ITA.1303/Bang/2015 Page- 1 IN INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A No.1303/Bang/2015 (Assessment Year : 2013-14) Asst. Commissioner of Income Tax, Circle -2(1), Bengaluru .. Appellant v. M/s. KBR Infratech Ltd, No.1, I floor, 8th Main, Balaji Layout, Kodigehalli Main Road, Tatanagar, Bengaluru 560 094 .. Respondent PAN : BLRK09844C Assessee by : Shri. C. Eranna, JCIT Revenue by : Dr. C. P. Ramaswami, Advocate Heard on : 08.08.2016 Pronounced on : .10.2016 ORDER PER S. JAYARAMAN, ACCOUNTANT MEMBER : This is appeal filed by Revenue against order of CIT(A)-13, Bengaluru, dt.14.08.2015, for assessment year 2013-14. 2. assessee , company engaged in civil construction, was subjected to survey on 25/7/2013, was noticed that though it had ITA.1303/Bang/2015 Page - 2 deducted taxes amounting to Rs.2.05 crores from salary, contract payments, professional fees etc during year ending 31/3/2012, it had failed to remit such deducted taxes to account of Central Government within time stipulated in Act. According to A O , taxes deducted at sources during financial year 2012-13 (AY 2013-14) varied from Rs.4,02,769/- in April 2012 to Rs. 59,60,557/- in March 2013 in total Rs.2.05 crores. On such failure, AO passed order u/s 201(1)/201(1A) on 30/7/2013 raising demand and treating assessee as 'assessee-in-default'. Thereafter, assessee had remitted entire TDS and interest and did not file appeal against that order. Subsequently, AO initiated proceedings u/s 221 for levy of penalty for failure on part of assessee to remit TDS in time, heard assessee , found from assesee's books of account, inter alia, that its statement that faced financial crunch was bogus and, on other hand, it had consciously avoided remitting tax deducted at source in time and made remittance only when it was visited with survey, it had deliberately delayed remittance of TDS amounting to Rs.2.05 crores etc and then levied penalty at Rs.77,95,155/-, @ 5% pm on defaulted TDS. 03. Aggrieved, assessee filed appeal before CIT(A)-13, Bengaluru. CIT(A) held , inter alia, that consequent to order passed u/s 201(1), assessee was served with demand notice ITA.1303/Bang/2015 Page - 3 u/s 156 dated 30/7/2013 providing 30 days time to make payment and it paid said tax within four days from date of demand notice, perusal of assessee's submissions along with its balance sheet and other financial statements show that it had faced genuine financial difficulties during said period, since assessee had subsequently remitted TDS along with interest u/s 201(1A) @ 1.5 % per month, penalty levied @ 5% per month u/s 221 is not justifiable and therefore directed to be deleted. Aggrieved against CIT(A) order, Revenue filed this appeal raising following grounds : ITA.1303/Bang/2015 Page - 4 04. DR relying on case laws mentioned in grounds of appeal submitted that levy of penalty u/s 221 is proper. AO examined assessee s books of accounts raising certain questions viz 1) Whe r asse sse e did not r e ce ive any mone y from clie nts dur in g ye ar e nde d 31 .0 3 .20 12 ?, 2) Whether all payments made by assessee. during period when it remained unpaid, were towards keeping business going? and 3) Whether assessee had cleared other statutory dues ? etc., and found that assessee did not have good and sufficient reasons. Further, he submitted that this is case of serious violation of trust reposed by Government on deductor. By such defiance of law, assessee has caused problems to payees from whom tax was deducted as they were not getting credit for tax paid by them by way of TDS, etc., 05. Ld. AR submitted that consequent to order u/s.201 /201(1A), AO sent demand notice dt 30.7.2013 u/s.156 in Form no.7 . Under sub-section (1) of Section 220, any amount otherwise than by way of advance tax, specified as payable in notice of demand u/s.156 shall be paid within thirty days of service of notice at place and to person mentioned in notice. As per para (2) of Form No 7 also, assessee was given 30 days time to pay demand. However, it paid within four days of demand notice . He sought our attention to para (4) and (5) of Form No7 which read as under : (4) If you do not pay amount of tax within period specified above, penalty (which may be as much as amount of tax in arrear) may be imposed upon you after giving you ITA.1303/Bang/2015 Page - 5 reasonable opportunity of being heard in accordance with section 221. (5) If you do not pay amount within period specified above, proceedings for recovery thereof will be taken in accordance with sections [(222 to 227, 229 and 232] of Income-tax Act, 1961. 