M/s Chandigarh Overseas Private Limited, Chandigarh V. Addl. CIT(TDS), Chandigarh

ITA 502/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6817 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 17-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Non-deduction of tax; Reasonable cause
• Section: 201(1); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH A, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NOS.502, 503 & 504/CHD/2017 (ASSESSMENT YEARS : 2005-06, 2007-08 & 2008- 09) CHANDIGARH OVERSEAS PRIVATE LIMITED, VS. THE ADDL.CIT(TDS), SCO 196-97, SECTOR 34-A, CHANDIGARH. CHANDIGARH. PAN: AAACCC3609C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY JAIN RESPONDENT BY : SMT.CHANDER KANTA, CIT DR DATE OF HEARING : 11.09.2017 DATE OF PRONOUNCEMENT : 28. 09.2017 ORDER PER ANNAPURNA GUPTA, A.M. : THESE THREE APPEALS HAVE BEEN PREFERRED BY THE SAME ASSESSEE AGAINST THE CONSOLIDATED ORDER OF LD. CIT( APPEALS), CHANDIGARH DATED 27.9.2012 RELATING TO ASSESSMENT Y EARS 2005-06, 2007-08 AND 2008-09. 2. SINCE THE ISSUE INVOLVED IN ALL THE THREE APPEAL S IS IDENTICAL, THEY WERE HEARD TOGETHER AND ARE BEING D ISPOSED OFF BY THIS COMMON ORDER. 3. THE ONLY ISSUE INVOLVED IN THE ABOVE APPEALS REL ATES TO LEVY OF PENALTY U/S 271C OF THE INCOME TAX ACT, 196 1 (IN SHORT THE ACT) AND THE FACTS LEADING TO THE SAME ARE THAT TDS INSPECTION/SURVEY WAS CARRIED OUT IN THIS CASE DURING THE COURSE OF WHICH IT WAS FOUND THAT DEDUCTOR HAD NOT DEPOSITED TDS INTO GOVERNMENT ACCOUNT DURING THE FINANCIAL YEARS 2004-05, 2006-07 AND 2007-08 AS UND ER: 2 FINANCIAL YEAR 2004-05 RS.15,868/- FINANCIAL YEAR 2006-07 RS.42,19,803/- FINANCIAL YEAR 2007-08 RS.32,12,566/- 4. THE ASSESSING OFFICER PASSED ORDER U/S 201(1) A ND 201(1A) OF THE ACT FOR ALL THESE YEARS AND REFERRED THE MATTER TO THE ACIT FOR IMPOSITION OF PENALTY U/S 27 1C OF THE ACT. THE TAX DEMAND RAISED U/S 201(1) WAS ENHANCED BY THE LD.CIT(APPEALS) TO RS.68,02,851/- FOR FINANCIAL YEAR 2006-07 AND RS.42,45,069/- FOR FINANCIAL YEAR 2007- 08. THEREAFTER SHOW CAUSE NOTICE WAS ISSUED TO THE ASSE SSEE FOR LEVY OF PENALTY U/S 271C OF THE ACT, IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED THAT NO PENALTY WAS LEVIABLE SINCE IT HAS DEPOSITED ALL TDS ALONGWITH INTEREST AND FURTHE R HAD A REASONABLE CAUSE FOR NOT DEPOSITING THE TDS DUE TO NON- AVAILABILITY OF FUNDS SINCE THE PROJECTS UNDERTAKEN BY IT WERE STOPPED IN BETWEEN. THE ASSESSING OFFICER REJE CTED BOTH THE CONTENTIONS OF THE ASSESSEE HOLDING THAT T HE TDS WAS DEPOSITED AFTER SURVEY AND, THEREFORE, LEVY OF PENALTY IS NOT PRECLUDED AND FURTHER THAT REASONABLE CAUSE OF NON- AVAILABILITY OF FUNDS IS NOT ACCEPTABLE SINCE THE A SSESSEE HAS DEDUCTED TAXES