Income Tax Appellate Tribunal - Hyderabad
Kct Pes Joint Venture, Hyderabad vs Assessee on 5 March, 2012
1
ITA NOs. 39 & 40/Hyd/11
M/s KCT PES Joint Venture
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 39 & 40/HYD/2010
Assessment Years: 2001-02 & 2002-03
KCT PES Joint Venture, ... Appellant
Hyderabad.
Vs.
Addl. Commissioner of Income-tax, ... Respondent
Range - 14, Hyderabad
(PAN - AAAAK2661A)
Appellant by : Mr. V. Raghavendra Rao
Respondent by : Mr. K. Vishwanathan
Date of Hearing : 05/03/2012
Date of Pronouncement : 04/05/2012
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
Both these appeals filed by the assessee are directed against a common order of the CIT(A)-II, Hyderabad for assessment years 2001-02 & 2002-03. Since identical issue is involved in both these appeals, the were heard together and, therefore, we find it convenient to dispose of these appeals by way of a common order.
2. The assessee is a joint venture formed by two concerns, namely PES Engineers Pvt. Ltd. and Karamchand Thapar & Bros (Coal Sales Ltd) (KCT). The assessee is an income-tax assessee having PAN and also a tax deductor having TAN. During the financial years relevant to AY 2001-02 & 2002-034, the assessee made payments to sub-contractors for carrying out the contract works obtained by it amounting to Rs. 7,51,62,896/- and Rs. 9,17,87,450/-. The AO scrutinized the details furnished by the assessee and passed orders u/s 201(1) and 201(1A) on 29/11/2002 raising demands u/s 201(1) and 201(1A) for the two years as under:-
2ITA NOs. 39 & 40/Hyd/11 M/s KCT PES Joint Venture Asstt. Year 201 (1) (Rs.) 201(1A) (Rs.) 2001-02 8,26,791/- 2,95,821/-
2002-03 9,36,232/- 1,67,856/- 2.1 The CIT(A)-V, Hyderabad vide order No. 0371 & 0372/W-
14(2)/CIT(A)-V/02-03, dated 21/03/2003 upheld the above mentioned orders passed u/s 201(1) & 201(1A). The assessee then filed a second appeal before the ITAT, Hyderabad and the ITAT B Bench in its appellate order in ITA Nos. 779 & 780/Hyd/2003 dated 16/03/2006 had sustained the above mentioned ordes u/s 201(1) and 201(1A) and also the order of the CIT(A)-V, Hyderabad.
2.2 Thereafter, the Additional CIT vide show cause notice dated 01/09/2006, issued notices u/s 271C r.w.s. 274 proposing to levy penalties against the assessee for its failure to deduct tax as required u/s 194C and after dealing with the assessee's objections passed impugned penalty orders u/s 271C of the Act. Aggrieved, the assessee carried the matter in appeals before the CIT(A).
3. Before the CIT(A), the assessee argued that there was no sub-
contract between the assessee and his members in regard to work executed by each of the members. He submitted that after the orders u/s 201(1) and 201(1A), it had effected TDS in respect of those sub- contract payments and issued TDS certificates. In support of its case, the assessee relied upon various case laws before the CIT(A), which were extracted by the CIT(A) in his order at page 4 to 5. After considering the submissions of the assessee, and referring to the findings of the Tribunal's order, confirmed the penalty order passed by the AO for assessment years under consideration. Aggrieved, by the order of the CIT(A), the assessee is in appeals before us raising the following grounds of appeal:-
"1. The CIT(A) erred on f acts and in law in upholding the penalty levied u/s 271C of the IT Act.
2(a) The learned CIT(A) did not take notice of the relevant f acts while upholding the penalty u/s 271C of the Act.
The CIT(A) f ailed to take notice of the relevant f acts that both the members of the Joint Venture were entitled to refunds even 3 ITA NOs. 39 & 40/Hyd/11 M/s KCT PES Joint Venture without deduction of taxes from the payments made to them by the assessee.
(b) Having noticed that the assessee fell in line and complied with demands u/s 291(1), the learned CIT(A) f ailed to notice that the conduct of the assessee was not contumacious or in def iance of law.
(c) The CIT(A) f ailed to take into consideration that although neither tax u/s 201(1) nor interest u/s 201(1A) was due [as the prepaid taxes TDS and advance tax) by the members were more than the regular tax payable] but yet the assessee paid the respective demand raised of Rs. 8,26,791/- & Rs. 2,95,821/- which prove the conduct of utmost cooperation and compliance on the part of the assessee.
3. The CIT(A) was not justif ied in holding that the belief that division of the contract receipts at source between the members of the JV would not constitute payments to sub-contractors was not bonaf ide. The order of the ITAT in respect of section 201(1) was not conclusive of lack of bonaf ide nature of the belief held by the assessee.
4. The initiation of penalty proceedings ought to have been held as barred by limitation in view of the long delay af ter the end of the financial year."
4. The assessee has also raised the following additional grounds of appeal:-
"1. The penalty order by Addl. CIT, Range 14 dated 26/03/07 u/s 271C of the Act is barred by limitation.
2. As the proceedings u/s 271C were initiated by a notice dated 01/09/06 and as the penalty order was passed more than six months af ter the end of September 2006, the penalty order is barred by limitation u/s 275(1)(c) of the Act.
3. As the action for imposition of penalty has not been initiated in the course of assessment or other proceedings, the period of limitation does not come under proviso to section 275(1)(a) of the Act."
