When penalty under section 271C of IT Act is not leviable on Assessee for failure to deduct tax at source
Decided by ITAT, PUNE BENCH ‘B’, PUNE, In the Case of L T John Deere P. Ltd. v. ACIT, Appeal No. : ITA Nos. 1347 to 1351/PN/2007 Dated: March 28, 2008
14. The assessee has also taken a plea that the assessee did not deduct the tax at source on the interest liability credited to L T Ltd. as per the legal advice given by M/s. C.C. Chokshi Co. This explanation of the assessee has been rejected by the C1T(A) by saying that this submission of the assessee that no TDS was deducted by the assessee under a legal advice of M/s. C.C. Chokshi Co., lacks merit because this advice is not obtained by the appellant but by L T Ltd., The CIT(A) further observed that since this advice was neither given to L T Finance from whom the assessee had taken over the liability nor to the assessee, the case law relied upon by the assessee in this regard is not applicable to the facts of the present case. This stand of the CIT(A), in our considered opinion, is not justified because of the reason that what is material is the nature of the advice connected to the issue in hand and not the pen ton who has obtained the legal advice from a legal expert The CIT(A) has not disputed the fact that the legal advice was obtained by L T Ltd., n respect of the issue as to whether the payment made to L T Ltd. was taxable in their hand and/or whether the same was subjected to the deduction of tax at source by the payer The CIT(A) has not doubted the bona fide ness and genuineness of the legal advice given by M/s. C.C. Chokshi Co. The ClT(A) has rejected the assessee’s contention also by saying hat M/s. L T Ltd. had a control over the L T Finance Ltd. as well as upon the assessee and has arranged affairs with a view, to avoid the deduction of tax at source. But, he has not brought any material on record to establish that there was any colourable device adopted by L T Ltd., to avoid any deduction of tax at source in respect of the amount involved in the present case except drawing a presumption. It is not in dispute that the primary liability to pay tax on the income in question is on L T Ltd. The advice obtained by M/s. L T Ltd. having a primary liability to pay tax on the amount involved in the present case has undoubtedly an important bearing even from the point of view of the deductor. The advice has been obtained in respect of the transaction in question. The advice obtained by L T Ltd. is not in respect of any other matter not connected to the matter in hand. Therefore, mere because this advice was taken by M/s. L T Ltd. and not either by L T Finance Ltd. or by the assessee, it cannot be thrown out on the face it. It was incumbent on the CIT(A) to adjudicate this point on merit as to whether the assessee had acted on a mistaken belief based upon the legal advice given by the tax expert, in not deducting the tax at source on the amount involved in the present case. The Id. D.R. has not been able to point out any adequate or proper evidence on record that M/s. C.C. Chokshi co. has given the advice malafidely with a view to save the assessee from the liability to deduct tax at source. It is well settled that failure to comply any statutory provisions of law on a mistaken or bonafide belief based on the legal advice can be considered to be a sufficient and reasonable cause for such failure. In this respect, a reference may be made to a decision of Hon’ble supreme Court in the case of T. Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC) wherein the Hon’ble Supreme Court held that no penalty could be levied when the assessee had acted on the advice of a legal expert It was further observed that the explanation offered by the assessee, if any, has to be proved to be false to attract the penalty u/s 271(1)(c) of the Act Though, this decision was rendered in the context of penalty imposable u/s 271(1)(c), the principle that if the assessee had acted on a bonafide belief and there was no conscious and deliberate default on the part of the assessee, the penalty should not be imposed, is still applicable in the case of the penalty imposable for failure to deduct tax at source. In this connection, we may also refer to a decision of Hon’ble Delhi High Court in the case1 of CIT Vs. Fourways International in I.T. Appeal No. 382 of 2007 decided on September 25, 2007 where it has been held that section 273B does not make liable for penalty u/s 271C mandatory and the assessee would not be liable to penalty if he was able to prove that there was a reasonable cause for failure to deduct tax. In this case, the assessee had given an explanation that based on the wrong advice given by its Chartered Accountant. The assessee made certain payments for fabrication charges but had not deducted tax at source. This explanation of the assessee was found favour with the Tribunal. This was not found to be non-bona fide. In the present case, the explanation has not been proved to be false or non-bona fide.
16. In the present case, the explanation has not been proved to be false or non-bonafide. The advice given by the legal expert M/s. C.C. Chokshi co., cannot be said to be non-bonafide acted with any malafide intention. In the aforesaid premises, we, therefore, find that the assessee in the present case has given a bonafide explanation for its failure to deduct tax at source, and as such, the assessee should not be made liable to penalty leviable u/s 271C for failure to deduct tax at source on the amount payable on account of deferred liability of L T Ltd.