TMI Blog2004 (3) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... on 29th Oct., 1999, was beyond the limitation period of six months from 31st Aug., 1998, being the date on which notice issued by the then Deputy Commissioner of Income-tax, Range 28, New Delhi (Dy. CIT for short), for initiating the penalty proceedings under s. 271C was served on the appellant. 3. The view taken and the reasons relied upon by the learned CIT(A) in holding that the notice served on the appellant on 31st Aug., 1998, was only a general communication/letter from the then Dy. CIT and not a show cause notice for levy of penalty under s. 271C of the Act, and in not accepting the reported cases relied upon by the appellant, are vitiated and bad in law and are based on the CIT(A) s failure to appreciate that the notice, inter alia, clearly required the appellant to show cause why penalty proceedings under s. 271C may not be initiated. 4. In any case and without prejudice to the other grounds, the learned CIT(A), on the facts and in the circumstances of the appellant s case, should have accepted that: (i) The appellant had voluntarily paid the tax and interest allegedly short deducted on payments made to expert employees outside India. (ii) Ignorance of law vis-a-v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut prejudice to the other grounds of appeal, the learned CIT(A) ought to have held that no penalty is imposable on the appellant company for alleged shortfall in deduction of tax at source to the extent of Rs. 39,19,931." 3. A perusal of the aforesaid grounds of appeal would reveal that the grievance of the assessee is that the AO has erred in not appreciating the fact that the penalty had become barred by time which action of the AO has been wrongly confirmed by the CIT(A). The other area of challenge is that there were sufficient causes disclosed by the assessee for not deducting the TDS on the payments made to its employees outside India and as there was a bona fide reason for not deducting the tax at source, the penalty had wrongly been imposed. As there are two parts of challenge to the order of the CIT(A), we proceed to filter the facts which are relevant for the purpose of adjudication of the two grounds and we make it clear here itself that if we agree with the assessee on the limitation part that the order imposing penalty is barred by time, then, in that case, we may not enter into the other grounds. 4. The necessary facts available on record are that the appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dt. 31st Aug., 1998, there is no reason for the Department to issue the said show cause notice. It was stated by the assessee that the said show cause notice is vitiated and bad in law. It was contended by the assessee in this background that no action having been taken against it arising from earlier show cause notice, the penalty proceedings have now become barred by time. The other plea with regard to there being a sufficient cause, as the assessee was under a bona fide impression that it is not supposed to deduct tax with respect to the payments made outside India was also raised. Some other pleas were taken pertaining to the sufficiency of cause for not depositing the tax were also raised. 7. The AO did not agree with the assessee either on its plea of the penalty being barred by time or on the reasonable and sufficient cause as projected by the assessee for not deducting the tax at source and, in this background, proceeded to impose the penalty. 8. The appeal filed by the assessee before the CIT(A) also met the same fate and that is how the matter has been brought before us. 9. At the time of hearing of the appeal, the learned counsel for the assessee contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties on this issue and taken ourselves through the record. After going through the record, we feel that this issue cannot be decided unless a positive finding, one way or the other, is given with respect to the documents placed at pp. 8 and 9 of the paper book which, according to the assessee, is a show cause notice while according to the Revenue communication is of general nature. In order to appreciate the controversy involved, it will be pertinent to refer to the letter dt. 30th Aug., 1998. The said letter reads as under; "To The Principal Officer, LG Electronics Inc. A-41, Mohan Co-operative Industrial Estate, Mathura Road, New Delhi-110 044 Sub: Income-tax Enquiry Show-cause notice under ss. 201(1), 201(1A) 271C of the Indian IT Act, 1961, in the cases of M/s LG Electronics Inc. Group, New Delhi, for financial years 1990-91 to 1997-98 reg. During the course of a survey under s. 133A of the IT Act, 1961, conducted on 20th Aug., 1998, several irregularities with respect to the IT Act have come to light. It has been found that: (i) You have been paying salaries to expatriate employees based in India partly in India, partly in USA, and the balance in Republic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd taxes payable thereon. Accordingly, orders will be passed drawing adverse inferences. Yours faithfully, Sd/- (A. Bhaskar Reddy) Dy. CIT, Range-23, New Delhi." 13. A perusal of the said letter leaves no room to doubt that the Department had gathered certain information on the basis of which the Department had formed an opinion that the assessee had violated the provisions of s. 271C of the IT Act, but as is expected from the authority that it would comply with the rules of natural justice, they have confronted the assessee with the material collected as is found from (i) to (vii) of the aforesaid letter and called upon it to explain in this background as to why penalty be not imposed. The title of the letter, the body of the letter and the concluding portion of the letter are amply demonstrative of the fact that the Department, on the basis of the material collected was satisfied that the assessee had violated the provisions of s. 271C of the IT Act and that is why they not only issued the letter, but termed the same as a show cause notice. 14. Para 3 of the letter is quite clear and raises no manner of doubt that this communication in the background in which it was w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . After examining the totality of the facts and the circumstances of this case, we have no other conclusion but to say that the letter of dt. 16th Feb., 1999, is a show cause notice in terms of s. 271C of the IT Act." 16. In view of the discussion above, we feel that there cannot be any manner of doubt that the letter dt. 30th Aug., 1998, was not a show cause notice. 17. This brings us to the other issue that if the letter dt. 30th Aug., 1998, is a show cause notice, then whether the penalty imposed by the AO and confirmed by the CIT(A) is a must within the time prescribed or not and for that we will have no hesitation, but to refer to the provisions of s. 275 of the IT Act which are in the following terms: "(1) No order imposing a penalty under this Chapter shall be passed (a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the CIT(A) under s. 246 or s. 246A of an appeal to the Tribunal under s. 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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