RAVINDRA GANESH NENE, NAVI MUMBAI V. DCIT 22(3), MUMBAI

ITA 6434/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7955 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 14-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: CHETAN K KARIA
• Keywords: Ignorance of law; TDS
• Section: 271(1)(c); 40(a)(ia); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI B.RAMAKOTAIA H (A.M) ITA NO.6434/MUM/2009(A.Y. 2005-06) RAVINDRA GANESH NENE 8/9/10 B WING, II FLOOR, GROMA HOUSE, PLOT NO.14C, VASHI, NAVI MUMBAI 400 705 PAN:ACBPN 9402A (APPELLANT) VS. THE DCIT 22(3), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI CHETAN K. KARIA RESPONDENT BY : SHRI JITENDRA YADAV ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 22/9/2009 OF CIT(A) 33, MUMBAI RELATING TO ASSESSMENT YEAR 20 05-06. IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE ORDER OF CIT(A), WH EREBY THE CIT(A) CONFIRMED THE ORDER OF THE AO IMPOSING PENALTY ON T HE ASSESSEE UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE PE NALTY UNDER SECTION 271(1)(C) WAS IMPOSED BY THE AO ON THE ASSESSEE WAS AS FOLLOWS: THE ASSESSEE IS AN INDIVIDUAL. HE CARRIES ON THE BUSINESS AS ELECTRICAL CONTRACTOR IN THE NAME OF M/S YOGIRAJ ELECTRICALS, EXECUTING CONTRACTS FOR GOVERNMENT AND SEMI GOVERNMENT BODIES. IN THE COU RSE OF HIS BUSINESS THE ASSESSEE HAD MADE PAYMENTS TO SUB-CONTRACTORS. THE PAYMENTS MADE WERE UNDER DIFFERENT HEADS LIKE SERVICE CHARGES PAID TO 11 PARTIES TOTALING RS. 21,47,181/-, MAINTENANCE AND OVERHAULING EXPENSES P AID TO 10 PARTIES ITA NO.6434/MUM/2009(A.Y. 2005-06) 2 TOTALING IN ALL RS. 5,81,912/-, MAINTENANCE AND HAN DLING CHARGES OF RS. 26,799/- PAID TO M/S. SAFAL ENGINEERING AND INSPECT ION FEES OF RS. 25,718/- PAID TO QUALITY SERVICES AND SALES PVT. LTD. AS PE R THE PROVISIONS OF SECTION 194C OF THE ACT, THE ASSESSEE HAD TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO THE AFORESAID PERSONS AT THE RATES PRESCRIB ED IN THE SAID SECTION. ADMITTEDLY THE ASSESSEE DID NOT DEDUCT TAX AT SOUR CE. UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WHERE THERE IS AN O BLIGATION TO DEDUCT TAX AT SOURCE BUT HAS NOT BEEN DEDUCTED, THE AMOUNT PAYABL E/PAID TO SUB- CONTRACTOR WHICH IS CLAIMED AS A DEDUCTION WHILE CO MPUTING TOTAL INCOME, WILL NOT BE ALLOWED AS DEDUCTION IN COMPUTING THE T OTAL INCOME OF THE ASSESSEE. THE AO IN THE ASSESSMENT PROCEEDINGS ACC ORDINGLY DISALLOWED A SUM OF RS. 27,81,608/- WHICH WAS CLAIMED AS DEDUCTI ON IN THE P&L ACCOUNT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSES SEE INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 3. IN RESPECT OF THE AFORESAID ADDITION MADE IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO INITIATED PENALTY PROCEEDINGS A GAINST THE ASSESSEE. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE AO BEFORE IMPOSING PENALTY THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE AO HA S NOT DOUBTED THE GENUINENESS OF THESE EXPENSES. THE ASSESSEE FURTHE R POINTED OUT THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE INT RODUCED BY THE FINANCE ACT NO.2, 2004 W.E.F. 1/4/2005 AND ASSESSMENT YEAR 2005 -06 BEING THE FIRST YEAR OF OPERATIONS OF THE SAID PROVISIONS, THE ASSE SSEE WAS NOT AWARE OF THE SAME. THE ASSESSEE ALSO POINTED OUT THAT HE WAS AN