASONABLE CAUSE, AS CONTEMPL ATED IN SECTION 273B TO RESIST AN ORDER OF PENALTY UNDER SECTION 271C. THEREFORE, WE FIND THAT THE COMMISSIONER (APPEALS) AND THE TRIBUNAL ACTED ILLEGALLY IN CANCELLING THE PENALTY LEVIED ON THE ASSESSEE. THEREFORE, ANSWERING THE QUESTION OF LAW IN FAVOUR OF THE REVENUE, THIS APPE AL IS DISPOSED OF. 9. IN THE INSTANT CASE THE ASSESSEE COULD NOT ESTA BLISH WITH THE TANGIBLE EVIDENCE TO SHOW THAT THERE WAS REASONABLE CAUSE FO R SHORT DEDUCTION OF TAX. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE AS SESSEE HAS FAILED TO EXPLAIN THE REASONS FOR SHORT DEDUCTION OF TAX AT SOURCE, H ENCE, WE UP HOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEALS OF THE AS SESSEE. 15 ITA 454-456/VIZ/2017 M/S UNITED BREWERIES LTD., SRIKAKULAM 10. IN THE RESULT, APPEALS OF THE ASSESSEE ARE DISM ISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 14 TH MAR 2018. SD/- SD/- ( . ) ( ! . . # ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM $ /DATED : 14.03.2018 L.RAMA, SPS & ' / COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT- 2. / THE RESPONDENT 3. THE PR. COMMISSIONER OF INCOME TAX, GUNTUR 4.THE COMMISSIONER OF INCOME TAX(APPEALS)-1, GUNTUR 5. * , * , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM