In the ITAT, Jodhpur Bench S.R. Chauhan, J.M. & B.L. Khatri, A.M.
Income Tax Act, 1961, section 271C; In favour of : assessee (partly) and revenue (partly)
Penalty under section 271C
Failure to deduct tax at source
Penalty under section 271C-Competent authority-Levy of penalty by Dy. CIT Penalty order passed by Dy. CIT on 30th July, 1991 in respect of default occurding in assessment year 1988-89-Valid in view of insertion of sub-section (2) to section 271 C w.e.L 1st April, 1990-CIT v. Onkar Saran & Sons (1992) 103 CTR (SC) 293 abundant caution such provision was made, which is evident from the fact that the provision was made under the head 'outstanding liabilities' (paper book 7 to 9). Thus, the assessee was not even sure whether the interest has to be paid or not. It was not a case where some deposits/loans were taken and there was an agreement to make payment of interest at a predetermined rate and time. Also it is notable that the revenue has not established that the assessee was 'responsible for paying' the interest on the basis of some agreement. Simply because of some book entry this onus could not have been discharged.
3.3 It is very pertinent to note that ultimately the assessee had not to pay the interest and the interest which was provided earlier in the relevant year, i.e., assessment year 1988-89, had to be reversed. The assessee accordingly credited the interest relating to these three parties, namely M/s Rajasthan Processors (I) Ltd., Bhilwara, M/s Orient Syntex Ltd. and M/s Shruti Synthetics Ltd., and consequently the entire deduction claimed and allowed earlier stood taxed in a later year. This was duly assessed by the assessing officer in assessment year 1991-92 vide order under section 143(3) dated 30-9-1992 (PB 6). Thus, the assessee already suffered tax on this part of income and it is clear that the assessee was not responsible for paying interest in assessment year 1988-89.
3.4 The assessee thus was not liable to make any deduction under section 194A and hence there was no default as under section 271C to this extent.
3.5 Further with regard to other entries also, the assessee was not fully sure of the amount of interest to be finally payable to the suppliers, this also being the purchases relating to the trade goods. Finally in these matters also the interest as credited originally was not paid but a lesser amount could be paid on settlement as is evident from the entries made in the chart (PB 7). However, the facts remain that whatever tax was deducted stood paid and a substantive compliance was made.
3.6 Technical breach only : It will be noted that on a major part of interest, the assessee had already paid tax by getting it taxed in assessment year 1991-92. In this way, it is only a technical breach if any, without prejudice to other contentions. The revenue has not at all put to any loss inasmuch as income-tax has already been paid by the assessee itself. With regard to the other entries also, it is submitted that it is a mere technical breach inasmuch as the TDS has already been paid though late. Therefore, the revenue has not been a loser. It will not be out of place to mention that the very purpose of TDS was to ensure advance collection of tax on behalf the payee under Chapter XVII-B. The conduct of the assessee was not contumacious and hence simply because the law empowers to impose penalty, it should not be imposed blindly. Reference is invited to Hindustan Steel v. State, of Orissa : [1972]83ITR26(SC) . It is also notable that no such penalty has been imposed in the past.
3.7 Ignorance of law reasonable cause : Alternatively and without prejudice to other contentions, it is submitted that Explanation below section 194A was brought on the statute with effect from 1-6-1987 by the Finance Act, 1987, i.e. mid of the relevant previous year. The assessee, therefore, was not fully and accurately aware of the implications of these amendments and, therefore, there was nothing abnormal if some bona fide mistake was committed on his part. The C.A. himself was under a state of confusion and committed some alleged error.
4. Besides the above arguments, the learned authorised representative also contended that Dy. CIT was not authorised to levy the penalty under section 271C of the Act. The penalty should have been levied by the assessing officer as per law as it stood at the relevant time. Sub-section (2) of section 271C of the Act was inserted with effect from 1-4-1990 authorising the Dy. CIT (Admn.) to levy the penalty. He also referred to the case of CIT v. Onkar Saran & Sons : [1992]195ITR1(SC) and also to the case of Brij Mohan v. CIT : [1979]120ITR1(SC) and contended that the penalty should be based on law as on date when return was filed.
