DEPUTY COMMISSIONER OF INCOME TAX v. SMS INDIA LTD
[Citation -2005-LL-1130-6]

Citation 2005-LL-1130-6
Appellant Name DEPUTY COMMISSIONER OF INCOME TAX
Respondent Name SMS INDIA LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 30/11/2005
Assessment Year 1996-97 TO 1998-99
Judgment View Judgment
Keyword Tags non-recording of satisfaction • deduction of tax at source • admission of concealment • show-cause notice • bona fide belief • ignorance of law • original return • mistake of law
Bot Summary: On the facts and circumstances of the case while deleting the penalty under s. 271C, the learned CIT(A) 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 AO. On the facts and in the circumstances of the case the CIT(A) erred in holding that the provisions of s. 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 s. 201(1) of the IT Act, 1961. 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 AO 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 there was no reasonable cause for not levying the penalty for non- deduction of tax on such payments. The learned CIT(A) further considered the findings of the AO and submissions made by the assessee and held that there was no prohibition against the filing of revised annual salary return and the revised returns filed by the assessee before passing an order under s. 201(1) of the Act were valid returns. CIT 271 ITR 286, 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 s. 271C was leviable. In the year under consideration the assessee was required to clarify the basis of deduction of tax under s. 192 of the Act. 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.


These appeals arising out of consolidated order dt. 12th June, 2002 of CIT(A), Mumbai for asst. yrs. 1995-96 to 1998-99, involve common issues and belong to same assessee and, therefore, these were heard together and are being disposed of through this consolidated order for sake of convenience. We have heard both parties and have also perused material on record. In all these appeals following common issues are involved: " 1. On facts and in circumstances of case and in law, learned CIT(A) erred in holding that revised return filed by assessee was valid return. On facts and circumstances of case while deleting penalty under s. 271C, learned CIT(A) failed to appreciate that revised return was filed by assessee after default in deduction of tax at source was detected and brought to notice of assessee by AO. On facts and in circumstances of case CIT(A) erred in holding that provisions of s. 271C are not applicable to assessee s case as assessee had deducted and paid taxes in Government Account prior to completion of assessment proceedings under s. 201(1) of IT Act, 1961." Briefly stated facts of case are that assessee filed annual salary return in prescribed form for impugned years which were subsequently revised by assessee. assessee deposited short deducted tax as well as interest thereon under s. 201(1A) of Act. AO passed order under ss. 201(1) and 201(1A) of Act on 6th Feb., 2001. In order under s. 201(1) penalty proceedings under s. 221(1) of Act had been initiated. In order under s. 201(1A) of Act additional interest liability was worked out which was deposited by assessee. AO issued show-cause notice under s. 271C r/w s. 274 of Act on 12th Nov., 2001. During course of penalty proceedings it was contended that no penalty was ordinarily leviable under s. 271C just because it was lawful to do so, unless 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 CBDT decided in past that proceedings under ss. 221 and 271C of Act for levy of penalty not to be initiated in case where employer voluntarily came forward and paid whole amount of tax under s. 192 of Act along with interest payable under s. 201(1A). It was also contended that initially assessee treated certain allowances as exempt under bona fide belief and hence, did not deduct tax at source on same. However, on being professionally advised to deduct tax assessee voluntarily deposited same along with interest thereon. AO however held that mistake of law and facts could not be made available as defence in any penal proceedings, either civil or criminal. AO further held that assessee has himself admitted its failure to deduct tax on payments given to its employees by not filing appeal against order under ss. 201 and 201(1A) of Act. AO further held that assessee committed mistake of not deducting TDS for four consecutive years and only when it was brought to notice of assessee, same was rectified, therefore, there was no reasonable cause for not levying penalty for non- deduction of tax on such payments. AO was also of view that there was no provision in Act to file revised annual salary return and filing of revised annual salary return in Form No. 24 voluntarily could not be justified ground for not levying under s. 271C. AO accordingly treated assessee in default without reasonable cause and levied penalty of Rs. 81,67,226 under s. 271C of Act. Aggrieved by decision of AO assessee preferred appeal before learned CIT(A), wherein assessee submitted series of explanations and which have been summarised as follows, by learned CIT(A) in para 5 of appellate order: "(i) As on date of passing of orders under s. 201(1) there was no default of short deduction at all and therefore, penalty provisions of s. 271C are not attracted. (ii)Even if, notice under s. 221(1) was initiated, no action has been taken by Department. act or omission of assessee, even if technically covered by separate defaults, cannot be punished twice under penal provisions. In other words, appellant cannot be visited with two or more penalties which are identical in effect and belong to same genus. Sec. 271C and s. 221(1) relate to penalties belonging to same genus. Reliance is placed on decision of Tribunal Calcutta in case of ITO vs. Titagarh Steels Ltd. (2001) 73 TTJ (Cal) 297: (2001) 79 ITD 532 (Cal). (iii) penalty under s. 271C is not automatic consequence of non- deduction or short deduction of tax at source, since s. 273B, inter alia, provides that penalty under s. 271C cannot be imposed if person concerned can demonstrate that there was reasonable cause for his failure referred to in s. 271C. When explanation is offered by person concerned, it is duty of officer to objectively consider same and determine whether, on facts of particular case, such explanation could possibly explain default. 