06. Since assessee did not violate conditions in paras 4 and 5 in Form no.7, above, he pleaded that levy of penalty u/s.221 is not in accordance with Act. Further, he submitted that as per sub-section (4) of section 220, if amount is not paid within time limited under sub-section (1) of section 220 only assessee shall be deemed to be in default. In its case , since it paid within four days of demand notice , AO cannot treat it as assessee in default and relied on CIT (A) order. 07. In his rejoinder, Ld. DR submitted that assessee is in default as per section 201(1) and its case is clearly covered within scope of Explanation to Section 221. 08. We have perused materials and heard rival contentions. facts are that (a) assessee has deducted tax at time of making payment of salaries, dividends, interest as also on payment made to contractors. (b) it has delayed in depositing amounts of tax deducted in (a) above with Revenue ;(c) There is no dispute about quantum of tax deducted which has been deposited late with Revenue ; and (d) quantum of tax deducted has been deposited with Revenue along with interest by assessee within four days of receipt of order u/s 201(1) / 201(1A) after it was declared to be assessee to be in default by ITA.1303/Bang/2015 Page - 6 Revenue. Therefore , assessee is in default. Bombay High Court in case of Relience industries Ltd v CIT & others in 377 ITR 74 held ,inter alia , in para 20 to 25 as under (relevant portion only extracted) : 20 ........................... In present case, there is no dispute that assessee is in default. Moreover, in terms of section 221 of Act, only condition precedent to impose of penalty upon assessee is that it should be in default or deemed to be in default. In present facts this position is not disputed. De hors, above, one more feature to be noticed is that section 201(1) of Act itself provides that where there is failure of assessee to deduct tax and pay to Revenue, such assessee is deemed to be in default. failure to deposit in time is accepted/ admitted position. There is no dispute about questions. Thus, appellant is deemed to be in default. Therefore, it cannot be said that penalty proceedings are without jurisdiction under section 221 of Act................... 21. It was next submitted on behalf of appellant that penalty under section 221 of Act would be payable only when same is in addition to arrears of payment of tax deducted. This, according to them, is plain reading of words. We do not find so. Parliament has specifically provided for words "in addition to amount of arrears along with amount of interest payable be liable for penalty" only with view of qualifying that payment of amount of arrears and interest payable would by itself not wipe away liability to penalty under section 221 of Act. aforesaid submission on behalf of appellant also stands negatived by Explanation added to section 221(1) of Act. This Explanation clarifies that assessee shall continue to be liable to penalty even if tax has been paid before levy of penalty. 22. It was next contended that in view of proviso to section 201(1) of Act, invocation of section 221 of Act is barred where Assessing Officer is satisfied that failure to deduct and pay tax was without good and sufficient reasons. words "failed to deduct and pay tax" of proviso is contrasted with words "fails to pay tax as required by or under this Act" found in section 201(1) as well as section 201(1A) of Act. In view of this difference in language, it is submitted that proviso would have no application where assessee has paid tax even if same is paid beyond period provided under Act. This is contested by Revenue on ground that proviso applies only in case of person who has failed to satisfy both condition therein, i.e., fails to deduct and also fails to pay tax. This ITA.1303/Bang/2015 Page - 7 interpretation is also supported by words found in sub-section (1) of section 201 of Act which provides ". . . principal officer of company does not deduct or after deducting fails to pay tax as required by or under this Act". In this case, tax has been deducted but there is failure in depositing tax with Revenue. Parliament treats person who has deducted tax and fails to pay it to Revenue as class different from person who has not deducted tax and also not deposited tax with Revenue. This is for reason that in first class of cases assessee concerned after deducting tax, keep money so deducted which belongs to another person for its own use. In second class of cases, assessee concerned does not take any advantage as he pays entire amount to payee without deducting any tax and does not enrich itself at cost of Government. Therefore, although penalty is also imposable in second