5. We have considered the rival submissions. In this case, the appellant had not deducted tax at source at the time of crediting interest to outstanding liability account in the names of the following persons
Rs.
1.
M/s Rajasthan Processors (I) Ltd., Bhilwara
34,332.03 @ 21.6 %
7,416
2.
M/s Sharda Syntex, Bhilwara
9,801.00 @ 10.8 %
1,058
3.
M/s Vardhan Syntex
33,837.00 @ 10.8 %
3,654
4.
M/s Orient Syntex Ltd.
23,353.00 @ 21.6 %
5,044
5.
M/s Shruti Synthetics Ltd.
44,692.00 @ 21.6 %
9,653
6.
M/s Chenab Textile Mills
10,752.00 @ 10.8 %
1,161
7.
M/s M. P. Himmat Rarnka & Co.
6,685.00 @ 10.8 %
722
8.
M/s Jaipur Polyspin Ltd.
3,209.00 @ 21.6 %
693
9.
M/s Gajanand Gopikishan
2,325.42 @ 10.8 %
251
Total
29,652
The learned authorised representative contended that the interest payable was on the trade creditors and it was not settled whether the interest on trade creditors will be payable or not. The assessee was not sure about the interest payable to the persons. After discussion with them, it was decided that the interest was payable only to the six trade creditors and as per discussions subsequently held no interest was paid to three parties, namely M/s Rajasthan Processors (I) Ltd., Bhilwara, (2) M/s Orient Syntex Ltd., and (3) M/s Shri Syntex Ltd. The provisions which had already been made during financial year 1988-89 was transferred to liability no longer required written back, and consequently the entire deduction claimed and allowed earlier stood taxed, by the assessing officer for assessment year 1991-92 vide order under section 143(3), dated 30-9-1992. Therefore, we are of the considered opinion that the assessee was under bona fide belief that TDS was not deductible on the interest payable to the trade creditors. In fact, the interest was not payable as it was subsequently resolved with these parties that no interest will be charged on the trade credits. Therefore, the assessing officer is directed to re-calculate the penalty after excluding the amount of TDS payable in respect of the aforesaid three parties and allow relief accordingly.
6. As regards the contention of the assessee that the Deputy Commissioner, Udaipur was not competent to levy the penalty, we find that the penalty order was passed by him on 30-7-1991, whereas the Dy. CIT was empowered to impose penalty by inserting sub-section (2) under section 271C of the Act with effect from 1-4-1990. Therefore, he was competent to levy the penalty as per the provisions of sub-section (2) under section 271C of the Act.
7. The two judgments in the case of CIT v. Onkar Saran & Sons and Brij Mohan v. CIT (supra) are not relevant because in these cases it was held that penalty to be based on law as on the date when original return was filed in respect of penalty of concealment leviable under section 271(1)(c) of the Act. In this case the penalty was levied under section 271C of the Act for failure to deduct tax at source. The Dy. CIT was competent to levy penalty on the date of levy of penalty as per the amended provisions of law.
8. We have also considered the contention of the assessee regarding venial breach of law. In this case, Explanation to section 194A was inserted with effect from 1-6-1987. This Explanation provided that where any income by way of interest is credited to any account whether called 'interest payable account or 'suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. In respect of the remaining six parties, the assessee was assisted by a C.A. Even then, the entries were made in such manner as to avoid applicability of the Explanation to section 194A, inserted with effect from 1-6-1987. Thus, there was intentional default by the appellant.
9. As regards belated payment of TDS in respect of the persons at Sl. Nos. 6, 7 and 8 it is observed that the liability of the deductor would arise for failure to make deduction at the time of credit notwithstanding that it came to be made later on at the time of actual payment.
10. Therefore, after careful consideration we have already held that the assessee is not liable to deduct tax at source in respect of three parties already mentioned in the order, and regarding the remaining parties, the assessee was liable to deduct tax at source and to pay to the Government a/c. Therefore, the assessing officer is directed to exclude the penalty in respect of three parties already mentioned and calculate the penalty leviable in respect of other six parties, and allow relief accordingly.
11. In the result, this appeal of the assessee is allowed in part.