Penalty deleted as the Assessee was not aware of TCS provisions

D.K. Parikh, AR for the Appellant. James Kurian, Sr. DR. for the Respondent.

ORDER

Rajesh Kumar, Accountant Member – These appeals filed by the assessee are against the orders of CIT(A)-8, Ahmedabad of various dates for all the above assessment years. Since the issue involved in some of the appeals is of common nature and therefore these appeals are heard together and are being disposed of by the consolidated order for the sake of convenience and brevity. We shall take up the ITA No.2463/Ahd/2015 for A.Y. 2009-10. Assessee has raised following ground:

“1. The learned Additional Commissioner of Income Tax, TDS Range, Ahmedabad has erred in facts and on law in levying penalty of Rs.5,20,400/- u/s.272A(2)(k) of the Act.”

2. The issue raised in the ground of appeal relates to confirmation of penalty by CIT(A) of Rs. 5,20,400/- levied u/s.272A(2)(k) by Additional Commissioner of Income Tax, TDS Range, Ahmedabad.

3. The brief facts of the case are that the assessee company was engaged in the business of laying of cross country pipelines and operating solar power plants. A survey was carried out at the business premises of assessee on 13.11.2013 and it was found by survey team that assessee was not filing quarterly statement in Form No.27EQ for the F.Y. 2008-09 on the due dates and therefore, the A.O. came to the conclusion that the assessee was liable for penalty u/s.272A(2)(k) of the Act. The assessee was issued show cause notice dated 21.01.2014 which was not replied to by the assessee and therefore, the ld. A.O. levied the penalty by observing that as per the provision of Section 273B, there is no scope for considering any reasonable cause for failure to file statement in time, since, Section 273B excludes the penalty u/s.272A(2)(k) of the Act. The A.O. calculated the defaults 5204 days and imposed penalty @ 100/- per day total amounting to Rs.5,20,400/- as mentioned in para 3 of the penalty order.

4. Ld. CIT(A) confirmed the penalty by holding that the assessee was rightly declared “assessee in default” by the A.O.. This view was also confirmed in the case of Indo Nissin Food Ltd. v. Jt. CIT [2004] 3 SOT 495 (Bang.), wherein it has been held that if taxes were paid voluntarily before detection by the department, the same would constitute reasonable cause. In the case of the appellant, the TCS was deposited after default was detected during the survey. Accordingly, penalty levied by the Addl. CIT was confirmed. However, the ld. CIT(A) disagreed with the findings of A.O. that the concept of reasonable cause as in Section 273B was not applicable to the provision of Section 272A(2)(k) of the Act.

5. In the beginning the ld. A.R. of the assessee submitted that the assessee was not aware of the provisions of the Act with regard to tax collection at source u/s.206C of the Act from the scrap sale. The assessee came to know about this TCS provision only when survey was conducted on the business premises of the assessee. The assessee fully cooperated with the team and paid the TCS due along with interest till the date of deposit from the assessee’s own pocket as it was not possible to collect the tax from the scrap buyers. The ld. A.R. while advancing his argument made three fold submissions, namely, (i). That the assessee has not collected any TCS on the sale of scrap and therefore, the penalty u/s.272A(2)(k) was not imposable as the proviso to Section 206C required filing of statement in Form No.27EQ only if the assessee had collected the TCS and the said statement was required to be filed only after the amount of TCS was collected and paid to the Central Government . In the present case, there was no question of filing Form no. 27EQ up to 30th June, 2012 and hence, the penalty u/s.272A(2)(k) was wrongly levied. The A.R. placed reliance on decision in Porwal Creative Vision (P.) Ltd. v.Addl. CIT [2012] 50 SOT 148 (URO) (Mum.) A.Y. 06-07 & 07-08, in which it was held that quarterly statement (similar provision to Section 200(3) for TDS Form No.26Q) can be filed only after payment of tax to the Central Government and for delay or default to collect tax there are other provisions u/s.206C(6A) and 206C(7) and therefore, penalty was not leviable. (ii). Even if, the default was there, no penalty was leviable as the default was technical and venial as the assessee has made the payment of TCS alongwith interest till the date of deposit and therefore no loss to the Revenue. The assessee did not collect the TCS and thus, the same was paid out of assessee’s own pocket with interest and therefore, the order u/s.206C(6A) and 206C(7) were to be passed. Reliance was placed on the judgment of Hon’ble Gujarat High Court in case of CIT v. Harsiddh Construction (P.) Ltd. [2000] 244 ITR 417 , which was followed by the Jurisdictional Ahmedabad ITAT in ACIT v. Lok Prakashan Ltd. in [IT Appeal No. 2815 (Ahd.) 2009], by following the judgment of Hon’ble Apex Court in the case of Motilal Padampat Sugar Mills Co. v. State of U.P. [1979] 118 ITR 326 & Harsiddh Construction (P.) Ltd. (supra) as well as Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC). & (iii). Ld. A.R. also made alternate submission that the penalty u/s.272A(2)(k) could not exceed the amount of tax collectible on the scrap sale and on this score the penalty was wrongly levied to the tune of Rs. 5,20,400/- whereas it cannot exceed the actual TCS due i.e. Rs.2,388/-. The ld. Counsel for the assessee strongly placed reliance on the Tribunal’s judgments in ITA No.5556 & 5557/Mum/2009, A.Y. 06-07 & 07-08 and also in ITA No. 2815/Ahd/2009, A.Y. 07-08.

6. The ld. D.R., on the other hand, relied on the orders of authorities below.

7. We have heard the rival submissions and perused the material on record. We find that a survey was conducted on the assessee’s business premises on 13.11.2013 and it was found that the assessee had defaulted in not collecting TCS on the scrap sales and depositing the same into the Government Treasury. In the present case, the penalty has been imposed under the provision of Section 272A(2)(k) by the ld. Addl. CIT. The relevant extract of Section 272A(2)(k) is reproduced as under:

“(2) If any person fails-

[(k) to deliver or cause to be delivered a copy of the statement within the time specified in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C;]

he shall pay, by way of penalty, a sum [of one hundred rupees] for every day during which the failure continues.

[Provided that the amount of penalty for failures in relation to [a declaration mentioned in section 197A, a certificate as required by section 203 and] returns under sections 206 and 206C [and [statements under sub-section (2A) or sub-section (3) of section 200 or the proviso to sub-section (3) or under sub-section (3A) of section 206C]] shall not exceed the amount of tax deductible or collectible, as the case may be;]”

The relevant extracts of provision of Section 206C sub-section 3are relevant and referred to Section 272A(2)(k) and therefore are reproduced as under:

“(3) Any person collecting any amount under sub-section (1) [or sub- section (1C)] [or sub-section (1D) shall pay within [the prescribed time] the amount so collected to the credit of the Central Government or as the Board directs:

[Provided that the person collecting tax on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this section shall, after paying the tax collected to the credit of the Central Government within the prescribed time, [prepare such statements for such period as may be prescribed] and deliver or cause to be delivered to the prescribed income-tax authority, or the person authorized by such authority, such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.]”

A close perusal of the above provisions of Section 271A(2)(k) reveals that a penalty under this section can only be imposed if a person fails to deliver or cause to be delivered a copy of statement in Form No.27EQ within the time specified in sub-section 3 of the Section 200 or proviso to sub-section 3 of Section 206C. The proviso to sub-section 3 of Section 206C provides for collection of tax on or after 01.04.2005 as per the provision of Section 206C and after collection pay the same to the credit of Central Government within the prescribed time and prepare statement in Form No.27EQ and deliver or caused to be deliver to the prescribed Income Tax Authority or person authorized by such authority on or before 15th day of next month after the close of the quarter for the first three quarter ending on 30th June, 30th September, 31st December and 15th May for the last quarter ending on 31st March. We find that the assessee was not aware of the provision of TCS on sale of scrap and came to know only upon survey by the department. We also note that immediately thereafter the assessee deposited amount of TCS alongwith interest. We are of the considered view that the penalty cannot be levied under this Section as the assessee has not collected any TCS. The penalty can only be imposed u/s.271A(2)(k) where the person collects TCS and not otherwise. In the case of Porwal Creative Vision (P.) Ltd. (supra), A.Y. 06-07 & 07-08, it has been held that quarterly statement can only be filed after payment of tax to Central Government and for delay or default there are other provisions and penalty cannot be levied u/s.271A(2)(k) of the Act. It was also held in the said decision that if the assessee fails to deduct and deposit TDS, there are other provisions for ensuring compliance i.e. if the assessee fails to deduct tax at source or after deducting fails to pay to the Central Government, the assessee is deemed to be in default u/s.201(1) and is liable of penalty and the assessee is also liable to pay interest for the period of default, till the payment of tax u/s.201(1A). Since, the TCS alongwith interest was paid to the Central Government and hence, there is no loss of revenue and the default is purely technical and venial. In the case of Lok Prakashan Ltd. (supra), the Tribunal upheld the finding of CIT(A) that delay in filing quarterly statement by the assessee was because of lack of knowledge of the law on the part of assessee and no loss to Revenue took place because of the said delay. The breach of duty on the part of the assessee does merely technical and venial breach and therefore, in view of the provision of Section 273B of the Act, the penalty was rightly deleted. The delay in filing the quarterly statement was certainly a default on the part of assessee which attracted penalty u/s.272A(2)(k) of the Act, unless the assessee shows a reasonable cause within the meaning of Section 273B of the Act. Thus, we are required to adjudicate whether on facts of the instant case the cause which has been shown by the assessee constitutes a reasonable cause u/s273B of the Act or not. The finding of the Learned Commissioner of Income-tax (Appeals) is that the assessee was prevented from filing the quarterly statements within prescribed time because of the lack of knowledge of the requirement of law on the part of the Directors of the assessee-company and its employees. We find that the provisions of furnishing of the quarterly statements were introduced under sub-section (3) of section 200 by the Finance (No.2) Act, 2004 w.e.f. 1-4-2005. We find that Revenue could not bring any material before us to controvert the above finding of the Learned Commissioner of Income-tax (Appeals) and to show that the assessee was earlier aware of this requirement of law. Further, on the facts of the case that the assessee has paid the tax within the prescribed time, itself shows that ordinarily there would not be any benefit to the assessee for which it would deliberately delay the submission of the quarterly statements. Further, the contention of the Revenue that ignorance of law cannot be an excuse is found to be unacceptable in view of the decision of the Hon’ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd.(supra), wherein it was held that there is no presumption in this country that every person knows the law and it would be contrary to common sense and reason if it were so. It was also stated that “it is impossible to know all the statutory law, and not very possible to know all the common law”. Further, the Hon’ble Madras High Court in the case of CIT v. K P V Shaik Mohammed Rowther & Co. (P.) Ltd. [1998] 232 ITR 176 (Mad) held as under:

“Ignorance of law can be a reasonable cause for the failure and deletion of penalty was justified. Further, it is observed that the Revenue could not bring any material before us to show that any loss to the Revenue was caused because of the aforesaid delay in furnishing of the quarterly statements by the assessee. On the above facts, we do not find any error in the findings of the Learned Commissioner of Income -tax (Appeals) that the breach of provisions by the assessee by filing the quarterly statements with certain delay was technical or venial breach of law only. Keeping in view the decision of the Hon’ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26 (SC) and the decision of the Jurisdictional High Court in the case of Harsiddh Construction Pvt. Ltd. v. CIT 244 ITR 417 (Guj.), we do not find any good reason to interfere with the order of the Learned Commissioner of Income -tax (Appeals). Therefore, the appeal of the Revenue is dismissed.”

In the case before us, the assessee was not aware of the provisions of TCS deduction and deposit and filing of quarterly returns. The assessee first came to know upon survey on its business premises and thereafter immediately deposited TCS along with interest and thus, it is technical and venial breach of provision causing no loss to Revenue. We are therefore of the considered view in the light of above decisions that the penalty levied u/s.271A(2)(k) cannot be sustained and therefore, the same is hereby ordered to be deleted. A.O. is directed accordingly.

ITA Nos. 2464, 2465 & 2467/Ahd/15 for A.Ys. 2010-11 to 2012-13

8. The issue raised in the ground of appeal in ITA Nos. 2464 to 2467/Ahd/15 for A.Y. 2010-11 to 2012-13 is same as decided by us in ITA No.2463/Ahd/2015 for A.Y. 2009-10 and therefore, facts being same, our decision in the said ITA shall apply to these appeals as well and as a result, the appeals of the assessee are allowed by deleting the penalty for A.Y. 2010- 11 Rs.3,74,400/-, for A.Y. 2011-12 Rs.2,28,400/- and for A.Y. 2012-13 Rs.82,300/-. The A.O. is directed accordingly.

ITA No.2466/Mum/2015 for A.Y. 2011-12

9. The issue raised in the ground of appeal in ITA No. 2466/Ahd/15 for A.Y. 2011-12 is regarding TDS whereas the issue as decided by us in ITA No.2463/Ahd/2015 for A.Y. 2009-10 is regarding TCS and therefore, our decision in the said ITA shall apply to this appeal as well and as a result, the appeal of the assessee is allowed by deleting the penalty of Rs.1,45,600/-. The A.O. is directed accordingly.

ITA No.2486/Mum/2015 for A.Y. 2008-09

10. In A.Y. 2008-09 assessee has raised following ground:

“1. The learned Additional Commissioner of Income Tax, TDS Range, Ahmedabad has erred in facts and on law in levying penalty of Rs.25,272/- for A.Y. 2008-09- u/s.271CA of the I.T. Act.”

11. The issue raised in the sole ground of appeal is against confirmation of penalty by CIT(A) levied u/s.271CA.

12. During the course of survey, it was found that TCS was not collected on the sale of scrap of Rs.25,27,204/- and therefore, the DCIT, TDS Circle, Ahmedabad vide order dated 20.11.2013 passed u/s.206C(1) of the Act determined the demand at Rs.25,272/- on account of default of TCS and proposed levy of penalty u/s.271CA vide letter dated 20.11.2013. The assessee was issued show cause notices dated 21.01.2014 and 08.07.2014, which were not replied by the assessee and therefore, the Addl. CIT levied the penalty of Rs.25,272/- u/s/. 271CA for failure to collect tax on sale of scrap.

13. The ld. CIT(A) confirmed the penalty by rejecting the submission of the assessee that though the tax was not collected but was duly paid alongwith interest and the same did not mitigate the default of non collection of tax u/s.206C. The CIT(A) further observed that assessee was rightly declared assessee in default by Addl. CIT(A) by holding that this view was also confirmed in the case of Indo Nissin Food Ltd. (supra), wherein it has been held that if taxes were paid voluntarily before detection by the department, the same would constitute reasonable cause. In the case of the appellant, the TCS was deposited after default was detected during the survey. Accordingly, penalty levied by the Addl. CIT was confirmed.

14. The ld. A.R. submitted that the assessee was unaware of the provisions of tax collection at source u/s.206C on the sale of scrap as submitted in reply to question no.14 during the course of survey, which is incorporated by CIT(A) in his order in para no.4. The ld. Counsel further submitted that tax was not collected due to bonafide omission and lack of knowledge and the assessee paid the amount of TCS with interest out of its own pocket and in the case of bonafide omission of law, penalty cannot be imposed. The assessee also submitted that the failure on the part of the assessee was a technical and venial breach which resulted in to the no loss to the Revenue as the TCS was paid along with interest thereon till the date of deposit and therefore, penalty could not be imposed. The ld. Counsel placed reliance on the decision in the case of Khodidas Family Trust v. ACIT in [IT Appeal No.1478 of (Ahd.) of 2009], Dy. CIT v. Nuclear Power Corporation of India Ltd. [IT Appeal Nos. 625 to 627 (Ahd.) of 2013] Harsiddh Construction (P.). Ltd. (supra).

15. The ld. D.R., on the other hand, relied on the orders of authorities below.

16. We have heard the rival submissions and perused the material on record. We find that the assessee was not deducting TCS on sale of scrap and after survey the assessee deposited the TCS along with interest. Earlier the compliance with TCS provisions could not be made as the assessee was not aware of such provision which was a bonafide omission. In the case ofKhodidas Family Trust (supra), Ahmedabad ‘B’ Bench held as under:

“The amount of TDS along with interest u/s 201(1A) of the Act was paid by the assessee and therefore there is no loss to the Revenue and it was only a technical breach of the provisions of the law for non-deduction of the TDS in the matter. The above facts show that the assessee had a reasonable cause for failure to comply with the provisions of law. The Revenue is compensated by paying the interest as well as due taxes by the payee. Therefore, there is no loss to the Revenue in the matter. In view of the above, we set aside the orders of the authorities below and cancel the penalty.”

In the case of Harsiddh Construction (P.) Ltd. (supra) it was held as under:

“Penalty was not to be levied for technical or venial breach of provisions of law after following the Hindustan Steel Ltd Vs State of Orissa (1972)83 ITR 26 SC.”

We are therefore of the view that the assessee had paid TDS along with interest and therefore there was no loss to the revenue and there was only technical or venial breach with constitute reasonable cause within the meaning of section 273B of the Act and in view of this the order of CIT(A) cannot be sustained and we delete the penalty by allowing the appeal of the assessee. A.O. is directed accordingly.

ITA Nos. 2487 to 2492/Ahd/15 for A.Ys. 2009-10 to 2014-15

17. The issue raised in the ground of appeal in ITA Nos. 2487 to 2492/Ahd/15 for A.Y 2009-10 to 2014-15 is same as decided by us in ITA No.2486/Ahd/2015 for A.Y. 2008-09 and therefore, facts being same, our decision in the said ITA shall apply to these appeals as well and as a result, the appeals of the assessee are allowed by deleting the penalty in all the appeals in ITA Nos.2487 to 2492/Ahd/2015. The A.O. is directed accordingly.

18. In the result, all the appeals of assessee are allowed.