Income Tax Appellate Tribunal - Mumbai
Deputy Commissioner Of Income Tax ... vs Sms India Ltd. on 30 November, 2005
Equivalent citations: [2006]7SOT424(MUM)
ORDER
V.K. Gupta, A.M. These appeals arising out of consolidated order dated 12-6-2002 of Commissioner of Income Tax (Appeals), Mumbai for assessment years 1995-96 to 1998-99, involve common issues and belong to the same assessee and, therefore, these were heard together and are being disposed of through this consolidated order for the sake of convenience.
2. We have heard both the parties and have also perused the material on record.
3. In all these appeals following common issues are involved "1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in holding that the revised return filed by the assessee was a valid return.
2. On the facts and circumstances of the case while deleting the penalty under section 271C, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the revised return was filed by the assessee after the default in deduction of tax at source was detected and brought to the notice of the assessee by the assessing officer.
3. On the facts and in the circumstances of the case the Commissioner of Income Tax (Appeals) erred in holding that the provisions of section 271C are not applicable to assessee's case as the assessee had deducted and paid the taxes in Government Account prior to completion of assessment proceedings under section 201(1) of the Income Tax Act, 1961."
4. Briefly stated facts of the case are that the assessee filed annual salary return in the prescribed form for the impugned years which were subsequently revised by the assessee. The assessee deposited short deducted tax as well as interest thereon under section 201(1A) of the Act. The assessing officer passed order under section 201(1) and 201(1A) of the Act on 6-2-2001. In the order under section 201(l) penalty proceedings under section 221(1) of the Act had been initiated. In the order under section 201(1A) of the Act an additional interest liability was worked out which was deposited by the assessee.
5. The assessing officer issued a show-cause notice under section 271C read with section 274 of the Act on 12-11-2001. During the course of penalty proceedings it was contended that no penalty was ordinarily leviable under section 271C just because it was lawful to do so, unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest or acted in conscious disregard of its obligations. It was also contended that the Central Board of Direct Taxes decided in the past that the proceedings under sections 221 and 271C of the Act for levy of penalty not to be initiated in the case where the employer voluntarily came forward and paid the whole amount of tax under section 192 of the Act along with the interest payable under section 201(1A). It was also contended that initially assessee treated certain allowances as exempt under bona fide belief and hence, did not deduct the tax at source on the same. However, on being professionally advised to deduct the tax the assessee voluntarily deposited the same along with the interest thereon. The assessing officer however held that the mistake of law and facts could not be made available as defence in any penal proceedings, either civil or criminal. The assessing officer further held that the assessee has himself admitted its failure to deduct the tax on the payments given to its employees by not filing the appeal against the order under sections 201 and 201(1A) of the Act. The assessing officer further held that the assessee committed mistake of not deducting TDS for four consecutive years and only when it was brought to the notice of the assessee, the same was rectified, therefore, there was no reasonable cause for not levying the penalty for non-deduction of tax on such payments. The assessing officer was also of the view that there was no provision in the Act to file revised annual salary return and filing of revised annual salary return in Form No. 24 voluntarily could not be a justified ground for not levying under section 271C. The assessing officer accordingly treated the assessee in default without reasonable cause and levied penalty of Rs. 81,67,226 under section 271C of the Act.
6. Aggrieved by the decision of the assessing officer the assessee preferred an appeal before learned Commissioner of Income Tax (Appeals), wherein the assessee submitted a series of explanations and which have been summarised as follows, by the learned Commissioner of Income Tax (Appeals) in para 5 of the appellate order:
"(i) As on the date of passing of orders under section 201(1) there was no default of short deduction at all and therefore, the penalty provisions of section 271C are not attracted.
(ii) Even if, a notice under section 221(1) was initiated, no action has been taken by the department. An act or omission of the assessee, even if technically covered by separate defaults, cannot be punished twice under the penal provisions. In other words, the appellant cannot be visited with two or more penalties which are identical in effect and belong to the same genus. Section 271C and section 221(1) relate to penalties belonging to the same genus. Reliance is placed on a decision of ITAT Calcutta in the case of ITO v. Titagarh Steels Ltd. (2001) 79 ITD 532.
(iii) The penalty under section 271C is not an automatic consequence of non-deduction or short deduction of tax at source, since section 273B, inter alia, provides that penalty under section 271C cannot be imposed if the person concerned can demonstrate that there was a reasonable cause for his failure referred to in section 271C. When an explanation is offered by the person concerned, it is the duty of an officer to objectively consider the same and determine whether, on the facts of a particular case, such an explanation could possibly explain the default. The officer is not to elaborate upon as to what should have happened in ideal circumstances but he has to only ascertain whether there are any real inconsistencies or factual errors in the explanation and whether, in a real life situation, assessee's explanation may hold good. Reliance is placed on the decision of ITAT, Calcutta in the case of ITO v. Dishergarh Power Supply Co. Ltd. (2001) 71 TTJ (Cal) 725 and the decision of Delhi High Court in the case of Woodward Governor India (P) Ltd. v. CIT (253 ITR 745).
(iv) The Additional Commissioner of Income Tax's observation as to whether offering tax voluntarily by way of TDS ipsofact would amount to admission of concealment, did not find favour with the Supreme Court in the context of concealment penalty in Sir Shadilal Sugar & General Mills Ltd. v. CIT (1987) 168 ITR 705 (SC). Merely because the appellant has voluntarily paid the TDS, it does not follow that it has admitted the default in payment of TDS amount.
(v) The Madras High Court in CIT v. F.V. Appa Durai Chettiar Company (221 ITR 849) has dealt with a case of penalty on income omitted in the original return but offered in a revised return and found that penalty is not exigible in such a case where a revised return is the assessments under section 201(l) were completed, no penalty under section 271C can be levied."
7. The learned Commissioner of Income Tax (Appeals) further considered the findings of the assessing officer and submissions made by the assessee and held that there was no prohibition against the filing of revised annual salary return and, therefore, the revised returns filed by the assessee before passing an order under section 201(1) of the Act were valid returns. The learned Commissioner of Income Tax (Appeals) further held that penalty under section 271C could be levied only if there was a failure to deduct the tax at source and since in the instant case no demand was raised on account of short deduction of tax in the order passed under section 201 of the Act, therefore, the provisions of section 271C were not applicable to the facts of the case and accordingly, be cancelled the order passed under section 271C for all the four years. Aggrieved by the decision of the learned Commissioner of Income Tax (Appeals), the revenue is in appeal before us.
8. The learned Departmental Representative contended that revised returns were not filed voluntarily and therefore, the assessee was liable for penal consequences and for this proposition he placed reliance on the decision of the Hon'ble M.P. High Court in the case Ravi Company v. Assistant CIT (2004) 271 ITR 286 (MP), wherein the revised return was filed for the year after questionnaire was issued by ITO wherein the Tribunal held that disclosure was not made voluntarily but with a view to escape the consequences of not filing the proper returns originally and the assessee did not offer credible explanations indicating the reasons for which amounts were not disclosed in the original returns and therefore, penalty under section 271C was leviable. It was further contended by him that assessee was merely required to deduct and deposit the tax which could not have substantial bearings on the business of the assessee and every prudent person in such situations would have deducted the tax as a matter of abundant precaution. It was further contended that the fact that assessee deposited the short deducted tax would not exonerate him from the levy of penalty under section 271C of the Act and for this proposition he relied on the decision of the Tribunal in the case of Hindustan Coca-Cola Beverages (P) Ltd. v. Joint CIT (2004) 90 ITD 720 (Del). He further drew support from the aforesaid decision to contend that misconception of legal provisions could not be taken as defence to avoid the penalty under section 271C of the Act.
9. The learned counsel appearing on behalf of the assessee, besides reiterating the submissions made before the learned Commissioner of Income Tax (Appeals) and putting a strong reliance on the appellate order, contended that there was a reasonable cause in the form of bona fide belief that impugned reimbursement/allowances were not taxable in the hands of the employees in view of different judicial decisions existing at that point of time. It was further contended that the assessee filed revised returns voluntarily and deposited the short deducted tax on its own and therefore, the conduct of the assessee was not to violate the law intentionally or deliberately but on the contrary looking to the immediate response by the assessee it can be said that there was a bona fide belief which resulted into short deduction of tax and the same comes within the ambit of reasonable cause, hence the penalty was not leviable. The learned counsel also drew our attention to the relevant pages of paper book containing factual matrix of the case as well as paper book containing various favourable decisions of the Tribunal in respect of similar issues to support its contentions that the assessee was under genuine belief regarding non-taxability of such allowances in the hands of the employees. It was also pointed out that the assessing officer did not record its satisfaction for initiation of penalty under section 271C in the order passed under section 201(1) of the Act which is mandatory as held in various judicial decisions, and therefore, the penalty order was bad in law and liable to be quashed.
10. We have considered the submissions made by both the sides, material on record and orders of the authorities below. Admittedly, the assessee filed its annual salary return for each year in the prescribed forms within the time specified. It is also an admitted fact that in the earlier years the annual salary returns were accepted by the department as such. In the year under consideration the assessee was required to clarify the basis of deduction of tax under section 192 of the Act. It has been stated by the assessee's counsel that at this point only the assessee took professional advice relating to deduction of tax at source and when advised to deduct the tax on impugned payments the assessee paid the short deducted tax and interest thereon voluntarily and filed revised annual salary returns for all four years. The assessing officer levied the penalty mainly on the ground that the deposits of the short deducted tax was made after initiation of the proceedings and therefore, the same was in voluntary and also relied on the principle that ignorance of law was no excuse. From the facts of the case it is observed that the assessee filed return for all years within the time and once the return for first year was accepted as such, the belief on the part of the assessee that he rightly deducted the tax got strengthened and the same practice continued till the assessee was advised professionally otherwise and this leads to obvious inference that when the assessee was confronted with this issue for the first time he immediately acted and rectified the same. Therefore, in our considered opinion bona fide belief in short deduction of tax coupled with voluntary compliance in the term of depositing the same immediately on coming to know the same would constitute reasonable cause. The assessing officer also gave a finding that ignorance of law is no excuse but simultaneously it is also true that there is no presumption that everyone knows the law. What is important is the fact that the moment a person comes to know that he has committed a mistake and being a person of reasonable intelligence and ordinary prudence if he takes the corrective measures to rectify the same immediately, then it cannot be said that he acted deliberately with complete disregard to law. There is also considerable force in the contention of the assessee that non-recording of satisfaction by assessing officer in the order under section 201(1) with regard to the fact that case is fit for levy of penalty makes the levy of penalty void ab initio. In view of above discussion and in the totality of facts and circumstances of the case we are of the considered opinion that the findings of learned Commissioner of Income Tax (Appeals) in his appellate order are in accordance with law and therefore, we uphold the order of learned Commissioner of Income Tax (Appeals). Thus, all grounds of revenue in all appeals are rejected.
11. In the result, the revenue's appeals are dismissed for all years under consideration.