Calcutta High Court
Ito vs Dishergarh Power Supply Co. Ltd. on 30 April, 2001
Equivalent citations: (2001)71TTJ(CAL)725
ORDER
Pramod Kumar, A.M. This appeal filed by the revenue is directed against the order dated 30-6-1994, passed by the Commissioner (Appeals) Calcutta VI, in the matter of penalty under section 271C for the financial year 1991-92. Revenue is aggrieved of Commissioner (Appeals)'s deleting penalty of Rs. 1,20,000 imposed by the Deputy Commissioner, Range 21, Calcutta.
2. Rival contentions are heard, orders of the authorities carefully perused and relevant legal provisions deliberated upon.
3. In this case, there was admittedly a short-deduction of tax at source from dividends, and that such a short-deduction amounts to Rs. 1,20,000. This short-deduction is attributed to a programming error. It appears that the computer was programmed to print tax amount in five figures (before decimal points) and surcharge amount in four figures (before decimal points) since, apparently due to a briefing error, the programmer could not visualise that some tax deduction amounts will be more than Rs. 99,999 or that some surcharge amounts will be more than Rs. 9,999. However, there were two cases where these parameters were proved wanting-in the case of Andrew Yule & Co. Ltd. (hereinafter referred to as the AYCL) and Bengal Coal Co. Ltd. (hereinafter referred to as the BCCL), where the relevant details were as follows :
Dividend Tax deductible Surcharge due Rs.
Rs.
Rs.
AYC Ltd.
6,20,538 1,29,545.67 19,431.85 BCC Ltd.
3,98,040 87,578.60 12,836.79 Since the computer programmed to recognise only five digit tax and four digit surcharge payments, in the case of AYCL, it printed only Rs. 29,545.67 (as against 1,29,545.67) for tax and Rs. 9,431.85 (as against 19,431.85) for the surcharge. Similarly, in the case of BCCL, while tax amount was correctly printed as the same was below 99,999, the surcharge figure printed was Rs. 2,836.79 (as against due Rs. 12,836.79). These three mistakes account for short deduction of Rs. 1,20,000.
4. The issue before us is whether on the above facts, which are not seriously disputed by the revenue at any stage, levy of penalty under section 271C can be said to be justified. To complete narration of material facts, however, we may also state that the explanations of the assessee were rejected by the Deputy Commissioner proximately for the reason that, according to information gathered by him, in every computer program, there is a check list and if any mistake of the nature pointed out by the assessee occurs, the program flashes an error message. The learned Commissioner (Appeals), on the other hand, has come to a finding of fact that short deduction by the assessee was not a deliberate action and, accordingly, following Honble Supreme Court's judgment in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC), the learned Commissioner (Appeals) has held that penalty is not leviable for such bona fide mistakes.
5. It cannot be in dispute that 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 in case the person concerned can demonstrate that there was a reasonable cause for his failure referred to in section 271C. In other words, in case the assessee can show reasonable cause for his failure for non-deduction or short-deduction of taxes, penalty under section 271C cannot be imposed. However, as to what will constitute reasonable cause' is essentially a question of fact, which needs to be determined after taking into account facts and circumstances of each case. These facts and circumstances are best known by the person concerned and, therefore, it is clearly his responsibility to give the necessary explanations to the officer who is to adjudicate on whether or not penalty is to be levied. When an explanation is offered by the person concerned, it is duty of the 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. As observed by the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. (supra), "an order imposing penalty for failure to carry out statutory obligation is the result of quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard to its obligations." Having discussed this position of settled law, let us come back to the facts of this case.
6. The reasons for short-deduction of tax at source, and the nature of mistakes in deduction of tax at source, do indicate that there was a discernible pattern in the error committed which can be reasonably attributed to a programming error. The balance of probabilities does favour this explanation of the assessee. No doubt that in an ideal situation, such errors should have been detected by some inbuilt mechanism in the program itself, but we are not sitting in judgment about the quality of computer program, nor do we have the requisite expertise to reach a conclusion about the same. Even Deputy Commissioner's rejection of assessee's explanation, on the basis of some information gathered by him, to our mind, was not judicious way of examining the matter in a quasi-criminal proceeding that a penalty proceeding inherently is. We are of the view that the learned Deputy Commissioner, without necessary expertise and merely based on some tentative enquiries, should not have concluded that explanations given by the assessee are incorrect. To our mind, such a tentative exercise can only lead to a doubtful conclusion, but then the benefit of doubt in a penalty proceeding, as is settled, must to go the assessee. The explanation of the assessee should have been examined in an objective and impartial manner and in the light of human probabilities, and not on the basis of his perceptions about what should have happened in an ideal situation. In our view, the Deputy Commissioner was not justified in rejecting the explanation of the assessee merely on the basis of, as stated above, some tentative enquiries conducted by him. In any case, there is nothing on the record to suggest that the assessee's action smacked of any mala fide and deliberate defiance of law and, therefore, for this reason also, the penalty was not leviable. We are, therefore, of the considered view that the learned Commissioner (Appeals) was fully justified in quashing the penalty imposed under section 271C of the Income Tax Act. Accordingly, we confirm the order of the learned Commissioner (Appeals) and decline to interfere in the matter.
7. Before parting with the matter, we may, however, clarify that penalty under section 271C is only one of the consequence of short-deduction or non-deduction of tax at source. We make it clear that this order is confined to legality of penalty under section 271C and is without any prejudice to any other action initiated, or proposed to be initiated, by the assessing officer.
8. In the result, revenue 's appeal is dismissed.