Addl. CIT, Hyderabad V. Sree Jaya Constructions, Hyderabad

ITA 981/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59305 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 07-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS; K VISWANATHAM
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Rectification of order; Reasonable cause
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBE R. ITA NO.1188/HYD/2007 : ASSESSME NT YEAR 2003-04 ITA NO.981/HYD/2009 : ASSESSMENT YEAR 2004-05 ADDL. COMMISSIONER OF INCOME - TAX, RANGE 15(TDS), HYDERABAD V/S M/S. SREE JAYA CONSTRUCTIONS, HYDERABAD (PAN - AAAECS 1674 F) (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI V.SRINIVAS & K.VISWANATHAM RESPONDENTS BY : SHRI V.RAGHAVENDRA RAO DATE OF HEARING 7.2.2012 DATE OF PRONOUNCEMENT 29.2.2012 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE ORDERS OF THE CIT(A) II, HYDERABAD, BOTH DATED 5.10 .2007, CANCELLING PART OF THE PENALTIES LEVIED BY THE ASSESSING OFFIC ER UNDER S.271C OF THE INCOME-TAX ACT, 1961. SINCE COMMON ISSUES ARE INVOLVED, BOTH THESE APPEALS ARE BEING DISPOSED OF, WITH THIS COMM ON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1188/HYD/2007 : ASSESSMENT YEAR 2003-04 2. EFFECTIVE GROUNDS OF THE REVENUE IN THIS APPEA L ARE AS FOLLOWS- 1) IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) WHILE UPHOLDING THAT THE ASSESSEE WAS NOT PREVENTED BY REASONABLE CAUSE FOR NOT DEDUCTING TAX AT SOURCE U/S. 194A, HAS ERRED IN LAW IN DIRECTING THE A.O. TO RECOMPUTE THE PENALTY U/S. 271C OF THE I.T. ACT IN ITA NO.1188/HYD/2007 & ANR. M/S. SREE JAYA CONSTRUCTIONS, HYDERABAD 2 RELATION TO SHORT DEDUCTION OF TAX OF RS.22,925/- R AISED U/S. 201(1) OF THE ACT. 2) THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE LEGAL PROVISION U/S. 271C WHICH MAKES THE DEFAULTIN G ASSESSEE LIABLE TO PAY PENALTY A SUM EQUAL TO THE AMOUNT OF TAX WHICH SUCH PERSON FAILED TO DEDUCT. WHEREAS DEMAND U/S. 201(1) OF THE I.T. ACT TREATING THE DEDUCTOR AS ASSESSEE IN DEFAULT IS SUBJECT TO EXPLA NATION UNDER SECTION 191 OF THE ACT. 3) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THA T DEMAND PAYABLE U/S. 201(1) READ WITH EXPLANATION T O SECTION 191 NEED NOT ALWAYS REPRESENT THE DEFAULT I N TERMS OF SECTION 271C OF THE I.T. ACT FOR WHICH PEN ALTY IS IMPOSABLE UNDER THAT SECTION. 4) CIT(A) ERRED IN HOLDING THAT PENALTY U/S. 271C I S NOT IMPOSSIBLE FOR SHORT DEDUCTION OF TAX ON ACCOUNT OF LABOUR PAYMENT MADE THROUGH LABOUR MAISTRIES U/S. 194C OF THE I.T. ACT. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E, A PARTNERSHIP FIRM, IS ENGAGED IN THE BUSINESS EXECUT ING CIVIL CONTRACT WORKS. A SURVEY UNDER S.133A WAS CONDUCTED ON 30.9 .2004 BY THE DEPARTMENT. IN THE COURSE OF THE SAID SURVEY, IT W AS NOTICED THAT THE ASSESSEE FIRM WAS NOT DEDUCTING TAX AT SOURCE ON PA YMENTS MADE TOWARDS RENT, CONTRACT WORKS AND INTEREST. CONSIDER ING THESE DEFAULTS, THE ASSESSING OFFICER HAS PASSED ORDERS U/S. 201(1) AND RAISED DEMAND OF RS.24,39,725, COMPRISING OF RS.16,03,283 UNDER S .201(1) AND INTEREST UNDER S.201(1A) OF RS.8,36,442, FOR THE AS SESSMENT YEAR 2003-04. ON AN APPLICATION FOR RECTIFICATION FILE D BY THE ASSESSEE, THE ASSESSING OFFICER PASSED AN ORDER DATED 21.6.2006 U NDER S.154 OF THE ACT ON 21.6.2006, MODIFYING, BY REDUCING THE DEMAND RAISED EARLIER IN TERMS OF S.201(1) TO RS.4,68,474 AND IN TERMS OF S. 201(1A) TO RS.2,33,234. 4. IN THE MEANWHILE, THE ASSESSING OFFICER HAS RE FERRED THE TDS DEFAULTS TO THE ADDL. COMMISSIONER OF INCOME-TA X, WHO INITIATED PROCEEDINGS FOR LEVY OF PENALTY UNDER S.271C OF THE ACT. IN RESPONSE ITA NO.1188/HYD/2007 & ANR. M/S. SREE JAYA CONSTRUCTIONS, HYDERABAD 3 TO THE NOTICES ISSUED TO THE ASSESSEE TO SHOW CAUSE AGAINST THE PENALTY PROPOSED TO BE IMPOSED, ASSESSEE PLEADED FO R KEEPING THE PENALTY PROCEEDINGS IN ABEYANCE TILL THE DISPOSAL O F APPEAL PREFERRED BY IT AGAINST THE ORDER PASSED UNDER S.201(1) OF THE A CT. IT WAS ALSO PLEADED THAT THE ASSESSEE WAS UNDER BONA FIDE IMPRE SSION THAT IT WAS NOT LIABLE TO DEDUCT ANY TAX AT SOURCE, FIRSTLY BEC AUSE IT WAS ONLY A SUB-CONTRACTOR AND MOST OF THE PAYMENTS WERE MADE O NLY TO INDIVIDUAL WORKERS AND EVEN OTHERWISE, THOSE PAYMENTS WERE REF LECTED IN ITS RETURN OF INCOME. FOR THESE REASONS, THE ASSESSE E CLAIMED TO HAVE NOT ADHERED TO THE PROVISIONS OF TDS AND ACCORDINGL Y REQUESTED FOR DROPPING THE PROCEEDINGS ON HUMANITARIAN GROUNDS. NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFICER, CONCLUDING THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON INTEREST PAYMENT OF RS.32,97,380 OUT OF THE TOTAL INTEREST PAYMENT O F RS.1,15,29,68 IMPOSED PENALTY OF RS.3,46,225 FOR NOT ADHERING TO THE PROVISIONS OF S.194A OF THE ACT. 5. SIMILARLY, THE ADDL. COMMISSIONER NOTED THAT I N THE ORDER UNDER S.201(1), THE ASSESSING OFFICER HAS BROUGHT O UT THE NON- DEDUCTION OF TAX AT SOURCE IN RESPECT OF FOLLOWING HEADS OF EXPENDITURE UNDER WORKS CONTRACTS- A) LABOUR COSTS INCURRED ON CULVERTS, LABOUR EXPENSES, PATCHING WORK, R&R WORK SECURITY SERIES, TRANSPORT CHARGES, DBM WORK; B) REPAIRS AND MAINTENANCE OF COLONY AT KRISHANGUNJ AN D DHANBAD; C) REPAIRS AND MAINTENANCE CHARGES AT KISHANGUNJ AND DHANBAD; FINDING NON-ADHERENCE WITH THE PROVISIONS OF S.194C WHILE MAKING PAYMENTS IN RELATION TO THE ABOVE EXPENDITURE, THE ASSESSING OFFICER ITA NO.1188/HYD/2007 & ANR. M/S. SREE JAYA CONSTRUCTIONS, HYDERABAD 4 DETERMINED THE PENALTY IMPOSABLE IN RELATION TO SUC H DEFAULTS AT RS.3,09,656. 6. THE ASSESSING OFFICER THUS, LEVIED A TOTAL PENA LTY OF RS.6,55,881 FOR THE ASSESSMENT YEAR 2003-04, FOR VI OLATIONS TO DEDUCT TAX AT SOURCE UNDER S.194A AND 194C OF THE ACT. 7. ON APPEAL, BEFORE THE CIT(A), THE ASSESSEE IN T HE FIRST PLACE CONTENDED THAT THERE WAS A REASONABLE CAUSE F OR THE DEFAULTS ON THE PART OF THE ASSESSEE, AS IT WAS UNDER A BONA FI DE BELIEF THAT THERE WAS NO OBLIGATION ON IT TO DEDUCT TAX AT SOURCE IN TERMS OF S.194A OR S.194C, AND MERELY BASED ON DIFFERENCES IN INTERPRE TATION OF THE STATUTORY PROVISIONS, PENALTY CANNOT BE LEVIED. THE CIT(A) FOUND NO MERIT IN THIS CONTENTION OF THE ASSESSEE, OBSERVING THAT THE ASSESSEE WAS AIDED BY QUALIFIED AUDITORS, SINCE THE ASSESSEE S CASE IS ONE COVERED UNDER TAX AUDIT OBLIGATIONS UNDER S.44AB OF THE ACT. 8. ON THE MERITS OF THE CASE, ONE OF THE PLEAS TH AT FOUND FAVOUR WITH THE CIT(A) WAS THAT THE ASSESSING OFFIC ER WAS NOT JUSTIFIED IN LEVYING PENALTY OF RS.3,46,225 IN RELATION TO DE FAULTS IN TERMS OF S.194A OF THE ACT, IGNORING THE RELIEFS THAT THE AS SESSEE SECURED IN THE ORDER OF THE ASSESSING OFFICER DATED 21.6.2006 PASS ED UNDER S.154 OF THE ACT, RECTIFYING THE EARLIER ORDER DATED 11.11.2 005 PASSED UNDER S.201(1) AND 201(1A) OF THE ACT, AND DETERMINING TH E SHORT DEDUCTION OF TAX AT SOURCE FOR THIS YEAR ONLY AT RS.22,925, A FTER EXCLUDING THE AMOUNTS OF INTEREST PAID TO VARIOUS CONCERNS OF VEN KATARAYA GROUP, IN RESPECT OF WHICH, ACCORDING TO THE CIT(A), ASSESSE E CANNOT BE HELD TO BE THE ASSESSEE IN DEFAULT. OBSERVING THAT AS P ER THE PROVISIONS OF S.271C, PENALTY IS DUE TO BE IMPOSED ONLY WITH REFE RENCE TO THE SHORT- DEDUCTION OF TAX AT SOURCE, DIRECTED THE ASSESSING OFFICER TO RESTRICT THE ITA NO.1188/HYD/2007 & ANR. M/S. SREE JAYA CONSTRUCTIONS, HYDERABAD 5 PENALTY LEVIED UNDER S.271C ONLY TO THAT IMPOSABLE WITH REFERENCE TO THAT SHORT DEDUCTION OF RS.22,925. 9. WITH REGARD TO THE DEFAULTS TO DEDUCT TAX AT S OURCE IN TERMS OF S.194C OF THE ACT, THE CIT(A) CONSIDERING FACTS AN D CIRCUMSTANCES OF THE CASE, OBSERVING THAT THERE IS NO SPECIFIC MATE RIAL EVIDENCE ON RECORD TO SHOW THAT THE TAX DEDUCTOR HAD NOT ACTED UNDER A BONA FIDE BELIEF, HELD THE VIEW THAT IT WILL NOT BE JUSTIFIED TO LEVY PENALTY U/S. 271C ON ACCOUNT OF NON-DEDUCTION/SHORT DEDUCTION OF TAX IN RESPECT OF LABOUR PAYMENTS MADE THROUGH LABOUR MAISTRIES. SIN CE THE AMOUNT OF SHORT-DEDUCTION HAD NOT BEEN SPECIFICALLY QUANTIFIE D EITHER IN THE ORDER UNDER S.201(1) OR IN PENALTY ORDER, THE DIRECTED TH E ASSESSING OFFICER TO ASCERTAIN THE AMOUNT OF SHORT-DEDUCTION OF TAX O N ACCOUNT OF LABOUR PAYMENT MADE THROUGH LABOUR MAISTRIES AND PENALTY T O THAT EXTENT OF SHORT DEDUCTION IS DIRECTED TO BE DELETED. 10. AGGRIEVED BY THE RELIEFS GRANTED BY THE CIT(A) WITH REFERENCE TO THE PENALTIES LEVIED FOR DEFAULTS ON T HE PART OF THE ASSESSEE IN COMPLYING WITH THE PROVISIONS OF S.194A AS WELL AS S.194C OF THE ACT, THE REVENUE PREFERRED THE PRESENT SECON D APPEAL BEFORE US. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRON GLY SUPPORTING THE ORDER OF THE ASSESSING OFFICER PASSE D UNDER S.271C OF THE ACT, SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIE D IN GRANTING ANY RELIEF TO THE ASSESSEE. THERE IS NO BASIS FOR THE C IT(A) TO HOLD THAT THE LABOUR PAYMENTS MADE THROUGH LABOUR MAISTRIES HAS T O BE EXCLUDED FROM THE SCOPE OF DEFAULTS COMMITTED IN TERMS OF S. 194C OF THE ACT. 12. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE O THERS HAND, STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND SUBM ITTED THAT ITA NO.1188/HYD/2007 & ANR. M/S. SREE JAYA CONSTRUCTIONS, HYDERABAD 6 13. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL ON RECORD, IN THE LIGHT OF THE GROUNDS OF THE REVENUE EXTRACTED HEREINABOVE. IN THIS CASE, WE FIND THAT THE ORDER PASSED UNDER S.201(1) AND 201(1A) DATED 11.11.2005, WHICH GAVE R ISE TO THE PENALTY PROCEEDINGS UNDER S.271C, WAS SUBJECT MATTE R OF RECTIFICATION BY THE ASSESSING OFFICER UNDER S.154 OF THE ACT, VI DE HIS ORDER DATED 21.1.2006, WHEREBY THE ORIGINAL ORDER WAS CORRECTED . THE CIT(A) NOTED FROM THE RECTIFICATION ORDER DATED 21.1.2006 THAT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED TOTAL I NTEREST PAYMENT OF RS.1,15,29,680, OUT OF WHICH RS.1,13,11,351 WAS PAI D TOWARDS INTEREST TO VARIOUS CONCERNS OF VENKATARAYA GROUP. IN VIEW OF THE EXPLANATION BELOW S.191 OF THE I.T. ACT, THE ASSESSING OFFICER, THE CIT(A) NOTED, THE ASSESSEE IS NOT DEEMED TO BE AN ASSESSEE IN DEF AULT IN RESPECT OF THE ABOVE PAYMENT OF INTEREST. HOWEVER, THE ASSESS EE WAS HELD TO BE ASSESSEE IN DEFAULT IN RESPECT OF BALANCE INTEREST PAYMENT OF RS.2,18,329. THE CIT(A) NOTED THAT THE ASSESSING OFFICER HAS WORKED OUT THE SHORT DEDUCTION OF TAX U/S. 201(1) AT RS.22 ,925 AT PAGE 2 OF THE RECTIFICATION ORDER. BEING SO, THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO CONSIDER THE AMOUNT OF SHORT DEDUCTION OF TAX UNDER S. 201 FOR LEVYING PENALTY UNDER S.271C OF THE ACT. IN THE FACTS AND CIRCUMSTANCES, WE FIND NO INFIRMITY IN THE DIRECTIO NS OF THE CIT(A), INASMUCH AS THERE IS NO JUSTIFICATION FOR THE ASSES SING OFFICER TO CONSIDER THE ENTIRE AMOUNT OF RS.32,97,380 FOR PURP OSE OF LEVYING PENALTY UNDER S.271C OF THE ACT. WE ACCORDINGLY UP HOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUNDS OF THE REVENUE ON THIS ASPECT. 14. AS FOR THE PENALTY WITH REGARD TO DEFAULTS COM MITTED BY THE ASSESSEE IN TERMS OF S.194C, IT WAS THE CONTENTION OF THE ASSESSEE THAT IT WAS OF THE OPINION THAT IT WAS NOT LIABLE T O DEDUCT TAX AT SOURCE AS IN THE EARLIER YEARS, THERE WAS NO DEDUCTION OF TDS AND NO ACTION AGAINST THE ASSESSEE WAS INITIATED FOR SUCH CONTRAV ENTION. THE ITA NO.1188/HYD/2007 & ANR. M/S. SREE JAYA CONSTRUCTIONS, HYDERABAD 7 ASSESSEE ALSO PRODUCED VARIOUS ORDERS FOR EARLIER Y EARS BEFORE THE CIT(A), TO SUBSTANTIATE ITS CLAIM THAT IT WAS UNDER A BONA FIDE BELIEF THAT IN RESPECT OF THE PAYMENTS MADE THROUGH LABOUR MAISTRIES, ASSESSEE WAS NOT COVERED BY THE PROVISIONS OF S.19 4C OF THE ACT, BEING NOT A PERSON RESPONSIBLE FOR MAKING THOSE PAY MENTS TO THE INDIVIDUAL WORKER. PLACING RELIANCE ON THESE FACTS , THE CIT(A) HELD THAT THERE WAS A REASONABLE CAUSE FOR NON-DEDUCTION OF T AX AT SOURCE, IN RELATION TO PAYMENTS MADE BY THE ASSESSEE THROUGH L ABOUR MAISTRIES. WE FIND NO INFIRMITY IN THE ACTION OF THE CIT(A) ON THIS ASPECT AS WELL. WE ACCORDINGLY UPHOLD THE SAME, AND REJECT THE GROU NDS OF THE REVENUE ON THIS ASPECT AS WELL. 15. IN THE RESULT, APPEAL, ITA NO.1188/HYD/2007 OF THE REVENUE FOR THE ASSESSMENT YEAR 2003-04 IS DISMISSE D. ITA NO.981/HYD/2009 : ASSESSMENT YEAR 2004-05 16. AS FAR AS THIS APPEAL FOR THE ASSESSMENT YEAR 2004-05 IS CONCERNED, AT THE OUTSET, WE MAY NOTE THAT THERE IS DELAY OF 989 DAYS IN THE FILING OF THE APPEAL FOR THE ASSESSMENT YEAR 2004-05 BY THE DEPARTMENT. A PETITION SEEKING CONDONATION OF DELA Y HAS BEEN FILED. 17. WE HAVE HEARD THE PARTIES ON THE ASPECT OF DE LAY IN THE FILING OF THE APPEAL. WE HAVE ALSO GONE THROUGH THE PETITION OF THE APPELLANT EXPLAINING THE REASONS FOR THE DELAY IN T HE FILING OF THE APPEAL. ON CAREFUL CONSIDERATION OF THE MATTER, WE FIND THAT THE DELAY IN THE FILING OF THIS APPEAL IS NOT MARGINAL, AND I T IS OF 989 DAYS. CONSIDERING THE INORDINATE NATURE OF THE DELAY, WE FIND THAT IT IS NOT A FIT CASE FOR THE CONDONATION OF DELAY. WE ARE SUPP ORTED IN THIS BEHALF BY THE THIRD MEMBER DECISION OF TRIBUNAL(CHENNAI) I N THE CASE OF JT. CIT V/S. TRACTORS & FARMS LTD. ( 104 ITD 149)-TM, W HEREIN DRAWING ITA NO.1188/HYD/2007 & ANR. M/S. SREE JAYA CONSTRUCTIONS, HYDERABAD 8 OUT A DISTINCTION BETWEEN NORMAL DELAY AND INORDINA TE DELAY, IT HAS BEEN OBSERVED, VIDE HEAD-0NOTEE ON PAGE 150 OF THE REPORTS (104 ITD) AS FOLLOWS- A DISTINCTION MUST BE MADE BETWEEN A CASE WHERE TH E DELAY IS INORDINATE AND A CASE WHERE THE DELAY IS OF A FEW D AYS. WHEREAS IN THE FORMER CASE, THE CONSIDERATION OF PR EJUDICE TO THE OTHER SIDE WILL BE A RELEVANT FACTOR, SO THE C ASE CALLS FOR MORE CAUTIOUS APPROACH, IN THE LATTER CASE, NO SUCH CONSIDERATION MAY ARISE AND SUCH A CASE DESERVES A LIBERAL APPROACH. NO HARD AND FAST RULE CAN BE LAID DOWN I N THIS REGARD. THE COURT HAS TO EXERCISE THE DISCRETION ON THE FACTS OF EACH CASE, KEEPING IN MIND THAT IN CONSIDERING THE EXPRESSION SUFFICIENT CAUSE, THE PRINCIPLE OF ADVANCING SUBS TANTIAL JUSTICE IS OF PRIME IMPORTANCE. IN THIS VIEW OF THE MATTER, WE ARE NOT INCLINED TO CONDONE THE DELAY IN THE FILING OF THIS APPEAL BY THE REVENUE FOR THE AS SESSMENT YEAR 2004- 05. THE SAME IS ACCORDINGLY DISMISSED IN LIMINE. 18. IN THE RESULT, APPEAL, ITA NO.981/HYD/2009 FOR THE ASSESSMENT YEAR 2004-05, BEING BARRED BY LIMITATION , IS DISMISSED IN LIMINE. 19. TO SUM UP, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 29.2.2012 SD/- SD/- (ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 29TH FEBRUARY, 2012 COPY FORWARDED TO: 1. M/S. SREE JAYA CONSTRUCTIONS, 8-3-669/10/15, MPCH S OCIETY, JAYAPRAKASH NAGAR, YELLAREDDYGUDA, HYDERABAD 2. ADDL. COMMISSIONER OF INCOME-TAX,RG-15(TDS), HYDE RABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) II HYDERABAD 4. COMMISSIONER OF INCOME - TAX - I, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE , ITAT, HYDERABAD B.V.S.