Case Law Details
Netambit Value First Services (P) Ltd. Vs DCIT (ITAT Delhi)
Merely because assessee-company had claimed deduction of expenditure without deducting TDS on As it was not in dispute that payment of interest to bank/NBFC was genuine, it was not the case of furnishing of inaccurate particulars of income. Merely because assessee-company had claimed deduction of expenditure without deducting TDS on interest payment, which was not accepted by Revenue, by itself, would not attract the levy of penalty.
The A.O. did not initiate the penalty proceedings for concealment of income. Explanation-1 to Section 271(1)(c) would apply in the case of concealment of income and not in the case of furnishing of inaccurate particulars of income. Therefore, there is a contradictory findings given by the A.O. in the assessment order as well as in the penalty order. Merely because the assessee-company did not challenge the addition before Ld. CIT(A), is no ground to levy penalty against the assessee-company because it is well settled law that assessment and penalty proceedings are distinct and independent proceedings. It is not automatic in each and every case to levy penalty, if addition is sustained on merits. Considering the above discussion, we are of the view that it is not a fit case for levy of the penalty.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by assessee has been directed against the order of the Ld. CIT(A)-6, Delhi, dated 05th January, 2016, for the ay 2011-2012, challenging the levy of penalty under section 271(1)(c) of the I.T. Act, 1961.
2. Briefly, the facts of the case are that assessee-company declared current year’s loss at Rs.2.61 crores in the return of income. The case of the assessee-company was selected for scrutiny. The A.O. observed from the balance sheet of the assessee-company that it obtained fresh unsecured loans during the year under consideration from the NBFC Sector companies. The assessee-company furnished details of interest paid to NBFC companies. It was observed from the details filed by the assessee-company that assessee-company has failed to deduct the tax at source on the payment on account of interest paid to NBFC companies amounting to Rs.7,71,859. As per provisions of Section 194A, the assessee-company was required to deduct the tax on such payments during the year under consideration. Thus, the amount of interest was disallowed under section 40(a)(ia) of the I.T. Act due to non-deduction of tax at source. The A.O. initiated the penalty proceedings for furnishing inaccurate particulars of income. The A.O. vide separate order levied penalty on this addition against the assessee-company, the particulars of which, the assessee-company has concealed within the meaning of Explanation-1 to Section 271(1)(c) of the I.T. Act.
3. The assessee-company challenged the penalty order before the Ld. CIT(A). It was submitted that assessee-company has not deducted tax at source on the payments made to four reputed banks/NBFC Sector companies amounting to Rs.7,71,859. The assessee-company was under bonafide belief that the TDS provisions are not attracted on interest payment to Banks and NBFC companies under section 194A of the I.T. Act. In fact, Section 194A(3)(iii) exempts from deduction of TDS on income credited or paid to any Banking Company to which the Banking Regulation Act, 1949 applies. It was submitted that the provisions of Banking Regulation Act, 1949 applies to Kotak Mahindra Bank Limited. The audit report of Kotak Mahindra Bank Limited was also filed. It was submitted that the provisions of TDS under section 194A are not applicable on the interest of Rs.1,75,099 paid to Kotak Mahindra Bank Limited. It was, therefore, submitted that no penalty could be levied. It was also submitted that in view of insertion of second proviso to Section 40(a)(i)(a), the assessee-company may not be treated as assessee-in-default of not deducting tax at source because the interest was paid to other reputed NBFC companies by net banking and they are bound to file their return of income under section 139 of the I.T. Act. Since the payee has paid the tax, therefore, assessee-company may not be deemed to be an assessee-in-default. The assessee-company relied upon the decision of the Hon’ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd., (2015) 377 ITR 635 (Del.). It was submitted that assessee-company made true and full disclosure, therefore, no penalty be levied. The assessee-company relied upon the decision of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd., 322 ITR 158 in which it was held that “merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that, by itself, would not attract the penalty under section 271(1)(c) of the I.T. Act.” The assessee-company also relied upon other decisions which are reproduced in the impugned order. The assessee-company, therefore, pleaded that no penalty be levied. It was further submitted that assessee-company did not file any appeal against the addition but penalty proceedings are different from the assessment proceedings and are independent.
4. The Ld. CIT(A), however, did not accept the contention of assessee-company and held that provisions of law are clear and assessee-company is required to deduct TDS on interest paid to NBFC Companies. It was noted that TDS details are not shown in the tax audit report. The claim of the assessee-company that interest paid to Kotak Mahindra Bank Limited which is not a NBFC Company was also not accepted. The Ld. CIT(A) following the decision of the Hon’ble jurisdictional Delhi High Court in the case of CIT vs. Zoom Communications Pvt. Ltd., 327 ITR 150 (Del.) confirmed the levy of penalty and dismissed the appeal of the assessee-company.
5. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has referred to PB-14 which is the details of interest expenditure duly reflected in Schedule-16 of the balance sheet. He has submitted that assessee-company has also got its accounts audited and no disallowance with regard to any non-deduction of tax at source on these payments was made by the tax auditor in the audit report. Copy of the same is filed at PB-23 to 34. The details with regard to bifurcation of said interest expenditure was provided to the A.O. Thus, the assessee-company made full disclosure in the return of income as well as at the assessment stage. The assessee-company was under bonafide belief that no TDS is required to be deducted on payments made to Banks and NBFCS. Rs.1,75,099 was payable to Kotak Mahindra Bank Limited, on which, no TDS is required to be deducted. The tax auditor has not brought this fact to the notice of the assessee-company. Therefore, there is no concealment of income or furnishing inaccurate particulars of income. The assessee-company relied upon the decision of the Hon’ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd., (supra). He has also relied upon the order of ITAT, Ahmedabad Bench in the case of ITO vs. Shri Vishal Madusudanbhai Chokshi 2014 (1) TMI 910 in which it was held as under :
“Deletion of penalty u/s 271(1 )(c) of the Act – Held that:-The Assessing Officer has nowhere alleged that the payment of interest made to finance company on which the TDS was deductable is non genuine or bogus – It is also a fact that there is nothing on record or alleged that the payment of interest is excessive or unreasonable – The disallowance has been made for non-deduction of TDS in view of provisions of section 40(a)(ia) – The legal fiction created by section 40(a)(ia) will not attract penalty for furnishing of inaccurate particulars of income because there is no inaccurate particulars in the return of income.”
5.1. He has also relied upon the decision of the Hon’ble Gujarat High Court in the case of CIT vs. M/s. Venus Engineers 2011 (8) TMI 1163 (Guj.) (HC) in which in paras 4 to 6 it is held as under :
4. “On hearing learned Counsel Mrs.Mauna M. Bhatt and on examining the orders of adjudicating authorities, it can be seen that Tribunal was of the opinion that due to ignorance of the provision containing in Section 40(a)(ia) of the Act, the assessee did not deduct TDS from the payment made to labour, transport and carting expenses. The Tribunal was also actuated by the fact that the C.A. who audited the accounts of the assessee under Section 44AB did not point out any infirmity on account of non-deduction of IDS., otherwise, all the relevant accounts were adduced before the Assessing Officer. Thus, when the Tax audit report also did not point out the TDS default to the assessee, the Tribunal concluded that the mistake made by assessee was bonafide and the explanation was found genuine.
5. The Tribunal drew support from the order of CIT(A) that there was no concealment nor was this is a case of furnishing of inaccurate particulars.
6. The reasonings given by both the adjudicating authorities concurrently cannot be held as perverse nor are there any grounds made out by the Revenue to dislodge the findings.
Resultantly, when there is no concealment nor any occasion of furnishing inaccurate particulars to bonafide mistake, Tribunal rightly uphold the order of CIT(A), deleting the penalty, therefore, this Tax Appeal merits no consideration as question of law is to be determined. Hence, same is dismissed.”.
5.2. Learned Counsel for the Assessee, therefore, submitted that penalty is not leviable.
6. On the other hand, Ld. D.R. relied upon the orders of the authorities below and submitted that only small percentage of returns are taken-up for scrutiny. If the assessee-company makes a claim, which is not only incorrect, but is also wholly without any basis and the explanation furnished by the assessee-company for making such claim, is not found to be bonafide, it would be difficult to say that he was still not liable to penalty under section 271(1)(c) of the I.T. Act. In support of this contention, he has relied upon decision of the Delhi High Court in the case of CIT vs. Zoom Communication Pvt. Ltd., (supra).
7. We have considered the rival contentions and perused the material on record. Learned Counsel for the Assessee pointed-out the details in the audit report, in which, assessee-company in Schedule-16, has declared complete facts of interest and financing charges on loans, in a sum of Rs.7,71,859. He has also referred to PB 33 and 34 of the paper book to show that the Auditor has given complete details of TDS under various applicable sections but the said Auditor has not brought to the notice of the assessee-company non-deduction of TDS on interest paid to Banks and NBFCs. The assessee-company pleaded that part of the interest was paid to the Bank which is exempt on which no finding have been given by the Ld. CIT(A). It is clear from these facts that assessee-company made full disclosure of the incurring of the interest expenditure of the amount in question on account of fresh unsecured loan obtained from Banks and NBFC. The Auditor has given details of TDS in the audit report but the Auditor who audited the accounts of the assessee-company did not point-out any infirmity on account of non-deduction of TDS on the amount of interest paid to the Banks and NBFC, otherwise, all the relevant accounts were produced before A.O. The Auditor, therefore, did not point-out the TDS default to the assessee-company. It is not in dispute that payment of interest made to Bank and NBFC were genuine and not excessive or unreasonable interest was found. These facts clearly show that it is not a case of furnishing of inaccurate particulars of income. The A.O. levied the penalty merely because of non-deduction of TDS on interest payments. Therefore, the decisions relied upon by the Learned Counsel for the Assessee in the cases of ITO vs. Shri Vishal Madhushdnanhai Chokshi and CIT vs. M/s. Venus Engineers (supra), applied to the facts and circumstances of the case. It is a case where disallowance is made because of non-deduction of TDS. Therefore, decision of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd., (supra) also applied to the case of the assessee-company. Merely because the assessee-company had claimed deduction of expenditure without deducting TDS on interest payment which was not accepted by the Revenue, by itself, would not attract the levy of penalty. Mere disallowance of interest for non-deduction of TDS by itself may not be a ground to levy of penalty against the assessee-company. Moreover, the A.O. in the assessment order has initiated the penalty proceedings for furnishing inaccurate particulars of income. However, in the penalty order, the A.O. levied the penalty for concealment of income within the meaning of Explanation-1 to Section 271(1)(c) of the I.T. Act. The A.O. did not initiate the penalty proceedings for concealment of income. Explanation-1 to Section 271(1)(c) would apply in the case of concealment of income and not in the case of furnishing of inaccurate particulars of income. Therefore, there is a contradictory findings given by the A.O. in the assessment order as well as in the penalty order. Merely because the assessee-company did not challenge the addition before Ld. CIT(A), is no ground to levy penalty against the assessee-company because it is well settled law that assessment and penalty proceedings are distinct and independent proceedings. It is not automatic in each and every case to levy penalty, if addition is sustained on merits. Considering the above discussion, we are of the view that it is not a fit case for levy of the penalty. We, accordingly, set aside the orders of the authorities below and cancel the penalty.
8. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court.