class of cases, yet in view of proviso to section 201(1) of Act, it is open to such assessee to satisfy Assessing Officer that as they have good and sufficient reasons no penalty is imposable. It is in above view that in first class of assessees, Parliament has provided for prosecution under section 276B of Act for failing pay tax deducted at source. Therefore, first class of assessee to which appellant belongs would be liable for prosecution. Thus, proviso would only apply in respect of second class of assessee, i.e., such class of assessee who have not deducted tax and, consequently, failed to pay tax. 23. Therefore, in our view, proviso under section 201 would have no application to facts of present case. Legislature did not provide for words "by or under this Act" in proviso as in absence of deducting tax, occasion to deposit it within time as provided in Rules would not apply. This is so as time begins to run from date of deducting of tax as is evident also from section 200 of Act which provides that any person deducting any sum shall pay it within prescribed time, sum so deducted to Central Government. 24. It was next submitted on behalf of appellant that Explanation below section 221 of Act which clarifies that penalty will continue to be imposable even if assessee has paid tax before levy of penalty would not apply to present facts. This for reason it is submitted penalty would be imposable under section 221 of Act only if assessee is in default at time of initiation of penalty proceedings. In present case, it is submitted that amounts deducted have been deposited long before notice for penalty under section 221 of Act was issued. This stand was also taken by Commissioner of Income-tax (Appeals) while allowing appellant's appeal. construction sought to be put on section 221(1) of Act commencing with words "where ITA.1303/Bang/2015 Page - 8 assessee is in default or is deemed to be in default" cannot stand in face of Explanation which clarifies that merely because tax has been paid/deposited before levy of penalty, would also take in all acts, from imposition of charge up to/till entire process of raising demand and collecting same. construction sought to be put on Explanation does not allow full amplitude to words "levy". Besides purposive interpretation also supports above view as otherwise construction as suggested by appellant would enable assessee to deduct tax at source from payment being made and not deposit it with Revenue within time prescribed. Therefore, utilise amount in effect till such time just before notice under section 221 of Act is issued. 25. It must be borne in mind that assessee continues to be in default in case tax has not been deposited with Revenue within time prescribed under Act. Tax deposited, thereafter, but before penalty proceedings are initiated would not cleanse assessee from being in default. penalty is imposed upon assessee under section 221 of Act for default in not having paid tax deducted at source within time provided under Act. This default is not wiped away by assessee depositing tax after prescribed time. ............................................................................................... ............................................................................................... .............................................................................. Thus, we find no merit in appellant's above submission that no penalty can be imposed as there was no default at time when penalty proceedings were initiated. . From above, it is clear that levy made under section 221 is in accordance with law and hence Department s ground is sustained in this regard. 09. next question is whether, appellant made out good and sufficient reasons for not levy of penalty. In this regard, AO s findings are briefly extracted as under : 1) Whe r as se sse e did not re ce ive any m one y fr om clie nts du ring ye ar e nde d 31 .03 .2 01 2 ? Ans : Exam in atio n of O D Acc ount N o.5 40 37 92 267 0 with t he State Ba nk of M ysore , M adhavna gar , Be nga lur u showe d that t he am ounts re ce ive d and pa ym e nts m ade ITA.1303/Bang/2015 Page - 9 during ye r e nde d 31. 03 . 201 2 am ounte d to Rs.15 9, 01 ,9 3,8 66 / - and Rs. 16 1, 33, 36 ,8 80/ - . T he appe lla nt h ad s urplus o f Rs. 7, 85, 71 ,8 05/ - . T his disprove d app e llant s stand be f ore AO that it had re ce ive d pa ym e nts from its clie nts . 2) Whether all payments made by assessee. during period when it remained unpaid, were towards keeping business going? Examination of OD Account N o . 6 4 0 2 0 0 2 6 6 2 1 w i t h S B M , Hassan showed that it had made p y m e n t s g g r e g t i n g Rs.3,28,08,516/- during FY 2012-13 and TDS liability was only Rs.2.05 crores. Besides, it was noticed that appellant had 3 payments for purchase of sites, 3 payments for purchase of cars, 1 p y m e n t f o r i n v e s t m e n t n d payments to 3 persons without purpose being mentioned. Such p y m e n t s g g r e g t e d Rs.44642214. 3 cars costing Rs,99,00,000/- were purchased d e s p i t e 4 c r s h v i n g b e e n purchased in earlier year. purpose of payments made to three persons(Shri Subba Raj, Shri Ashok Raju and Shri Syed Akram Jeelani) aggregating Rs.2,55,00,000/- cannot explain as t o w h t k i n d o f b u s i n e s s expediency appellant had in preference to timely remittance of taxes already deducted from amounts paid/payable to parties. appellant was found to have received sum of Rs.2.69 crores in April 2013, which could have been used for remitting TDS but it had failed to do so. 3) Whether assessee had cleared other statutory dues ? appellant had paid service tax m o u n t i n g t o R s . 8 3 . 7 5 lakhs o u t o f Rs.91.96 lakhs collected by it and remitted PF of Rs.15-odd lakhs out of Rs.16.26 lakhs collected by it. AO submitted as under : 1. In financial year assessee had received funds to tune of 159 crores. claim of non-receipt of money from clients is not true. 2. payments made to various parties to extent of 164 crores disprove claim of financial difficulty. 3. payments made for investment in land/site, vehicles and as loans and advances to private parties without purpose and to ITA.1303/Bang/2015 Page - 10 group concern, declare loudly and in unambiguous terms that assessee had no financial difficulty whatsoever. 4. assessee had cleared other statutory dues on regular basis, as it had no financial difficulty etc. 11. assessee submitted inter alia as under : (i) payments towards acquisition of land, required for business of appellant were made in April, 2012, when no liability on account of TDS was existing (ii) major portion of payments made for acquiring vehicles, required for business of assessee were out of secured loans obtained specifically for such purpose. (iii) contractual payment made to third person, for offering immovable property owned by him as collateral security for obtaining B. G. Limits of Rs.30 crores and Term loan limits of Rs.3 crores by assessee company. Further, payment made was out of term loan obtained but not out of business receipts of assessee. (iv) payments made to meet operating expenses and other business compulsions, which were inevitable to ensure that very survival of company was not in danger. 12. We have perused materials and heard rival contentions. Non- payment of TDS in time is serious violation of Trust reposed by Government on deductor. Such action causes serious problems to payees as they were not getting credit for tax paid by them by way of TDS. In fact AO records that Department received complaint from assessee for not issuing TDS certificates despite repeated request. delay in remittances are in range of four months to fifteen months. Hon ble Bombay High Court in decision relied on supra, inter alia held that obligation to deduct and pay tax upon assessee is unconditional under Act. It is responsibility of assessee to deduct taxes and to pay to Revenue within period provided under Act. Financial stringency would not justify deducting tax from amount paid to payee and not paying it to Revenue. Otherwise, it would amount to using somebody else's money for purposes of one's ITA.1303/Bang/2015 Page - 11 business. In such circumstances, question of financial stringency, to our mind, hardly gives rise to good and sufficient reason for not depositing tax which was amount otherwise payable to payee or on behalf of payee to Revenue. On above facts and circumstances assessee s plea cannot be accepted as good and sufficient reason for not depositing tax within time. However we find that levy made by AO at rate of 5% per month on defaulted TDS is unreasonable. We consider that levy of penalty u/s.221 @ 10% on unpaid TDS at Rs.2,05,55,731/- would meet ends of justice. Hence AO is directed to restrict levy to Rs.20,55,573/- in place of Rs.77,95,155/-. We hold accordingly. 13. In result, appeal of Revenue is partly allowed. Order pronounced in open court on 7th October, 2016. Sd/- Sd/- (VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN* Copy to: 1. assessee 2. ACIT, TDS, Circle-2(1), Bengaluru 3. Principal Commissioner of Income Tax, Bengaluru 4. Commissioner of Income Tax (A)-13, Bengaluru 5. DR 6. GF, ITAT, Bangalore By Order Assistant Registrar Asst. Commissioner of Income-tax, Circle -2(1), Bengaluru v. M/s. KBR Infratech Ltd