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 explanation and whether, in real life situation, assessee s explanation may hold good. Reliance is placed on decision of Tribunal, Calcutta in case of ITO vs. Dishergarh Power Supply Co. Ltd. (2001) 71 TTJ (Cal) 725 and decision of Delhi High Court in case of Woodward Governor India (P) Ltd. vs. CIT (2001) 168 CTR (Del) 394: (2002) 253 ITR 745 (Del). (iv) Addl. CIT s observation as to whether offering tax voluntarily by way of TDS ipso facto would amount to admission of concealment, did not find favour with Supreme Court in context of concealment penalty in Sir Shadilal Sugar and General Mills Ltd. vs. CIT (1987) 64 CTR (SC) 199: (1987) 168 ITR 705 (SC). Merely because appellant has voluntarily paid TDS, it does not follow that it has admitted default in payment of TDS amount. (v) Madras High Court in CIT vs. J.V. Appa Durai Chettiar Co. (1997) 137 CTR (Mad) 510: (1996) 221 ITR 849 (Mad) has dealt with case of penalty on income omitted in original return but offered in revised return and found that penalty is not exigible in such case where revised return is assessments under s. 201(1) were completed, no penalty under s. 271C can be levied." learned CIT(A) further considered findings of AO and submissions made by assessee and held that there was no prohibition against filing of revised annual salary return and, therefore, revised returns filed by assessee before passing order under s. 201(1) of Act were valid returns. learned CIT(A) further held that penalty under s. 271C could be levied only if there was failure to deduct tax at source and since in instant case no demand was raised on account of short deduction of tax in order passed under s. 201 of Act, therefore, provisions of s. 271C were not applicable to facts of case and accordingly, be cancelled order passed under s. 271C for all four years. Aggrieved by decision of learned CIT(A), Revenue is in appeal before us. learned Departmental Representative contended that revised returns were not filed voluntarily and therefore, assessee was liable for penal consequences and for this proposition he placed reliance on decision of Hon ble Madhya Pradesh High Court (sic) (Madras High Court) in case Ravi Company vs. Asstt. CIT (2004) 271 ITR 286 (Mad), wherein revised return was filed for year after questionnaire was issued by ITO wherein Tribunal held that disclosure was not made voluntarily but with view to escape consequences of not filing proper returns originally and assessee did not offer credible explanations indicating reasons for which amounts were not disclosed in original returns and therefore, penalty under s. 271C was leviable. It was further contended by him that assessee was merely required to deduct and deposit tax which could not have substantial bearings on business of assessee and every prudent person in such situations would have deducted tax as matter of abundant precaution. It was further contended that fact that assessee deposited short deducted tax would not exonerate him from levy of penalty under s. 271C of Act and for this proposition he relied on decision of Tribunal in case of Hindustan Coca-Cola Beverages (P.) Ltd. vs. Jt. CIT (2005) 92 TTJ (Del) 275: (2004) 90 ITD 720 (Del). He further drew support from aforesaid decision to contend that misconception of legal provisions could not be taken as defence to avoid that misconception of legal provisions could not be taken as defence to avoid penalty under s. 271C of Act. learned counsel appearing on behalf of assessee, besides reiterating submissions made before learned CIT(A) and putting k reliance on appellate order, contended that there was reasonable cause in form of bona fide belief that impugned reimbursement/allowances were not taxable in hands of employees in view of different judicial decisions existing at that point of time. It was further contended that assessee filed revised returns voluntarily and deposited short deducted tax on its own and therefore, conduct of assessee was not to violate law intentionally or deliberately but on contrary looking to immediate response by assessee it can be said that there was bona fide belief which resulted into short deduction of tax and same comes within ambit of reasonable cause, hence penalty was not leviable. learned counsel also drew our attention to relevant pages of paper book containing factual matrix of case as well as paper book containing various favourable decisions of Tribunal in respect of similar issues to support its contentions that assessee was under genuine belief regarding non-taxability of such allowances in hands of employees. It was also pointed out that AO did not record its satisfaction for initiation of penalty under s. 271C in order passed under s. 201(1) of Act which is mandatory as held in various judicial decisions, and therefore, penalty order was bad in law and liable to be quashed. We have considered submissions made by both sides, material on record and orders of authorities below. Admittedly, assessee filed its annual salary return for each year in prescribed forms within time specified. It is also admitted fact that in earlier years annual salary returns were accepted by Department as such. In year under consideration assessee was required to clarify basis of deduction of tax under s. 192 of Act. It has been stated by assessee s counsel that at this point only assessee took professional advice relating to deduction of tax at source and when advised to deduct tax on impugned payments assessee paid short deducted tax and interest thereon voluntarily and filed revised annual salary returns for all four years. AO levied penalty mainly on ground that deposits of short deducted tax was made after initiation of proceedings and therefore, same was in voluntary and also relied on principle that ignorance of law was no excuse. From facts of case it is observed that assessee filed return for all years within time and once return for first year was accepted as such, belief on part of assessee that he rightly deducted tax got strengthened and same practice continued till assessee was advised professionally otherwise and this leads to obvious inference that when assessee was confronted with this issue for first time he immediately acted and rectified same. Therefore, in our considered opinion bona fide belief in short deduction of tax coupled with voluntary compliance in term of depositing same immediately on coming t o know same would constitute reasonable cause. AO also gave finding that ignorance of law is no excuse but simultaneously it is also true that there is no presumption that everyone knows law. What is important is fact that moment person comes to know that he has committed mistake and being person of reasonable intelligence and ordinary prudence if he takes corrective measures to rectify same immediately, then it cannot be said t h t he acted deliberately with complete disregard to law. There is also considerable force in contention of assessee that non-recording of satisfaction by AO in order under s. 201(1) with regard to fact that case is fit for levy of penalty makes levy of penalty void ab initial. In view of above discussion and in totality of facts and circumstances of case we are of considered opinion that findings of learned CIT(A) in his appellate order are in accordance with law and therefore, we uphold order of learned CIT(A). Thus, all grounds of revenue in all appeals are rejected. In result, Revenue s appeals are dismissed for all years under consideration. *** DEPUTY COMMISSIONER OF INCOME TAX v. SMS INDIA LTD.
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