Case Law Details

Case Name : Shapoorji Pallonji and Co.(P) Ltd. Vs. J.C.I.T. (TDS) (ITAT Kolkata)
Appeal Number : I.T.A Nos. 413 & 414/Kol/2016
Date of Judgement/Order : 29/11/2017
Related Assessment Year : 2011- 12 & 2012- 13
Courts : All ITAT (5311) ITAT Kolkata (418)

Shapoorji Pallonji and Co.(P) Ltd. Vs. J.C.I.T. (TDS) (ITAT Kolkata)

In the present case there was only a short deduction of tax at source and it was not a case of non deduction of tax at source. It is also seen that the short deduction of tax at source was due to a wrong nomenclature under which the accounts department classified the payment for professional services as payment made to a contractor for carrying out any work. When the mistake was pointed out, the assessee accepted the mistake to the extent that the stand taken by the revenue is correct and immediately paid the tax that was not deducted at source by applying the proper rate of TDS. The plea of the assessee, in our view, constitutes reasonable cause for the failure contemplated u/s 271C of the Act. The judicial decisions cited on behalf of the assessee supports the plea taken by the assessee for not imposing penalty u/s 271C of the Act. We therefore cancel the penalty to the extent sustained by CIT(A) and allow both the appeals of the assessee.

Full Text of the ITAT Order is as follows:-

These are appeals by the assessee against a common order dated 14.01.2016 of CIT-(A)-24, Kolkata relating to F.Y.2010-11 and 2011-12. In these appeals the assessee has challenged the order of CIT(A) whereby the CIT(A) sustained in part penalty imposed on the assessee u/s 271C of the Income Tax Act, 1961 (Act.)

2. Under Section 271C of the Act if any person fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B then such person is liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct as aforesaid.

3. The Assessee is a company carrying on the business of civil construction at different sites located in different locations. For F.Y. 2010-11 the AO noticed that the assessee had deducted tax at source on certain payments at lesser rate as provided by section 194C of the Act treating such payment as payment for execution of work. According to the AO the payments were in the nature of fees for professional technical services on which higher rate of tax had to be deducted in terms of Sec. 194J of the Act. . The AO computed short deduction of tax of a sum of Rs. 13,43,576/-. An order u/s 201(1)/201(1A) of the Act was passed treating the assessee as an assessee in default in respect of the short deduction of tax referred to above. In the financial year 2011-12 the short deduction of tax at source was determined by the AO at Rs. 40,93,740/- for which an order u/s 201(1)/201(1A) was passed. Ultimately in the appeal filed by the assessee against the orders u/s 201(1)/201(1A) of the Act, the short deduction of tax was determined at Rs. 3,49,391/- for the financial year 2010-11 and at Rs. 3,43,387/- for the financial year 2011-12. The amount so determined was paid by the assessee.

4. The AO initiated penalty proceedings u/s 271C of the Act for assesee’s failure to deduct tax at source to the extent of short deduction. Under section 273B of the Act no penalty u/s 271C of the Act shall be imposed if the assessee proves that the failure referred to in section 271C of the Act was owing to a reasonable cause. The plea of the assessee in the proceedings before the lower authorities was that the failure to deduct tax at source was owing to the location of the assessee’s work site at several places and due to mistake at the clerical level for accounting expenses under proper head. This resulted in short deduction of tax at source. The above explanation with regard to the existence of a reasonable cause for non-imposing penalty u/ 271C of the Act was not accepted by CIT(A). Hence these appeals by the assessee before the Tribunal.

5. We have heard the submissions of the ld. Counsel for the assessee and the ld. The ld. Counsel for the assessee pointed out that there was no failure to deduct tax at source and it was only a case of short deduction of tax at source which was owing to wrong head under which expenses were booked by the accounts department. It was pointed out by him that as soon as the default came to the knowledge of the assessee TDS were paid. In such circumstances no penalty can be imposed. The ld. Counsel for the assessee placed reliance on the decision of the Hon’ble ITAT Delhi ‘F ‘ Bench in the case of Merino Industries Ltd. Vs Addl. CIT(TDS) in ITA No. 6150/Del/2015 A.Y.2008-09 order dated 16.11.2017 in which the plea of the assessee was that failure to deduct tax at source u/s 194H of the Act was bona fide because of wrong depiction of sale proceeds on net basis by the accountant without separately showing the amount of commission. The Tribunal cancelled penalty u/s.271C of the Act holding that the default was owing to reasonable cause. Our attention was also drawn to the decision of the Hon’ble Karnataka High Court in the case of CIT vs Rajajinagar Co-operative Bank Ltd. In ITA No.86 of 2006 judgment dated 20.07.2011. In the aforesaid decision which was an appeal against the order of the tribunal cancelling the penalty accepting the plea of the assessee that the relevant provision of law were misconstrued and that constituted reasonable cause for not levying penalty, the Hon’ble Karnataka High Court dismissed the appeal of the revenue. The Hon’ble High also accepted that when the mistake was pointed out by the department the assessee accepted the same and paid tax and interest and this circumstance should be taken as showing bona fide of the assessee and no penalty should be imposed. The ld. DR relied on the order of CT(A).

6. We have given a very careful consideration to the rival submissions. We are of the view that in the present case there was only a short deduction of tax at source and it was not a case of non deduction of tax at source. It is also seen that the short deduction of tax at source was due to a wrong nomenclature under which the accounts department classified the payment for professional services as payment made to a contractor for carrying out any work. When the mistake was pointed out, the assessee accepted the mistake to the extent that the stand taken by the revenue is correct and immediately paid the tax that was not deducted at source by applying the proper rate of TDS. The plea of the assessee, in our view, constitutes reasonable cause for the failure contemplated u/s 271C of the Act. The judicial decisions cited on behalf of the assessee supports the plea taken by the assessee for not imposing penalty u/s 271C of the Act. We therefore cancel the penalty to the extent sustained by CIT(A) and allow both the appeals of the assessee.

7. In the result both the appeals by the assessee are allowed.

Order pronounced in the Court on 29.11.2017.

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