5. After hearing the parties, the said additional grounds of appeal challenging the jurisdiction of the Assessing Officer are not admitted as the same have not been raised before the lower authorities and we shall adjudicate upon the merits of the appeal.
6. The learned counsel for the assessee Mr. V. Raghavendra Rao, at the outset submitted that there has been an extension of the definition of the word 'person' by inserting an explanation u/s 2(31) of the Act, with 4 ITA NOs. 39 & 40/Hyd/11 M/s KCT PES Joint Venture effect from 01/04/2002. According to the Notes on clauses and the Memorandum explaining the provisions of the finance bill (254 ITR (St) 120-01, 231-2) it has been stated that the definition of the person is clarified to be not only the AOP formed with the object of making income but also one without the object of making the income. It is also stated that the amendment was brought to avoid ambiguity and also to avoid a situation where no taxes are paid or deducted on payments made by such bodies. In the case of the assessee, the object of the Joint Venture was not to make income for itself but on the other hand the object was to make income by the members separately. The members joined only to be eligible for bidding for the contract and not for making income in that status. According to the decisions of the Supreme Court in the case of CIT Vs. Indira Balakrishna, 319 ITR 546, Association of Persons under the IT Act is one which is formed with the object of earning income, profits and gains. Therefore, the assessee came to be an AOP under the extended definition with effect from 01/04/2002 i.e. before the financial years under consideration. The Supreme Court decision and existence of ambiguity noticed by the legislature show that a reasonable cause existed for non-deduction of tax by the JV.
7. The learned counsel for the assessee relied upon various case laws and filed a paper book containing the same.
8. The learned DR Mr. K. Viswanathan on the other hand supported the orders of the lower authorities.
9. We have heard both the parties and perused the record as well as decisions cited. In the case of CIT Vs. Ely Lily & Co., 312 ITR 225, the Supreme Court held that the assessee was liable to deduct tax u/s 192 of the IT Act, and therefore liable for demand u/s 201 and 201(1A). The SC however held that penalty u/s 271C was not leviable because the failure of the assessee to deduct the tax was on account of bonafide belief to the contrary.
5ITA NOs. 39 & 40/Hyd/11 M/s KCT PES Joint Venture
10. In the case of CIT Vs. Viswapriya Financial 303 ITR 122, the Madras High Court held that as there was bonafide doubt about the relationship of borrower and lender/debtor and creditor, there was reasonable cause for non-deduction of tax and, therefore, penalty u/s 271C was rightly held by the ITAT as not leviable. In the present case also, the relationship of contractor and sub-contractor between the JV and one of its own members is in doubt, hence, the ratio of the said decision in 303 ITR 122 is applicable in the assessee's case.
11. In the case of Muthoot Financiers, 286 ITR (AT) 71, it has been stated that only if the cause advanced by the assessee was found to be frivolous and without foundation or substance, then only it should be considered as not reasonable. In the case under consideration, there was bonafide reason for the assessee for the default.
12. In the case of CIT Vs. Sr. Accounts Officer, Madhya Pradesh Electricity Board, 276 ITR 84, it was held that where there was confusion about the difference rates of TDS and the Board made good difference of short deduction with its own funds penalty u/s 271C was not leviable. In the present case, the fact that is that the AOP made good the tax not deducted earlier by immediately making the deduction as soon as the Assessing Officer levied it along with interest u/s 201(1A) even though an appeal was filed.
13. The Supreme Court has held in the case of Hindustan steel ltd. Vs. State of 83 ITR 62, unless the conduct of the assessee is contumacious penalty should not be levied.
14. We have perused the order of the co-ordinate bench in the case of M/s Ilabs Information Technology and Life Science Park Pvt. Ltd., Hyderabad in ITA Nos. 222 and 223/Hyd/2010, for AYs 2001-02 and 2002-03, order dated 23/04/2010 wherein the default on the part of the assessee is for failure to deduct tax u/s 194A on the interest payments to sister concerns which came to light only after the survey operations u/s 133A of the Act. Whereas in the present case before us the facts are 6 ITA NOs. 39 & 40/Hyd/11 M/s KCT PES Joint Venture different as the assessee was under bona-fide belief that division of the contract receipts at source between the members of the JV, would not constitute payments to sub-contractors. Hence, the decision of the co- ordinate bench is inapplicable considering the facts of the case before us.
15. We are of the opinion that when the contractor companies, who are big tax payers, regularly effect TDS on all payments made by them to various sub-contractors, there could be no reason why they should effect TDS unless on a bona-fide belief that TDS was not required to be made. We are of the view that the difference in perception of the provisions of law based on the opinion of practicing Chartered Accountant led to the bona-fide belief for non-payment of TDS and hence the conduct of the assessee does not appear to be contumacious for the levy of penalty u/s 271C of the Act. Thus, the penalty imposed u/s 271C is hereby deleted.
16. In the result, appeals of the assessee are allowed.
Pronounced in the open court on 04/05/2012.
Sd/- Sd/-
(CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 4 th May, 2012
kv
Copy to:-
1) KCT PES Joint Venture,
6-3-1090/1/A, Pacom Chambers,
1 s t Floor, Raj Bhavan Road, Hyderabad
2) Addl. CIT, Range 14, IT Towers, AC Guards, Hyderabad.
3) The CIT (A)-II, Hyderabad
4) The CIT(TDS), Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad