Income Tax Appellate Tribunal - Hyderabad
Srinivas Civil Works Private Limited,, ... vs Assessee on 12 August, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B(SMC)', HYDERABAD
BEFORE : SHRI B.RAMAKOTAIAH,
ACCOUNTANT MEMBER
ITA No.527/Hyd/2013 - Assessment year 2003-04
ITA No.528/Hyd/2013 - Assessment year 2004-05
M/s Srinivasa Civil Addl. Commissioner of
Works (P) Ltd, vs. Income-tax,
Hyderabad. Range 15, Hyderabad.
(PAN - AAECS1716J)
(Appellant) (Respondent)
For Assessee : Fr Mr. S. Rama Rao
For Revenue : Mr. Rajat Mitra
Date of Hearing : Fr 24.07.2015
Date of Pronouncement : 12.08.2015
ORDER
These two appeals filed by the assessee are directed against the separate orders of the learned Commissioner of Income Tax (Appeals)-II, Hyderabad dated 28.1.2013, for the assessment year 2003-04 and 2004-05 respectively. Since, the issue involved in these two appeals is common, they are heard together and disposed off by common order for the sake of convenience.
2. The assessee raised common ground in these two appeals, challenging the orders of learned Commissioner of Income Tax (Appeals)-II, Hyderabad, confirming the penalty levied u/s 271C by the Addl. Commissioner of Income -tax, Range-15, Hyderabad.
2ITA No.527 & 528/Hyd/2013 M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
3. The facts of the case, briefly are that the assessee Company is engaged in the business of civil contract works mostly executing Government projects. A survey operation u/s 133A of the I.T. Act, was conducted on 11-02-2004. During the course of survey it was noticed that the assessee did not deduct tax at source from the payments made to creditors for expenses, unpaid labour charges, job work charges, transport charges, labour charges and royalty payments made to Gayathri Constructions for both the assessment years, i.e. A.Y. 2003-04 and A.Y. 2004-05. The Assessing Officer, after examining the books of accounts quantified the defaults and levied tax and interest u/s 201(1) and 201(1A).
4. The assessee filed an appeal before the learned Commissioner of Income Tax (Appeals), against the order of Assessing Officer u/s 201(1) and 201(1A). The learned CIT(A) vide order dated 17-9-2007 confirmed the order of Assessing Officer u/s 201(1) and 201(1A). The assessee further, challenged the CIT(A) order by filing appeal before the ITAT. The ITAT, Hyderabad Bench upheld CIT(A) orders for both the assessment years, i.e. 2003-04 and 2004-05.
5. The Addl. Commissioner of Income-tax, Range- 15, Hyderabad, initiated penalty proceedings u/s 271C, show causing why penalty cannot be levied for defaults in tax deducted at source. The Addl. Commissioner of 3 ITA No.527 & 528/Hyd/2013 M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
Income Tax, Range-15, Hyderabad, after considering the submissions of assessee, levied the penalty u/s 271C of Rs. 14,40,045/- and Rs.17,63,772/- respectively for the A.Y. 2003-04 and A.Y. 2004-05. The assessee preferred appeals before Commissioner of Income-tax (Appeals)-II, Hyderabad and challenged the levy of penalty u/s 271C. The learned CIT(A)-II, Hyderabad, confirmed the penalty levied by the Assessing Officer for both the years vide order dated 28-01-2013. Aggrieved, the assessee is in appeal.
6. The authorized representative of assessee submitted that the assessee never engaged the maistries for the purpose of supply of labour and the assessee itself arranged the labourers and appoints one of them as maistry, a group leader, it gets the work done through them and payments were made through them. He further, submits that no labourer earns even Rs. 15,000/- during the year as canal works are purely seasonal and the work is executed for 5 to 6 months in a year. He further, argued that there was no written agreement between the assessee and the maistry and in the absence of written agreement the question of applicability of provisions of section 194C does not arise. The AR contended that both labourers and maistry are employed by the company and when both are employees of the company, the assessee is justified in not deducting the tax at source from payments made to the labour charges. The AR, further, argued that the assessee 4 ITA No.527 & 528/Hyd/2013 M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
is under the bonafide belief that no tax is to be deducted at source from payments made to charges covered under section 194C or 194J under these circumstances. The AR, further, submits that with regard to job work charges, the assessee has deducted tax at source but, there was only a short deduction of tax at source which is unintentional. The AR, further argued that the lapses have been identified for the first time for the year under considerations and there was no such lapses, either in the past or the future years, the assessee has rectified the mistakes and complied with the TDS provisions. He also submitted that the assessee has paid entire tax and interest levied u/s 201(1) and 201(1A) before filing appeal before first appellate authority, i.e. CIT (A).Therefore, requested to restrict the penalty to that extent, wherever short deduction is there and delete the penalty levied for non-deduction of TDS u/s 194C and 194J.
7. The Departmental representative, on the other hand strongly supported the order of lower authorities. He further argued that, the assessee company business magnitude is very high and labour oriented, as such the assessee itself cannot mobilize such large number of labourers by itself and exercise control over them. This job of mobilization of labour is assigned to labour contractors, also called as maistry and payments were made to them and such payments are nothing but payments made to sub- contractors. He further argued 5 ITA No.527 & 528/Hyd/2013 M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
that, the assessee put forth similar arguments before the ITAT, Hyderabad bench in quantum appeal and the ITAT did not accept the assessee contention, as such there is no reasonable cause exists for not deducting tax at source. To this effect, he has furnished copy of orders of ITAT in assessee own case. Therefore, he urged to confirm the order of CIT(A).
8. I have heard both the parties and perused material on record. The factual matrix of the case is that the assessee is a company engaged in the business of execution of works contract mostly on Government projects. A survey operation under section 133A of the I.T. Act was conducted on 11.02.2004. At the time of survey, the A.O. noticed that the assessee has defaulted in deducting tax at source from the payments made to labour charges, job work charges, transportation charges and royalty payments made to Gayatri Constructions for both the assessment years under consideration. So, the A.O. after examining of the books of accounts quantified the defaults under section 201(1) and also levied interest under section 201(1A). The assessee carried the matter up to Tribunal and the Tribunal finally confirmed the action of the Assessing Officer. The Addl. Commissioner of Income-tax, Range-15, levied the penalty u/s 271C for the reasons recorded in his order. The learned CIT(A), upheld the action of the AO and confirmed the penalty.
6ITA No.527 & 528/Hyd/2013 M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
9. The question whether there was a reasonable cause because of which, the requirement of relevant provisions could not be complied with is primarily essential question of fact and it has to be decided in each case on consideration of material placed before the concerned authority. Levy of penalty under s. 271C is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause.
10. In the instant case, the assessee makes out its case and contended that, it was on the bonafide belief that no TDS is applicable, when payments are made to labourers employed by it on its own without assigning any contract work to the labour contractors. Though, the assessee did not succeed in its arguments in the quantum appeal before the authorities, the reasonableness in its argument that it has make the payment through its own labourers without assigning any contract work to the labour contractor cannot be ruled out. The revenue has 7 ITA No.527 & 528/Hyd/2013 M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
not brought out any material evidence to rule out the arguments put fourth by the assessee, other than placing reliance on the orders of the authorities. One cannot come to a conclusion that it cannot mobilize such huge labour force by its own, and assigned the work to labour contractor, by just considering the magnitude of the business or nature of the business alone. One has to consider the facts, such as place of work and nature if work executed. The assessee contended that it has executed work away from its place of business, for which it has hired labourers locally by paying them directly, though group leader appointed by the Company, therefore, the argument that it was hired its own labourers and payments are directly made, thereby believed that no TDS is deductible is having some sense of reasonableness. Therefore, it is relevant to consider the ratio laid down by Hon'ble Delhi High Court in the case of Woodward Governor India (P) Ltd. v. CIT (2002) 253 ITR 745 (Delhi). In the case of Woodward Governor India (P) Ltd. v. CIT (2002) 253 ITR 745 (Delhi), it is held that "levy of penalty under section 271C is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason Tor the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider the 8 ITA No.527 & 528/Hyd/2013 M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
explanation offered by the assessee or the person, as the case may be. 'Reasonable cause' as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it found to be frivolous, without substance or foundation, the prescribed consequences follow."
11. Now coming to the case on hand, I find that it is the contention of the assessee right from the beginning that the assessee had not deducted tax at source on such payments under the bonafide belief that the payments in question being labour charges were in the nature of labour payments paid for its own labourers and therefore, not liable to TDS u/s.l94C, which has also been accepted by the auditor who had issued tax audit report issued u/s 44AB without pointing out any lapses in his report. This explanation of the assessee was not accepted as "reasonable cause". But, I am of the opinion that on bonafide belief founded upon reasonable grounds, which assuming them to be true, would reasonably lead any ordinary person, placed in the position of the person 9 ITA No.527 & 528/Hyd/2013 M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
concerned, to come to the conclusion that the same was the right thing to do. The assessee in the present case has given explanation before the authorities below that the due to circumstances prevailing and under bonafide belief that tax was not required to be deducted at source U/S.194C on the payments in question. Moreover, no such issue was made out by Revenue in A.Y. 2002-03, in which year assessee has paid an amount of Rs.1060.04 lakhs as against Rs.948.09 lakhs during this year. Considering the facts and circumstances of the case, I am of the considered view that the non-deduction of tax at source on such payments cannot be said to be without a reasonable cause within the meaning of Section 273C. Therefore, the penalty levied u/s.271C in the instant case is not justified.
12. As for as the short deduction is concerned, the assessee itself did not pursue the matter and conceded the lapses, which is evident from the order of the Tribunal in quantum appeal. Therefore, there was lapse on the part of the assessee by short deducting tax at source from payments made to Job work charges and Transportation charges u/s 194A and 194C for the A.Y. 2003-04 and u/s 194C for the A.Y. 2004-05, which was accepted by the authorized representative before the Bench.
13. Therefore, considering the facts and circumstances of the case, I am of the considered view 10 ITA No.527 & 528/Hyd/2013 M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
that the non-deduction of tax at source on labour charges u/s 194C for both the assessment years i.e. 2003-04 and 2004-05 cannot be said to be without a reasonable cause within the meaning of Section 273C. Therefore, the penalty levied u/s.271C in the instant case in respect of labour charges amounting to Rs. 13,12,025/- and Rs. 17,19,672/- for the assessment years 2003-04 and 2004- 05 respectively is not justified, and hence, deleted. As for as the short deduction of TDS u/s 194A amounting to Rs. 38,268/- and Job work charges and transportation charges u/s 194C amounting to Rs. 65,555/- for the A.Y. 2003-04 and short deduction of TDS u/s 194C for labour charges and transportation charges amounting to Rs. 40,900/- for the A.Y. 2004-05 is confirmed. A.O. is directed to modify the order accordingly.
14. In the result, appeals of the assessee are partly allowed.
Order pronounced in the open court on 12.08.2015.
Sd/-
(B.RAMAKOTAIAH) ACCOUNTANT MEMBER Dated 12th August, 2015 VBP/-
11ITA No.527 & 528/Hyd/2013 M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
Copy to
1. M/s. Srinivasa Civil Works (P) Ltd., Hyderabad.
C/o. Mr. S. Rama Rao, Advocate, Flat No.102, Shriya's Elegance, H.No.3-6-643, Street No.9, Himayatnagar, Hyderabad - 500 029.
2. Addl. CIT, Range-15, Hyderabad
3. CIT(A)-II, Hyderabad
4. CIT-I, Hyderabad
5. D.R. ITAT "B" (SMC) Bench, Hyderabad
6. Guard File