Case Law Details
ITO (TDS) Vs Om Sai Ram Enterprises Ravulapalem (ITAT Visakhapatnam)
The issue under consideration is whether the penalty levied u/s 271C is justified in law?
In the present case, assessee awarded contract work and at the same time, it also supplied material to the contractor. Revenue found that the assessee passed the entries for supply of materials/payments from time to time without making TDS as required under section 194C. Accordingly, Revenue initiated penalty proceedings under section 271C for assessee’s failure to deduct tax at source and remittance to Government account.
ITAT states that, assessee was consistently following the practice of arriving the TDS liability at the end of the year since the material supplies were involved in the contract and material supply would be more than the payments to the contractor during the interim period, thus, it should not be treated as offender for non-deduction of tax at source. Further, the assessee was supplying the material to the contractor throughout the year and at the end of the year, after receiving the bills, the assessee is making the payments to the contractor duly deducting the tax at source and remitting to the Govt. account and no default is committed. There is no doubt that the assessee has duly deducted the TDS and remitted to Govt. account. Therefore, the assessee’s case is squarely covered by the case of CIT-XVIII, Delhi Vs. Bank of Nova Scotia. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-2, Guntur vide Appeal No. 130/14-15 dated 05.01.2016 and cross objections filed by the assessee in support of the order of the Ld.CIT(A) for the Assessment Year (A.Y.) 2014-15.
2. All the grounds of appeal are related to the levy of penalty u/s 271C of the Income Tax Act, 1961 (‘Act’ in short). The assessee concern is engaged in the business of civil contract works and is one of the 5 firms that formed as joint venture. M/s S.V. Constructions, Ubalanka is the lead partner of the joint venture. A survey u/s 133A was conducted in the business premises of the assessee by TDS Unit of Income Tax Department, Rajahmundry on 29.01.2014 to verify the deduction of TDS and remittance to Govt. of India account. Subsequent to the survey, from the books of accounts of Om Sai Ram Enterprises, the Assessing Officer (AO) noticed that the deductor (assessee) has passed the entries for supply of materials/payments from time to time without making TDS as required u/s 194C of the Act. The AO observed that the assessee debited the account of S.V.Constructions for Rs.5,96,72,209/- during the period from 01.04.2013 to 31.12.2013 but not deducted the TDS as required u/s 194C of the Act. It is also found that the M/s S.V. Constructions (Sub contractor) executed the works to the extent of Rs.3,21,77,612/- and raised the bills which was credited in the sub-contractors account 31.12.2013. It is observed that the deductee has executed the works to the extent of Rs.3,21,77,612/-which was adjusted against the materials supply. The AO asked the assessee to explain as to why the deductor(assessee) should not be treated as assessee in default and in response, the assessee explained to the AO that it had supplied the material and the material supply does not attract the TDS u/s 194C(1)(3) of the Act. Not being convinced with the explanation of the assessee, the AO treated the assessee as assessee in default for not deducting the TDS and for non-remittance to the Govt. account and raised the demand of Rs.11,93,445/- u/s 201(1) of the Act.
2.1 Subsequently, the Addl.CIT, TDS Range-6 has initiated the penalty proceedings u/s 271C for the assessee’s failure to deduct the tax at source and remittance to Government account. In response to the notice issued by the Addl. CIT (TDS), the assessee explained that it had supplied material to M/s S.V.Constructions and the material being more than the actual sub contract bill, there is no requirement to make the TDS and accordingly requested to drop the penalty proceedings. The Addl.CIT not being convinced with the explanation of the assessee, levied the penalty of Rs.20,28,670/- for the assessee’s failure to the deduct the tax at source on payments made to the contractor for the period from 01.04.2013 to 31.03.2014 @2% on total gross payment of Rs.10,14,34,980/-.
3. Aggrieved by the order of the Addl.CIT, the assessee went on appeal before the CIT(A) and challenged that the assessee is not liable to deduct TDS and the assessee’s case falls under section 194C(1)(3) of the Act for supply of material. The Ld.CIT(A) found that the AO had arrived at the liability of Rs.11.93 lakhs for the assessee’s default u/s 201(1) of the Act @2% on the payments made till 31.03.2013 at 5.97 crores, where as the Addl.CIT(TDS) levied the penalty of Rs.20,28,670/- which is inconsistent with the payments made without deduction of TDS. As per the provisions of section 271C, the penalty to be levied should not exceed the amount of tax which the person failed to deduct or paid, thus the penalty should not exceed Rs.11.93 lakhs (i.e. the amount of TDS for which the assessee was in default. Against the TDS default of Rs.5.97 crores, the liability works out to Rs.11.93 lakhs against which the penalty levied was Rs.20.28 lakhs). The discrepancy was brought to the notice of the Addl.CIT, Range-6 for his comments. The Addl.CIT clarified that the AO treated the assessee in default for the period from 01.04.2013 to 31.12.2013, whereas, the Addl.CIT had treated the assessee as the assessee in default for the entire period 2013-14 for the purpose of penalty u/s 271C, hence, there was a difference. After considering the explanation of the assessee and clarification given by the Ld.Addl.CIT, Range-6, the Ld.CIT(A), held that there is no case for penalty u/s 271C, since, the material supplied by the assessee is more than the payment made to the contractor. In this case after reducing the material supply from the payments made to the contractor, the TDS liability is working out to Nil. Hence, the Ld.CIT(A) deleted the penalty levied by the AO.
4. Aggrieved by the order of the Ld.CIT(A), the revenue has filed the appeal before this Tribunal. During the appeal hearing, the Ld.DR relied on the orders of the Addl.CIT, per contra, the assessee relied on the orders of the Ld.CIT(A).
5. We have heard both the parties and perused the material placed on record. We have observed from the orders of the lower authorities that the assessee has awarded contract work to M/s S.V.Constructions during the period 01.04.2013 to 31.03.2014. For the period from 01.04.2013 to 31.12.2013, M/s S.V.Constructions has executed the works worth Rs.3,21,77,612/-. At the same time, the assessee had supplied the material to the contractor for a sum of Rs.5,96,72,210/- which is to be excluded from the payments made to the deductee to arrive at the TDS liability as per section 194C(1)(3) of the Act. After reducing the material supply from the payments made the TDS liability has worked out to Rs.Nil and the assessee did not make the TDS. The AO treated the material supply also as contract works and accordingly treated the assessee as the assessee in default for the payments made to the contractor to the extent of Rs.5,96,72,710/- and raised the demand u/s 201(1) of the Act for a sum of Rs.11,93,443/-. The Addl.CIT while levying the penalty u/s 271C considered the total payment of Rs.10,14,59,577/- for the period from 01.04.2013 to 31.03.2014 and accordingly levied the penalty of Rs.20.28 lakhs u/s 271C of the Act.
6. During the appeal hearing, the Ld.AR submitted that the assessee has not made any cash payment and only supplied the material till 31.03.2013.
The Ld.AR further submitted that till the December 2013 the contractor executed the works to the extent of Rs.3.25 crores and after exclusion of the material supply there was no requirement of deduction of tax at source as per section 194C(1)(3) of the Act and hence, there is no case for imposing the penalty. The assessee is consistently following the practice of arriving the TDS liability at the end of the year since, the material supplies are involved in the contract and material supply would be more than the payments to the contractor during the interim period. Therefore, the assessee contended that the assessee should not be treated as offender for non-deduction of tax at source and accordingly requested to cancel the penalty.
7. The second argument by the Ld.AR is that the AO treated the assessee in default for a sum of Rs.11,93,445/- and passed the orders u/s 201(1) of the Act. Though the assessee has not committed any default by virtue of section 194C(1)(3) of the Act the assessee paid the demand without raising the dispute to purchase peace with the department. The Addl.CIT issued show cause notice dated 20.02.2014 for the default of nondeduction of tax at source for a sum of Rs.5,96,72,209/-, but levied the penalty of Rs.20,28,700/- which is unjustified and in violation of the provisions of section 271C of the Act.
The Ld.AR also relied on the decision of Hon’ble Supreme Court in the case of CIT-XVIII, Delhi Vs. Bank of Nova Scotia and argued that on similar facts, the appeal of the revenue was dismissed by the ITAT Delhi and held that having paid the tax u/s 201(1) and the compensatory interest u/s 201(1A), the assessee should not be treated as assessee in default for levying penalty u/s 271-C and Hon’ble Supreme Court has upheld the order of the Hon’ble Delhi High Court holding that there is no substantive question of law. In the instant case, on going through the paper book page No.7, the show cause notice issued by the Addl.CIT, it is observed that the Addl.CIT specifically mentioned that the assessee was in default for non deduction of tax for a sum of Rs.5,96,72,209/- which results in tax liability u/s 194C of the Act for a sum of Rs.11,93,445/-. However, he levied the penalty for the entire amount of payments upto 31.03.2014. In our considered opinion, the Addl.CIT is unjustified in levying the penalty of Rs.20,28,700/-, issuing the notice for tax default of Rs.11,93,445/-, without treating the assessee as assessee in default u/s 201(1A) of the Act for the remaining payment. Therefore there is no case for levying the penalty for difference amount of Rs.8,35,255/-(2028700-1193445), accordingly the same is deleted.
8. In the instant case, as explained by the Ld.AR, the assessee has paid the tax liability of Rs.11,93,444/- including the interest of Rs.94,099/- aggregating to Rs.12,87,544/- raised u/s 201(1) and 201(1A) of the Act. The assessee further submitted that the assessee was supplying the material to the contractor throughout the year and at the end of the year, after receiving the bills, the assessee is making the payments to the contractor duly deducting the tax at source and remitting to the Govt. account and no default is committed. From verification of the account copy of M/s S.V.Constructions, we observe that the assessee has continuously supplied and material and there was no payment made by the assessee to the contractor till 31.12.2013. However, on 31.12.2013, the assessee passed a journal entry for a sum of Rs. 3,21,77,600/- against which the material supplied was Rs.5,96,72,210/-. Since the assessee had duly deducted the tax at source u/s 194C as at the end of the year and remitted to the Govt. account, the assessee’s case is squarely covered by the decision in the case of CIT-XVIII, Delhi Vs. Bank of Nova Scotia in Civil Appeal No.1704 of 2008 of Hon’ble Apex court. Relevant part of the order of the Hon’ble Supreme Court with reference to the above appeal is as under :
“2. The matter was pursued by the Revenue before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal vide order dated 31.03.2006 entered the following findings:
“11..We have carefully considered the rival submissions. In the instant case we are not dealing with collection of tax u/s 201(1) or compensatory interest u/s 201(1A). The case of the assessee is that these amounts have already been paid so as to end dispute with Revenue. In the present appeals we are concerned with levy of penalty u/s 271-C for which it is necessary to establish that there was contumacious conduct on the part of the assessee. We find that on similar facts Hon’ble Delhi High Court have deleted levy of penalty u/s 271-C in the cae of M/s. Itochu Corporation, reported in 268 ITR 172 (Del) and in the case of CIT Vs. Mitsui & Company Ltd. reported in 272 ITR 545. Respectfully following the aforesaid judgments of Hon’ble Delhi High Court and the decision of the ITAT, Delhi in the case of Television Eighteen India Ltd., we allow the assessee’s appeal and cancel the penalty as levied u/s 271-C.”
3. Being aggrieved, the Revenue took up the matter before the High Court of Delhi against the order of the Income Tax Appellate Tribunal. The High Court rejected the appeal only on the ground that no substantial question of law arises in the matter.
4. On facts, we are convinced that there is no substantial question of law, the facts and law having properly and correctly been assessed and approached by the Commissioner of Income Tax (Appeals) as well as by the Income Tax Appellate Tribunal. Thus, we see no merits in the appeal and it is accordingly dismissed. No costs.”
9. In the instant case, as observed earlier, there is no doubt that the assessee has duly deducted the TDS and remitted to Govt. account. Therefore, the assessee’s case is squarely covered by the decision cited supra. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.
10. Cross objections filed by the assessee with delay of 814 days and no condonation petition was filed, hence, the cross objections filed by the assessee dismissed are in limine.
11. In the result, appeal of the revenue and cross objections of the assessee are dismissed.
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