ENGINEER BY PROFESSION AND WAS NOT AWARE OF THE AMENDMENTS THAT WERE TAKIN G PLACE IN THE INCOME TAX ACT. IN THIS REGARD THE ASSESSEE ALSO POINTED OUT EVEN IN THE TAX AUDIT REPORT, THE AUDITORS HAVE NOT POINTED OUT THE LAPSE ON THE PART OF THE ASSESSEE IN THIS REGARD. THE ASSESSEE FURTHER POIN TED OUT THAT HE HAD APPLIED FOR TAN AND AFTER OBTAINING TAN (TAX COLLEC TION ACCOUNT NUMBER) IN ACCORDANCE WITH SECTION 203A OF THE ACT REMITTED TH E TAX THAT OUGHT TO HAVE ITA NO.6434/MUM/2009(A.Y. 2005-06) 3 BEEN DEDUCTED AT SOURCE ON THE PAYMENTS (WHICH WERE DISALLOWED BY THE AO IN THE ASSESSMENT BY INVOKING PROVISIONS OF SEC.40( A)(IA) OF THE ACT) IN THE PREVIOUS YEAR RELEVANT TO A.Y 2008-09 AND HAD CLAIM ED THE PAYMENTS SO MADE TO SUBCONTRACTORS AS EXPENSES AND AS DEDUCTION IN THE SAID ASSESSMENT YEAR. THE ASSESSEE THUS SUBMITTED THAT IT IS DUE TO THE AFORESAID CIRCUMSTANCES THAT THE ADDITION WAS MADE IN THE ASS ESSMENT PROCEEDINGS. THE ASSESSEE SUBMITTED THAT FOR THE ABOVE REASONS, HE WAS UNDER THE BONA FIDE MISTAKE AND, THEREFORE, PENALTY UNDER SECTION 271(1)(C) SHOULD NOT BE IMPOSED. THE AO HOWEVER HELD THAT THE ASSESSEE ON HIS OWN SHOULD HAVE DISALLOWED THE EXPENSES IN THE COMPUTATION OF INCOM E AND BY NOT DOING SO THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS O F INCOME. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) UPHELD THE ORDER OF THE AO GIVING RISE TO THE PRESENT APPEAL BY THE ASSESSEE BEFORE T HE TRIBUNAL. 5. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND LD. D.R. IN OUR VIEW THE FACTS AND CIRCUMSTANCES P REVAILING IN THE PRESENT CASE DOES NOT JUSTIFY IMPOSITION OF PENALTY FOR THE FOLLOWING REASONS. THE ASSESSEE HAS COOPERATED IN FULL IN THE ASSESSMENT P ROCEEDINGS AND GIVEN THE ENTIRE INFORMATION REQUIRED TO FRAME THE ASSESSMENT OR TO THE ASSESSING AUTHORITY. THE DISALLOWANCE UNDER THE VARIOUS SECT ION OF THE ACT INCLUDING SECTION 40(A)(IA) HAVE BEEN WORKED OUT BY THE AUTHO RITY BASED ON THE BOOKS OF ACCOUNT, DATA, DOCUMENTS AND THE INFORMATION AND EXPLANATION GIVEN BY THE APPELLANT ONLY. HENCE ONE CANNOT SAY THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF HIS INCOME DURING THE ASS ESSMENT PROCEEDINGS. THE ASSESSMENT ORDER NOWHERE STATES THAT THE ASSESS EE FAILED TO GIVE AN EXPLANATION OR EXPLANATION GIVEN BY HIM HAS BEEN PR OVED FALSE BY THE ASSESSING AUTHORITY. NONCOMPLIANCE OF THE PROVISIO NS OF SECTION 40(A) (IA) HAS ALSO BEEN ADMITTED BY THE ASSESSEE AS BONA FIDE AND INADVERTENT MISTAKE ON HIS PART, WHICH HE IMMEDIATELY RECTIFIED. EXCEP TING THE A.Y 2005-06 FOR ITA NO.6434/MUM/2009(A.Y. 2005-06) 4 ALL SUBSEQUENT YEARS, TAX HAS BEEN REGULARLY DEDUCT ED AT SOURCE AND PAID TO THE CREDIT OF CENTRAL GOVERNMENT AS PER PROVISIONS OF SEC.194-C OF THE ACT. IT CANNOT BE SAID THAT THE INDULGED IN CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. WE SHOULD ALSO KEEP IN MIND THAT AY 05- 06 IS THE VERY FIRST YEAR OF INTRODUCTION OF SECTIO N 40(A)(IA), AND THEREFORE THE PLEA OF THE ASSESSEE THAT IT FAILED TO COMPLY WITH THE PROVISIONS OF THE SAID SECTION DUE TO A BONA FIDE MISTAKE IS ACCEPTABLE. THE ASSESSEE DID NOT GIVE ANY INFORMATION OR EXPLANATION WHICH WAS PROVED FAL SE BY THE ASSESSING AUTHORITY. THE FACT REMAINS THAT EVEN THE AUDITOR S DID NOT MENTION THE FAILURE ON THE PART OF THE ASSESSEE IN THE TAX AUDI T REPORT. THE ASSESSEE BEING A NOVICE IN THESE MATTERS HAD TO FOLLOW THE A DVISE OF HIS CONSULTANT ON WHOSE ADVICE HE HAD TO RELY UPON AS HE IS AN ENGINE ER AND NOT CONNECTED WITH THE SUBJECT OF TAXATION. WE ARE OF THE VIEW T HAT THE ASSESSEE SHOULD NOT BE PENALIZED FOR AN ERROR OR MISTAKE ON PART OF SOM E OTHER PERSON. WE ALSO NOTICE THAT THE SUBSEQUENT CONDUCT OF THE ASSESSEE PROVES HIS BONAFIDES. ON BECOMING ACQUAINTED WITH THE SAID CHANGES IN TH E ACT, HE FOLLOWED THE ORDER OF LAW FOR ALL SUBSEQUENT YEARS AND HE HAS BE EN REGULAR IN PAYMENT OF TDS TO THE CREDIT OF GOVERNMENT AND EVEN IN FILING TDS RETURNS. FOR A.Y. 2005-06 ALSO HE HAS PAID TDS WHERE HE DEFAULTED EAR LIER AND FILED TDS RETURN FOR THE RELEVANT QUARTER. THE EXPENDITURE D ISALLOWED FOR A.Y 2005/6 WAS CLAIMED IN A.Y 2008/09 ON PAYMENT OF REQUIRED T DS AS PROVIDED IN THE SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE HAS PRO VIDED TRUE AND AUTHENTIC PARTICULARS OF HIS INCOME AND EXPENDITURE IN ASSESS MENT PROCEEDINGS WITH THE BOOKS OF ACCOUNT, DOCUMENTS, BILLS ETC. THE VA RIOUS DISALLOWANCES UNDER THE ACT HAD TO BE WORKED OUT BY THE ASSESSING AUTH ORITY BASED ON THE ACCURATE PARTICULARS OF INCOME FURNISHED BY THE APP ELLANT ONLY. IT IS ALSO A FACT THAT THE EXPENSES CLAIMED BY THE ASSESSEE WHIC H WERE SUBJECT TO TDS, WERE ALL SUPPORTED BY PROPER BILLS AND ADDRESSES OF THE SUPPLIERS/SERVICE PROVIDERS. THE PAYMENTS WERE MADE TO THEM BY ACCOU NT PAYEE CHEQUES. THE SAID EXPENSES WERE VERIFIABLE AND GENUINE. THE GENUINENESS OF SAID ITA NO.6434/MUM/2009(A.Y. 2005-06) 5 EXPENSES HAS NOT BEEN DISPUTED IN THE ASSESSMENT OR DER. THE OBJECTIVE BEHIND PENALTY PROVISIONS ARE TO IMPROVE THE TAX C OMPLIANCE AND RECOVER APPROPRIATE TAXES FROM THE ASSESSEES BY SERVING AS DETERRENT IN THE WORKING OF STATUTE. THE ABOVE OBJECTIVE HAS ALREADY BEEN A CHIEVED IN THE CASE OF THE ASSESSEE AS EXPLAINED ABOVE. 6. WE ARE ALSO OF THE VIEW THAT THE CONCLUSION OF THE CIT(A) THAT THE ASSESSEE CANNOT PLEAD IGNORANCE OF LAW AS AN EXCUSE, IN FAC TS AND CIRCUMSTANCES OF THE PRESENT CASE, IS NOT CORRECT. THE FACTS PLEADE D BY THE ASSESSEE IN THE PENALTY PROCEEDINGS ONLY GO TO SHOW BONA FIDES OF T HE ASSESSEE. IN PENALTY PROCEEDINGS, THE FACTS STATED BY THE ASSESSEE WILL HAVE A BEARING ON JUDGING THE BONA FIDES ON THE PART OF THE ASSESSEE . IN TH IS REGARD WE ALSO NOTICE THAT EVEN THE TAX AUDIT REPORT DID NOT HIGHLIGHT THE FAC T THAT THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE AS CONTEMPLATED BY SECTION 40( A)(IA) OF THE ACT. FOR THE REASONS GIVEN ABOVE WE ARE OF THE VIEW THAT IT IS N OT A FIT CASE FOR IMPOSING PENALTY. WE, THEREFORE, DIRECT THAT THE PENALTY I MPOSED ON THE ASSESSEE BE CANCELLED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 25 TH DAY OF MARCH, 2011. SD/- SD/- (B.RAMAKOTAIAH) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 25 TH MARCH, 2011 ITA NO.6434/MUM/2009(A.Y. 2005-06) 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RD BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.6434/MUM/2009(A.Y. 2005-06) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 21/3/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 23/3/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER