TMI Blog2005 (10) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... he legal principles laid down in the precedents relied on by the assessee, in our considered opinion, assessee's explanation cannot be brushed aside as not a reasonable cause. In our considered opinion, the CIT(A) has rightly held that there existed reasonable cause for the assessee for the non-compliance of the provisions of the TDS. Hence, the CIT(A) has rightly deleted the penalty levied by the Assessing Officer on the assessee u/s 271C. Thus, we find no infirmity in the order of the CIT (Appeals) and we confirm his order. The Revenue's appeal stand dismissed. Order accordingly. - Member(s) : N. BARATHVAJA SANKAR., RIYAZ S. PADVEKAR. ORDER Per R.S. Padvekar, Judicial Member. - This appeal by the Revenue is directed against the order of the CIT (Appeals) dated 24-3-2004 relevant to the assessment year 1999-2000, challenging the penalty deleted by the CIT (Appeals) under section 271C, levied by the Assessing Officer. 2. The revenue has raised as many as six grounds in this appeal, but the only issue for our adjudication is whether on the facts and circumstances of this case, the CIT (Appeals) was justified in cancelling the penalty levied by the Assessing Officer on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was under the bona fide belief that those sister concerns will not have any taxable income. It was further contended that the respective payee-associates were regularly assessed to tax and they had filed their returns of income including the said interest which was paid by the assessee and hence there was no loss of revenue to the Exchequer. It was further contended that the penal provisions cannot be compared with the provisions relating to charging of interest, as the penal provisions are totally different than the interest provisions, which are compensatory in nature. The Assessee further contended that the Assessing Officer has already recovered interest on the amount of short deduction under section 201 (1A) for the delay in depositing the same to the Government. The assessee filed details regarding the short deduction of tax before the CIT(A) stating the name of the sister concern, amount of interest paid, tax deductible and short deduction, etc. The assessee also filed the information of the recipient sister concerns giving the details in respect of their tax liability and advance tax paid etc. The CIT(A) deleted the penalty by giving his findings as under: "3. I have care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5. We have heard the ld. DR for the Revenue and the ld. CA, Shri R. Sreenivasan, for the Assessee. The ld. DR vehemently submitted that the CIT(A) is not justified in cancelling the penalty under section 271C on the ground that the Assessing Officer has merely brushed aside the assessee's explanation that the mistake committed by the assessee is bona fide one. She further submitted that it was an admitted fact by the assessee himself that there was omission on its part to comply with the statutory provisions and that does not constitute a reasonable cause, as envisaged in section 273B of the I.T. Act. She further submitted that if at all the assessee's explanation is accepted that the recipient sister concerns were not liable to pay any income-tax, then they should have obtained no TDS certificate under section 197 of the Act and could have produced the same before the assessee. She further submitted that the omission to deduct tax is not in respect of a single case and that the quantum of tax deductible in each case has exceeded the limit prescribed. The ld. DR further submitted that it was deliberate omission on the part of the assessee. Merely because there is no loss of reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court has explained the meaning of "reasonable cause" in Woodward Governor (India) (P.) Ltd. v. CIT [2002] 253 ITR 745. "Reasonable cause" as applied to human action, is that which would constrain a person of average intelligence and ordinary prudence, and it cannot be described as a 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 an 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 ld. CA further submitted that it is also well-settled principle of law, as held by the Hon'ble Supreme Court in the case of Hindustan Steel Ltd v. State of Orissa [1972] 83 ITR 26 that "an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not 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 of its obligation. Penalty will not also be imposed merely because it is lawful to do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a failure or omission on the part of the assessee to comply with the provisions of law and that omission or failure is admitted, then automatically the penal provisions are put in motion. That is not correct. As far as the nature of the proceedings are concerned, that depends on the nature of the levy. As far as the Income-tax Act is concerned, the nature of the levy is different in respect of the tax, interest and penalty. As far as the nature of the interest is concerned, it is compensatory in nature. But in spite of the fact that it is compensatory in nature, still the Legislature has made a provision giving some right to the assessee to seek waiver of the same. If the levy is penalty, then certainly the nature of the proceeding is quasi-criminal proceedings. The argument of the ld. DR that once there is a failure on the part of the assessee to make compliance of law, then penalty proceedings are attracted, is not acceptable. 9. In the case of Hindustan Steel Ltd., the Hon'ble Supreme Court has laid down the legal proposition that an order imposing penalty for failure to carry out the statutory obligation is a result quasi-criminal proceeding and penalty will not ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person concerned, to come to the conclusion that the same was the right thing to do. The Hon'ble High Court has further held that the cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, would the prescribed consequences follow. 10. In the case of Itochu Corpn., there was a short deduction of tax by the assessee and the proceedings under section 271C of the Act were initiated. The Tribunal found that the assessee had paid the tax along with the interest voluntarily and there existed a bona fide belief that tax was not deductible at source. It was held by the Hon'ble High Court of Delhi that the Tribunal was justified in deleting the penalty on the fact that the assessee had extended co-operation in respect of TDS matters to the department. The assessee had paid also the tax with interest voluntarily and there existed a bona fide belief. 11. In the case of Sree Krishna Trading Co., the issue before the Hon'ble High Court of Kerala was the penalty levied under section 271(1)(c) of the Act, which was deleted by the Tribunal. The Hon'ble High Court had interpreted the scope of Explanation 1 to section 271(1)(c) and held that the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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