Delhi High Court - Orders
Commissioner Of Income Tax (Tds)-2 vs M/S Virgin Mobile India Pvt. Ltd on 13 March, 2024
Author: Yashwant Varma
Bench: Yashwant Varma, Purushaindra Kumar Kaurav
$~13
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 91/2020
COMMISSIONER OF INCOME TAX (TDS)-2..... Appellant
Through: Mr. Sanjeev Menon, JSC for
Mr. Zoheb Hossain, SSC.
Versus
M/S VIRGIN MOBILE INDIA PVT. LTD. ..... Respondent
Through: Mr. Salil Kapoor, Mr. Vibhu
Jain & Mr. Sumit Lalchandani,
Advs.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR
KAURAV
ORDER
% 13.03.2024
1. The Commissioner impugns the order of the Income Tax Appellate Tribunal ["ITAT"] dated 28 November 2018 and has framed the following questions of law for our consideration:
"A. Whether in the facts and circumstances of the case, the Ld. ITAT has erred in deleting the penalty u/s 271C of the Income Tax Act of Rs. 1,61,89,782/-?
B. Whether in the facts and circumstances of the case, the Ld. ITAT has erred in not considering that there is enough material on record to show that the assessee was aware of its liability of payment of TDS u/S 194J for providing „In sharing expenses‟ to TATA Teleservices Ltd.?
C. Whether in the facts and circumstances of the case, the Ld. ITAT has erred in not considering that the assessee has failed to deduct TDS under Section 194J of the IT Act without showing any reasonable cause for the same?
D. Whether in the facts and circumstance of the case, the Ld. ITAT has failed to consider that the lower deduction certificate u/S 197(1) was available to Tata Teleservices Ltd., only from 10.12.2008 to 31.03.2009 and therefore, the assessee was liable to deduct TDS for 01.04.2008 to 10.12.2008 on account of „In Sharing Expenses‟, particularly when bills were being raised on a This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 19/03/2024 at 20:38:38 monthly basis and payments were being made?
E. Whether the Ld. ITAT has failed to consider that the assessee has not acted in a bona fide manner and has acted with a clear intention to mislead the Revenue?
F. Whether on the facts and in the circumstances of the case and in law the Ld. ITAT has erred in not considering that the penalty order u/S 271C was passed after giving sufficient opportunity of hearing to the assessee, including issuance of various show cause notices?"
2. We note that insofar as the issue of imposition of penalties referable to Section 271C of the Income Tax Act, 1961 ["Act"] was concerned, the Commissioner of Income Tax (Appeals) ["CIT(A)"] had observed as follows:
"4.10 In the given case there is enough material on record to show that the appellant was very much aware that a liability existed on payment being made account of TDS u/s 194J on payment for In sharing expenses to Tata Teleservices Ltd. It was even aware of the fact that lower deduction certificate u/s 197(1) was available to Tata Teleservices Ltd. only for the period 10.12.2008 to 31.03.2009. Hence for the period 01.04.2008 to 10.12.2008 TDS was liable to be deducted particularly when bills were being raised on a monthly basis and payments were being made. It therefore cannot be said that the appellant has acted in a bonafide manner. The appellant has failed to make fair and honest estimate of TDS liability for the period 10.12.2008 to 31.03.2009. Thus the intention of the appellant to contribute in the evasion of taxes by non deduction is viewed as a serious default. It would be relevant to state that even if the payee had tax exemption for few months in the given year, the fact that the payer i.e. the appellant had not deducted taxes for the months where it was deductible, reveals the intention of the appellant to mislead the Revenue. It is also clear that even if deductee has paid taxes or one short deductee tax has been paid by the deductor, penalty u/s 271 C is still leviable."
3. While dealing with the aforesaid issue, the ITAT has, however, observed as under:
"7. We have carefully considered the rival contention and perused the orders of the lower authorities. The brief facts of the cases that the assessee has claimed deduction of in sharing expenses to the tune of Rs.169369687 on which there existed the tax liability to deduct tax under section 194J at the rate of 10%. The appellant This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 19/03/2024 at 20:38:38 paid these expenses to Tata teleservices Ltd but has not deducted tax at source on the said payment as Tata teleservices Ltd from 01/04/2008 to 10/12/2008 the exemption certificate under section 197 (1) was available from 10/12/2008 to 31/3/2009. Further, the assessee has debited preoperative expenses of Rs. 2.25 lakhs on which tax was not deducted under section 194J of the Income Tax Act. The assessee stated that it was covered by the exemption certificate under section 197 (1) of the income tax act dated 16th/1/2015. The learned assessing officer noted that the about tax deduction at source certificate has been given for the period from 10/12/2000 08/02/1931/3/2009 only. However, there was admittedly a failure on the part of the assessee to deduct tax at source on these above two expenses. However merely failure to deduct tax does not result into penalty under section 271C of the income tax act unless the adjudicating authority shows that there is a contumacious conduct of the assessee in failure to deduct tax at source. The issue is now squarely covered in favour of the assessee by the decision of the honourable Supreme Court of India wherein it has been held that for levy of the penalty under section 271C of the income tax act the learned adjudicating authority has to show contumacious conduct on the part of the assessee. The honourable Supreme Court in [2016] 66 taxmann.com 175 (SC)/[2016] 237 Taxman 594 (SC)/[2016] 380 ITR 550 (SC)/[2016] 283 CTR 128 (SC) Commissioner of income tax vs bank of Nova Scotia has held 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 case of Itochu Corporation 268 ITR 112 (Del) and in the case of CIT v. Mitsui & Company Ltd. 272 ITR
545. Respectfully following the aforesaid judgments of Hori'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 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 19/03/2024 at 20:38:39 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.
8. Looking to the facts stated in the orders of the adjudicating authority and the Commissioner of income tax appeals we find that there is no such finding that assessee has deliberately avoided the tax deduction at source provisions by not deducting the tax at source and therefore has failed to prove the contumacious conduct on part of the assessee for failure to deduct tax at source. In view of this we reverse the finding of the lower authorities and direct the learned adjudicating officer to delete the penalty under section 271C of the income tax act of ₹16189782/-. Accordingly, all the grounds of the appeal of the assessee are allowed."
4. Prima facie we find ourselves unable to sustain the view so taken bearing in mind the undisputed fact that the lower tax Withholding Certificate which had been obtained by Tata Teleservices, pertained only to the period 10 December 2008 to 31 March 2009. It was the aforesaid which led the CIT(A) to observe that despite the assessee being aware of the obligation to deduct tax for payments made to Tata Teleservices, it failed to do so and that the same was a tax evasion tactic. Matter requires consideration.
5. We accordingly admit the appeal on the following question of law:
A. Whether in the facts and circumstances of the case the ITAT has erred in deleting the penalty under Section 271C of the Act of INR 1,61,89,782/-?
6. Let the matter be called again on 27.05.2024.
7. We accord liberty to learned counsels for parties to place a Brief Synopsis of Submissions on record at least 48 hours prior to the This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 19/03/2024 at 20:38:39 date fixed. Those submissions shall refer to the pdf page numbers of the digital record of the Court wherever so required.
YASHWANT VARMA, J.
PURUSHAINDRA KUMAR KAURAV, J.
MARCH 13, 2024/kk This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 19/03/2024 at 20:38:39