2019 (2) TMI 1761 - AT - Income Tax

Penalty levied u/s 271C - penalty was not passed within the time limit laid down u/s 275(1)(c) - HELD THAT - We hold that in the instant case the 6 months period was to be calculated from the date of the notice issued by the Joint Commissioner who was competent to levy the penalty u/s 271C and therefore penalty order was passed well within time. Non deducting tax at source - HELD THAT - As per section 194A the person who is responsible for paying to a resident any income by way of interest other than interest on securities is required to deduct tax thereon at the rates in force. Tax is to be deducted either at the time of payment of interest in cash or by issue of cheque or draft or any other mode or credit of it to any account whichever is earlier. As per section 194H any person who is responsible for paying to a resident any income by way of commission or brokerage shall deduct income tax thereon. It will be deducted at the time of credit of such income to the account of the payee or to any account whether called suspense account or by any other name or at the time of payment of such income in cash or by issue of a cheque or draft or by any other mode whichever is earlier. As per section 195 any person responsible for paying to a non-resident not being a company or to a foreign company any interest (not being interest referred to in section 194LB or section 194LC or section 194LD) or any sum chargeable under this Act (other than salary) shall at the time of credit of such income to the account of the payee or at the time of payment thereon in cash or by issue of a cheque or draft or by any other mode whichever is earlier deduct income tax thereon at the rates in force. Thus the TDS provisions as mentioned above are applicable in the present case. Whether there was reasonable ground on the part of the assessee in not deducting tax at source is another matter. Assessee failure to submit the details regarding income tax returns filed by the payees to whom it had made various payments - HELD THAT - We are of the considered view that the ratio laid down in Hindustan Coca Cola Beverages (P.) Ltd. 2007 (8) TMI 12 - SUPREME COURT has relevance in the instant case. Therefore we restore the matter in respect of the above grounds of appeal to the file of the JCIT to find out whether the deductee recipient of income has already paid taxes on amount received from the deductor. We also direct the assessee to file the relevant documents/evidence before the AO. Needless to say the AO would give reasonable opportunity of being heard to the assessee before finalizing the penalty order. Thus grounds of appeal are allowed for statistical purposes.

Summary

Issues Involved:
1. Confirmation of penalty u/s 271C.
2. Submission of supporting documents for tax payments by recipients.
3. Timeliness of the penalty order.
4. Reasonable grounds for non-deduction of tax at source.
5. Consideration of relevant judgments.
6. Filing details of tax payments by recipients.
7. Initiation of penalty proceedings.

Detailed Analysis:

1. Confirmation of Penalty u/s 271C:
The assessee contested the confirmation of a penalty amounting to Rs. 1,81,00,765 under Section 271C of the Income Tax Act, 1961. The penalty was levied due to the non-deduction of TDS on interest and brokerage payments, as well as payments made to non-resident sellers of property. The assessee argued that the recipients had paid taxes individually, but failed to provide supporting documents. The Tribunal upheld the penalty, stating that the assessee, being aware of the Act's provisions, chose to default on TDS obligations.

2. Submission of Supporting Documents:
The assessee claimed that the parties to whom payments were made had paid applicable taxes, but did not submit any documents to support this claim. The Tribunal noted that despite multiple opportunities, the assessee failed to provide the necessary details. The JCIT observed that the assessee, despite being educated and aware of tax laws, did not comply with TDS requirements.

3. Timeliness of the Penalty Order:
The assessee argued that the penalty order dated 30.10.2014 was time-barred, asserting that the initiation of penalty proceedings began with the AO's communication dated 22.06.2012. The Tribunal, however, held that the penalty proceedings were initiated by the JCIT on 02.04.2014, and thus the order was within the limitation period as per Section 275(1)(c). The Tribunal preferred the reasoning of the majority of High Courts, which stated that the limitation period for imposing penalties begins from the date the JCIT issues a show cause notice.

4. Reasonable Grounds for Non-Deduction of Tax at Source:
The assessee contended that there was no business income, and thus no deduction was claimed for interest paid, which they believed was a reasonable ground for not deducting TDS. The Tribunal dismissed this argument, stating that the provisions of Sections 194A, 194H, and 195 clearly mandated TDS on interest, commission, and payments to non-residents, respectively.

5. Consideration of Relevant Judgments:
The assessee cited various judgments, including those from the Delhi High Court, to argue that the penalty order was time-barred. The Tribunal, however, found these references inapplicable, as they pertained to different factual scenarios. The Tribunal relied on the Special Bench decision in Deewan Chandra Amritlal v. DCIT, which clarified that the limitation period starts from the date the JCIT initiates penalty proceedings.

6. Filing Details of Tax Payments by Recipients:
The assessee argued that they had provided details of recipients' tax payments, but the JCIT noted the failure to submit such details. The Tribunal directed the JCIT to verify whether the recipients had paid taxes on the amounts received. This verification is essential to determine if the penalty under Section 271C is justified, as per the Supreme Court's ruling in Hindustan Coca Cola Beverages (P.) Ltd.

7. Initiation of Penalty Proceedings:
The Tribunal clarified that the initiation of penalty proceedings is the responsibility of the JCIT, not the AO. The penalty proceedings are considered initiated when the JCIT issues a show cause notice, not when the AO communicates the default. This interpretation aligns with the decisions in Gupta Mills Stores and Grihalakshmi Vision, where the competent authority to initiate penalty proceedings was the JCIT.

Conclusion:
The Tribunal dismissed the grounds related to the timeliness and reasonable grounds for non-deduction of TDS but allowed the appeal for statistical purposes, directing the JCIT to verify the tax payments by recipients. The penalty order was upheld as being within the limitation period, and the Tribunal emphasized the importance of compliance with TDS provisions. The appeals were partly allowed, with directions for further verification by the JCIT.