AT SOURCE ON THE PAYMENTS MADE B UT HAD NOT DEPOSITED THE SAME INTO THE GOVERNMENT ACCO UNT. THE ASSESSING OFFICER, THEREFORE, LEVIED PENALTY U/ S 271C FOR NOT DEPOSITING THE TAX DEDUCTED AT SOURCE IN TH E GOVERNMENT ACCOUNT FOR THE IMPUGNED YEARS AMOUNTING AS UNDER: FINANCIAL YEAR PENALTY U/S 271(1)(C) 2004-05 RS.25,250/- 2006-07 RS.68,02,851/- 3 2007-08 RS.42,45,067/- 5. AGGRIEVED BY THE SAME, THE ASSESSEE FILED APPEAL BEFORE THE LD.CIT(APPEALS) WHO UPHELD THE ORDER OF THE ASS ESSING OFFICER. 6. AGGRIEVED BY THE ORDER OF THE LD.CIT(APPEALS), T HE ASSESSEE HAS NOW COME UP IN APPEAL BEFORE US RAISIN G FOLLOWING GROUNDS FOR A.Y 05-06: 1. THAT THE ID COMMISSIONER OF INCOME TAX (APPEAL) HAS WRONGLY UPHELD THE PENALTY AMOUNTING TO RS 15868/- UNDER SECTION 271C LEVIED BY ASSESSING OFFICER ON T HE GROUND THAT TDS HAS BEEN DEDUCTED BY APPELLANT BUT NOT DEPOSITED IN TO GOVERNMENT ACCOUNT & ID CIT(A) FAILED TO APPRECIATE THE FACT THE PENALTY UN DER SECTION 271C CAN BE LEVIED ONLY IN CASE WHEN THE ASSESSEE FAILED TO DEDUCT TDS AS REQUIRED BY OR UNDER THE PROVISIONS OF CHAPTER XVIIB OF ACT.. 2. THAT THE PROVISIONS OF SECTION 271C ARE NOT APPL ICABLE IN CASE OF APPELLANT CASE AS APPELLANT HAD DEDUCTED TOS AS PER PROVISIONS OF ACT BUT NOT DEPOSITED IN TO GOVERNMENT ACCOUNT & THEREFORE THE ORDERS PASSED BY ADDL. CIT(TDS) & CIT(A) CHANDIGARH ARE BAD IN LAW & DESERVES TO BE QUASHED . 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR WITHDRAWN ANY GROUND OF APPEAL BEFORE FINA L HEARING. IDENTICAL GROUNDS WERE RAISED FOR THE OTHER TWO YEA RS ALSO I.E. ASSESSMENT YEARS 2007-08 & 2008-09. 7. BEFORE US, LD. COUNSEL FOR THE ASSESSEE CONTESTE D THE ORDER OF THE LD.CIT(APPEALS) ON THE FOLLOWING GROUN DS: 1) AS PER SECTION 271C PENALTY IS LEVIABLE ONLY FOR NON DEDUCTION OF TAX AT SOURCE AND NOT FOR NON PAYMENT OF TAX DEDUCTED AT SOURCE. SINCE IN THE PRESENT CASE THE DEFAULT OF THE ASSESSEE IS NON 4 PAYMENT OF TAX DEDUCTED AT SOURCE, NO PENALTY U/S 271C OF THE ACT IS LEVIABLE. LD. COUNSEL FOR ASSESSEE ALSO ARGUED THAT WITHOUT PREJUDICE TO THE ABOVE CONTENTION NO PENALTY WAS LEVIABLE FOR THE FOLLOWING REASONS ALSO: I) THE ENTIRE TDS ALONGWITH INTEREST HAD BEEN DEPOSITED BY THE ASSESSEE BEFORE PASSING OF THE PENALTY ORDER. II) THERE WAS REASONABLE CAUSE WITH THE ASSESSEE FOR NON DEDUCTING THE TDS AS EXPLAINED TO THE LOWER AUTHORITIES SINCE THE PROJECT UNDERTAKEN BY IT WAS STOPPED IN BETWEEN DUE TO NON AVAILABILITY OF FUNDS AND, THEREFORE, AS SOON AS THE FUNDS ARE AVAILABLE THE TDS HAS BEEN DEPOSITED. III) THERE WAS NO REVENUE LOSS. THE LD. COUNSEL FOR THE ASSESSEE FURTHER STATED A THAT CONSEQUENCES FOR NON DEPOSITING THE TAX DEDUCTED AT SOURCE PROVIDED BY STATUTE WAS PROSECUTION AS PER PROVISIONS OF SECTION 276B OF THE ACT WHICH THE LD. COUNSEL FOR ASSESSEE STATED AT BAR HAD BEEN COMMENCED ON THE DIRECTORS OF THE ASSESSEE COMPANY. 