ORDER
J. K. VERMA, A. M. :
In this appeal the assessee has objected to sustenance of part of penalty imposed for delay in making payment of tax deducted at source, to the Government Treasury.
2. Brief facts of the case are that the assessee is a subsidiary of SBI. The AO had imposed a penalty of Rs. 7,24,381 on the assessee on account of delay in depositing into the Government Account the tax within the stipulated time, which the assessee had deducted at source. It was explained by the learned counsel for the assessee that there were 349 payees from whom the assessee had deducted tax at source involving an amount of Rs. 3,58,00,000 out of which only six cases were such where tax deducted at source was not deposited in time into the Government Treasury. He referred to the facts, reproduced in the order of the AO which indicate that in 5 out of the 6 cases the TDS amounts ranged from Rs. 2,300 to Rs. 37,416 and in four of those cases the due date was 7th Nov., 1991 but the amounts were deposited on 7th April, 1992. In one case, the due date was 7th Feb., 1992 but the amount was deposited on 30th Aug., 1992. Only in one case, where the tax was deducted on 26th Feb., 1992 and the due date for payment was 7th March, 1992 the tax was deposited on 7th May, 1992. This amount was of course Rs. 6,61,644. The learned counsel argued that the learned Dy. CIT had imposed the penalty on the assumption that imposition of penalty was automatic on a default being committed. He submitted that in these cases the assessee had already paid interest for the delay in payment of TDS and the assessee had not even filed an appeal against those orders. He emphasised that the delay was on account of purely clerical oversight and in this context explained the procedure of the working of the assessee which has been mentioned in the order of the learned CIT(A) also. He further clarified that it was not the Department which had detected the default but it had discovered it only from the statements submitted by the assessee to the Department. He argued that the learned CIT(A) had relied on the decision of the Honble Supreme Court in the case of Gujarat Travancore Agency vs . CIT : [1989]177ITR455(SC) , and had held that there was no need to prove mens rea for imposition of penalty. However, Sri Gupta explained the provisions of s. 221 were different from the provisions of s. 271(1)(a) which only were considered by the Supreme Court in the case of Gujarat Travancore Agency (supra). He explained that assessees default was under the provisions of s. 221 r/w s. 201(1) of the IT Act. He pointed out that while the provisions of s. 221 had been amended, there was no amendment in the provisions of s. 201 and hence the assessee who was only deemed to have committed a default and had not in fact committed a default could be liable for penalty under s. 201(1) r/w s. 221(1). According to Sri Gupta, penalty under s. 201(1) could be levied only if the AO could discharge his onus to prove the default of the assessee. However, the learned CIT(A) had merely relied on the provisions of s. 221 and had thereby wrongly confirmed part of the penalty.
3. Further, according to Sri Gupta, the decision of the Honble Supreme Court in the case of Gujarat Travancore Agency (supra) was with reference to the provisions of s. 271(1)(a) as they stood for the asst. yrs. 1965-66 and 1966-67. He pointed out that the provisions of s. 271(1)(a) were compensatory and hence the Supreme Court had held that no mens rea was required to be proved. He referred to the decision of the Honble Bombay High Court in the case of Bennet Coleman & Co. vs . Damle, ITO : [1986]157ITR812(Bom) , in which while dealing with the provisions of s. 201(1A) of the IT Act, the Honble Court had held that the interest mentioned therein was mandatory in nature and not compensatory. He submitted that on the same analogy in assessees case, the imposition of penalty under s. 201(1) may be treated as compensatory and not mandatory in contra-distinction with s. 201(1A). The learned counsel referred to the decisions of the Honble Supreme Court in the case of Hindustan Steel Ltd. vs . State of Orissa : [1972]83ITR26(SC) , and Delhi High Court in the case of CIT vs . Raunaq & Co. (P) Ltd. : [1983]140ITR407(Delhi) , where it had been held that imposition of penalty cannot be automatic whereas assessees case was still stronger because the assessee was only a deemed defaulter. He further referred to the decision in the case of CIT vs . Chembara Peak Estates Ltd. : [1990]183ITR471(Ker) where it had been held that the ratio of the decision of the Supreme Court in the case of Hindustan Steel applies to such cases. He explained that assessees conduct was not contumacious nor did the assessee have any vested interest in not paying the tax in time. He referred to the decision of the Honble Patna High Court in the case of CIT vs . Sriram Agrawal : [1986]161ITR302(Patna) , where it had been held that in view of the Boards circular to the effect that if the demand had been paid before issue of notice of penalty, no penalty need be imposed. In these circumstances, the learned counsel prayed that the penalty of Rs. 3,00,000 sustained by the learned CIT(A) be cancelled.
4. The learned Departmental Representative supported the orders of the AO and the CIT(A).
5. We have carefully considered the rival submissions and have taken into account the material on record and the case law cited on behalf of both the parties. While, we admire the valiant effort put in by Sri Gupta to retrieve his client, we are unable to concur with him in view of the judicial opinion, including the opinion of the Honble Supreme Court being against him.
6. We may first refer to the relevant provisions of the IT Act, which are contained in those sections of the Act, which we quote below :
'Sec. 200. Any person deducting any sum in accordance with the provisions of ss. 192 to 194, s. 194A, s. 194B, s. 194BB, s. 194C, s. 194D, s. 194E, s. 194EE, s. 194F, s. 194G, s. 194H, s. 195, s. 196A, s. 196B and s. 196C, shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.'
Consequences of failure to deduct or pay the tax are given in s. 201(1) which reads as under :
'Sec. 201(1) - If any such person and in the cases referred to in s. 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax :
Provided that no penalty shall be charged under s. 221 from such person, principal officer or company unless the AO is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.'
'201(1A) Without prejudice to the provisions of sub-s. (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.'
Sec. 221(1) and the Explanation to that sub-section provide as under :
'Sec. 221(1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-s. (2) of s. 220, be liable, by way of penalty, to pay such amount as the AO may direct, and in the case of a continuing default, such further amount or amounts as the AO may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears :
Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard :
Provided further that where the assessee proves to the satisfaction of the AO that the default was for good and sufficient reasons, no penalty shall be levied under this section.
Explanation : For the removal of doubt, it is hereby declared that an assessee shall not cease to be liable to any penalty under this sub-section, merely by reason of the fact that before the levy of such penalty he has paid the tax.'
7. The amendment to which Sri Gupta referred is in second proviso to s. 221(1). Prior to its substitution w.e.f. 10th Sept., 1986, the second proviso stood as under :
'Provided further that where the ITO is satisfied that the default was for good and sufficient reasons, no penalty shall be levied under this section.'
8. According to Sri Gupta, the proviso to s. 201(1) continues to remain to the effect that no penalty shall be charged under s. 221 from the deemed defaulter, if the AO is satisfied that such deemed defaulter has 'without good and sufficient reasons' failed to deduct and pay the tax. The thrust of his argument, therefore, is that while, according to the substituted proviso to s. 221(1) w.e.f. 10th Sept., 1986, the burden to prove that the default was for good and sufficient reasons is on the assessee, the continuation of the old proviso to s. 201(1) would indicate that the burden of proving that the default in payment by the deemed defaulter was without good and sufficient reasons is placed on the ITO. We are, however, unable to accept this argument and in this context, we may refer to the fact that the expression 'without good and sufficient reason' mentioned in the proviso to s. 201(1) has been substituted for the word 'wilfully' by the Finance Act, 1966 w.e.f. 1st April, 1966. This would indicate that w.e.f. 1st April, 1966, the AO is not required to prove that the default in payment by the deemed defaulter was done wilfully.
9. In our view, the two provisos, viz., the one with s. 201(1) and the second proviso to s. 221(1) though substantially similar contemplate two different situations. The proviso to s. 201(1) contemplates that if an assessee has failed to deduct tax at source or after deduction has failed to pay the tax, although by definition as given in s. 201(1), is deemed to be an assessee in default in respect of the tax, the proceedings for charging penalty under s. 221 would not commence unless the AO satisfies himself that such a default was without good and sufficient reasons. Once he is satisfied that such a default was without good and sufficient reasons, he may initiate the proceedings by issue of a show-cause notice as required by the first proviso to s. 221(1) and thereafter the defaulter may be made liable to pay penalty which may be equal to the amount of tax in arrears The second proviso contemplates safeguard or defence for such defaulter by providing that if such a defaulter proves to the satisfaction of the AO that the default was for good and sufficient reasons, no penalty shall be levied under this section. In other words, whereas the satisfaction contemplated in the proviso to s. 201(1) is primarily a subjective satisfaction of the AO which may be based on the material on record without hearing the assessee, whereby he may or may not initiate the penalty proceedings, the second proviso to s. 221(1) comes into play after the assessee has been given a statutory opportunity of being heard and of proving to the satisfaction of the AO that the default was for good and sufficient reasons. In other words, the good and sufficient reasons contemplated in the second proviso to s. 221(1) are those which are in the specific knowledge of the defaulter and unless the defaulter discharges his burden to the satisfaction of the AO, the penalty becomes leviable on the defaulter as contemplated in s. 221(1) of the Act. In such a scheme we do not think it is for the AO to prove that the default was not for good and sufficient reasons. For imposition of penalty he has only to indicate, and indicate judiciously and not arbitrarily, that the assessee has failed to prove that the default was for good and sufficient reasons. Since in the instant case before us the only explanation given by the assessee was that the default was due to oversight, or escaping of attention or some discussions with the party from whose payments the tax had to be deducted, we agree with the AO and the learned CIT(A) that the default could not be said to be for good and sufficient reasons. In our view negligence can never be taken to be good and sufficient reason for default in performance of statutory and legal obligations. The Honble Supreme Court in the case of Gujarat Travancore Agency (supra) has observed on page 458 of the report as under :
'Unless, there is something in the language of the statute indicating the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred.'
Their Lordships have further quoted with approval from the Corpus Juris Secundum, as under :
'A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws.'
10. In this view of the matter, the ratio of decision in the case of Hindustan Steel (supra) relied upon by the learned counsel for the assessee would not apply to the assessees case.
11. Coming to the decisions relied upon by the learned counsel for the assessee, we find that in the case of the decision of the Bennet Coleman & Co. (supra) their Lordships have dealt with the question of charging of interest under s. 201(1A) of the IT Act and we are unable to interpret it in the way in which Shri Gupta wants us to interpret viz. by reading that while charging interest under s. 201(1A) is mandatory, levy of penalty under s. 201(1) is compensatory and may not be levied because the assessee had already paid interest under s. 201(1A). There is nothing mutually exclusive in the languages of these two sub-sections. On the other hand, the language of s. 221 and 201(1) very explicitly provides that the assessee who is deemed to be in default shall besides any other consequences that he may incur, in addition to the amount of the arrears and the amount of interest payable be liable by way of penalty to pay such amount as the AO may direct. In the case of Chembara Peak Estates Ltd. (supra) referred to by Sri Gupta, the assessee had failed to pay advance tax because of its tight financial position and heavy liabilities towards agricultural income-tax, bonus payments and arrears of wages. Paucity of funds was considered to be a good and sufficient reason for not imposing penalty under s. 221. In the case before us, there is no question of paucity of funds. On the other hand, in the instant case, the assessee was in possession of the amounts which it had deducted from the payments made or payments to be made to other parties and hence, the ratio of that decision would not help the assessee. Similarly, in the case of Raunaq & Co. P. Ltd. (supra) it was accepted even by the CIT that the financial position of the assessee was unsound and hence, it was held that levy of penalty was not justified. We may clarify that we should not be taken to lay down that the imposition of penalty under any provision is automatic, yet at least when the question of imposition of penalty for failure to deduct tax at source or for failure to pay it to the Government Account after such deduction comes up, in our view, it is the obligation of the defaulter to prove to the satisfaction of the AO that it was for good and sufficient reasons and not merely telling that the assessee forgot to comply with the legal obligations on account of its pre-occupation with other matters or due to oversight and while, it is dealing with thousands of such matters only a few matters escaped its attention. Coming to the case of Sriram Agarwal (supra) referred to by Sri Gupta, we may mention that an Explanation has been inserted after second proviso to s. 221(1), which we have already quoted in the preceding part of this order. That Explanation has been inserted w.e.f. 1st Oct., 1975, by the Taxation Laws (Amendment) Act, 1975. The case of Sriram Agarwal to which Sri Gupta referred dealt with the provisions of s. 212(3A) of the IT Act for the asst. yr. 1971-72. It is clear from the abovementioned Explanation to s. 221(1) that an assessee shall not cease to be liable to any penalty under sub-s. (1) of s. 221, merely by reason of the fact that before the levy of such penalty he has paid the tax. Therefore, the ratio of the Honble Patna High Courts decision is no longer available to the assessee for its help in the asst. yr. 1992-93.
12. Taking all these factors into account, we conclude that the assessee, which is a subsidiary of the SBI, carries on such business where it is statutorily required to deduct tax at source in respect of payments to a very large number of its clients. It is, therefore, under a legal obligation to pay the tax into Government Account within the specified time. Accordingly, it is legally bound to see to it that it discharges its legal obligation faithfully and diligently in letter and in spirit. If it retains the tax which it has deducted and which is payable to the Government Account, with itself for longer period than what it is authorised to, it is irrelevant that it had no mala fide intention in not paying some of that tax within the statutorily specified time. The fact remains that it not only deprived the Government of its dues beyond the time by which it was expected to reach Government Account, it also committed default within the meaning of s. 201(1) r/w s. 221(1) of the Act, and hence, rendered itself liable for penalty under s. 221(1). Since it has failed to give any good or sufficient reason for that failure, it is liable for penalty under s. 221. We find that the learned CIT(A) has already given some relief to the assessee. We may give weight to Sri Guptas argument in so far as the quantum of penalty is concerned. Therefore, while we uphold the imposition of penalty under s. 221 of the IT Act, on the assessee, we direct that looking to the facts and circumstances of the case, the penalty may be reduced to Rs. 1,50,000 only. The assessee gets relief of Rs. 1,50,000.
13. The appeal filed by the assessee is partly allowed.