5 THE LD. COUNSEL FOR ASSESSEE STATED THAT IN VIEW OF THE ABOVE, PENALTY LEVIED IN THE PRESENT CASE OUGHT TO BE DELETED. 8. THE LD. DR, ON THE OTHER HAND, SUPPORTED THE ORD ERS OF THE LD.CIT(APPEALS) AND THE ASSESSING OFFICER. 9. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIE S. UNDISPUTEDLY, IN THE PRESENT CASE, PENALTY U/S 271C OF THE ACT HAS BEEN LEVIED FOR THE FAILURE TO DEPOSIT TAX DEDUCTED AT SOURCE IN THE IMPUGNED YEARS. 10. WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT PENALTY U/S 271C OF THE ACT IS LEVIABLE ONLY FOR THE DEFAULT OF NON DEDUCTION O F TAX AT SOURCE. A BARE READING OF SECTION 271C OF THE ACT BRINGS THIS OUT CLEARLY. FOR THE SAKE OF CLARITY SECTION 271C IS REPRODUCED HEREUNDER: 271C. (1) IF ANY PERSON FAILS TO (A) DEDUCT THE WHOLE OR ANY PART OF THE TAX AS REQUI RED BY OR UNDER THE PROVISIONS 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 PENA LTY, A SUM EQUAL TO THE AMOUNT OF TAX WHICH SUCH PERSON FAI LED TO DEDUCT OR PAY AS AFORESAID. (2) ANY PENALTY IMPOSABLE UNDER SUB-SECTION (1) SHALL BE IMPOSED BY THE JOINT COMMISSIONER. 6 11. IT IS CLEAR FROM THE SECTION ITSELF THAT THERE ARE TWO SEPARATE TYPE OF DEFAULTS FOR WHICH PENALTY IS LEVI ABLE UNDER THE SAID SECTION; I) FOR FAILURE TO DEDUCT WHOLLY OR PARTLY TAX AT SO URCE AS PROVIDED UNDER CHAPTER-XVII-B OF THE ACT; II) FOR NON PAYMENT OF TAX AS REQUIRED U/S 115-O OR THE 2 ND PROVISO TO SECTION 194B OF THE ACT. 12. VIS A VIS PAYMENTS LIABLE TO TAX DEDUCTION AT S OURCE UNDER CHAPTER XVII-B ,EXCEPTING THE PAYMENT COVERED BY THE SECOND PROVISO TO SECTION 194B, THE DEFAULT ATTRACT ING PENALTY U/S 271C IS ONLY NON-DEDUCTION OF TAX AT SO URCE. 13. THE DEFAULT OF NON PAYMENT OF TAX DEDUCTED AT S OURCE TO THE CREDIT OF CENTRAL GOVERNMENT TANTAMOUNTS TO AN OFFENCE LIABLE TO PROSECUTION U/S 276B OF THE ACT. SECTION 276B, FALLING UNDER CHAPTER XXII OF THE ACT, DEALIN G WITH OFFENCES AND PROSECUTIONS, CLEARLY STATES SO AS UN DER: 276B. IF A PERSON FAILS TO PAY TO THE CREDIT OF THE CENTRA L GOVERNMENT, (A) THE TAX DEDUCTED AT SOURCE BY HIM AS REQUIRED BY OR UNDER THE PROVISIONS OF CHAPTER XVII-B; OR (B) THE TAX PAYABLE BY HIM, AS REQUIRED BY OR UNDER (I) SUB-SECTION (2) OF SECTION 115-O; OR (II) THE SECOND PROVISO TO SECTION 194B, HE SHALL BE PUNISHABLE WITH RIGOROUS IMPRISONMENT FOR A TERM WHICH SHALL NOT BE LESS THAN THREE MONTHS BUT WHICH MA Y EXTEND TO SEVEN YEARS AND WITH FINE. 14. EVEN THE CBDT CIRCULAR NO.551 DATED 23.1.1990 CONTAINING THE EXPLANATORY NOTES ON THE PROVISION O F DIRECT TAX LAWS (AMENDMENT ACT) 1987, BY VIRTUE OF WHICH S ECTION 7 271C, WAS AMENDED, STATES AT PARA 16.5 THAT SEPARAT E CONSEQUENCES HAVE BEEN ENVISAGED BY THE LEGISLATURE FOR TWO DEFAULTS VIS--VIS TDS I.E. NON DEDUCTION OF TA X AT SOURCE AND NON PAYMENT OF THE TAX AT SOURCE AND WHI LE FIRST DEFAULT ATTRACTS PENALTY U/S 271C OF THE ACT, THE S ECOND DEFAULT ATTRACTS PROSECUTION U/S 276B OF THE ACT. THE RELEVANT PORTION OF THE CIRCULAR IS AS UNDER: 16.5 INSERTION OF A NEW SECTION 271C TO PROVIDE FOR LEVY OF PENALTY FOR FAILURE TO DEDUCT TAX AT SOURCEUNDER TH E OLD PROVISIONS OF CHAPTER XXI OF THE INCOME-TAX ACT NO PENALTY WAS PROVIDED FOR FAILURE TO DEDUCT TAX AT SOURCE. TH IS DEFAULT, HOWEVER, ATTRACTED PROSECUTION UNDER THE PROVISIONS OF SECTION 276B, WHICH PRESCRIBED PUNISHMENT FOR FAILURE TO DEDU CT TAX AT SOURCE OR AFTER DEDUCTING, FAILURE TO PAY THE SAME TO THE GOVT. IT WAS DECIDED THAT THE FIRST PART OF THE DEFAU LT, I.E., FAILURE TO DEDUCT TAX AT SOURCE SHOULD BE MADE LIABLE T O LEVY OF PENALTY, WHILE THE SECOND PART OF THE DEFAULT, I.E., FAI LURE TO PAY THE TAX DEDUCTED AT SOURCE TO THE GOVT., WHICH IS A MORE SERIOUS OFFENCE, SHOULD CONTINUE TO ATTRACT PROSECUTI ON. THE AMENDING ACT, 1987 HAS ACCORDINGLY INSERTED A NEW SE CTION 271C TO PROVIDE FOR IMPOSITION OF PENALTY ON ANY PER SON WHO FAILS TO DEDUCT TAX AT SOURCE AS REQUIRED UNDER THE PROVISIONS OF CHAPTER XVIIB OF THE ACT. THE PENALTY IS OF A SUM EQUAL TO THE AMOUNT OF TAX WHICH SHOULD HAVE BEEN DEDUCTED AT SOURCE. 15. IT IS AMPLY CLEAR FROM THE ABOVE THAT THE PENAL TY U/S 271C OF THE ACT IS LEVIABLE ONLY FOR THE DEFAULT OF NON DEDUCTION OF TAX AT SOURCE, PROVIDED THE TAX DOES N OT RELATE TO THAT U/S 115-O OR THE PAYMENT IS NOT COVERED UND ER THE SECOND PROVISO TO SECTION 194B OF THE ACT. SINCE I N THE PRESENT CASE THE DEFAULT OF THE ASSESSEE IS NON DEP OSIT OF THE TAX DEDUCTED AT SOURCE WHICH IS NEITHER VIS--V IS TAX AS LEVIED U/S 115-O OF THE ACT ON DISTRIBUTED PROFITS NOR HAS BEEN DEDUCTED UNDER SECOND PROVISO TO SECTION 194B WHICH DEALS WITH TDS ON WINNINGS FROM LOTTERY OR CROSSWOR D 8 PUZZLES ,THE PROVISIONS OF SECTION 271C OF THE ACT, WE HOLD ARE NOT ATTRACTED IN THE PRESENT CASE AT ALL. FOR THE ABOVE REASON ALONE, WE DELETE THE PENALTY LEVIED U/S 271C OF THE ACT FOR THE THREE YEARS . MOREOVER SINCE WE HAVE DELETED THE PENALTY LEVIED U /S 271C FOR THE ABOVE REASON, WE DO NOT CONSIDER IT NE CESSARY TO DEAL WITH THE OTHER CONTENTION RAISED BY THE LD. COUNSEL FOR ASSESSEE SINCE THEY WOULD MERELY BE ACADEMIC IN NATURE. 16. IN VIEW OF THE ABOVE, ALL THE THREE APPEALS OF THE ASSESSEE, THEREFORE, STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH SEPTEMBER, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH