TMI Blog2007 (6) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee debited the account by Rs. 45,96,349 and for financial year 2000-01 by Rs. 49,40,715. On verification it was found that the financiers were maintaining regular accounts with the assessee and funds were lent to the assessee-company on regular basis whenever it needed to make the payment to the suppliers during the course of business activities. The assessee paid the "financial charges" to the financiers and debited under the head "Discount charges". On the basis of these facts the Assessing Officer in proceedings under sections 201(1) and 201(1A) observed that assessee had debited the interest payment under the head Discounting charges in the books of account with the intention to avoid deduction at source under section 194A of the Act. When this fact was confronted, Shri Amitabh Agarwal the director of the assessee-company, in his statement recorded during the survey under section 133A admitted that the payments were in nature of interest which attracted the provisions of section 194A of the Act. In his statement the director of company admitted the mistake and agreed to discharge their responsibility as tax deductor. However, during the course of proceedings under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of survey in his sworn statement admitted that the payments were in the nature of interest which attracted the provisions of section 194A of the Act. Ld. Assessing Officer further observed that the assessee was assisted by the qualified persons and therefore the contention of assessee that tax was not deducted at source due to ignorance of law was not tenable. The Assessing Officer further examined the applicability of section 273B under which the onus is cast on the deductor to establish that there was a reasonable cause for the default. The assessee has to discharge the initial onus and thereafter the Assessing Officer has to consider the explanation offered by the assessee. However, since assessee failed to discharge the onus he held that there was no reasonable cause for non-deduction of tax at source. In view of these facts the Assessing Officer held that the assessee had without any reasonable cause failed to comply with the provisions of section 194A of the Act and therefore made liable to penalty under section 271C of the Act. Accordingly, the penalty of Rs. 6,65,091 and Rs. 10,44,582 was imposed for financial years 1999-2000 and 2000-01 respectively. 4. On ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reasonable cause for failure to deduct tax at source. Thereafter, the Assessing Officer has to consider whether the explanation offered by the assessee was on account of reasonable cause. He further observed that there was no requirement to establish the element of mens rea with regard to "reasonable cause". He placed reliance on the decision of Hon ble Supreme Court in the case of Gujarat Travancore Agency v. CIT [1989] 177 ITR 455 to support his contention. 7. The reliance was also placed by the Ld. AR of the assessee on the decision of Hon ble Delhi High Court in the case of Azadi Bachao Andolan v. Union of India [2001] 252 ITR 471 for the proposition that the test laid down by the Hon ble Delhi High Court are fully satisfied in the case of the assessee. This contention of assessee was rejected by Ld. CIT(A) on the ground that the finding regarding acceptance of reasonable cause was a finding of fact in view of decision of Hon ble Delhi High Court in the case of CIT v. Freewheels India Ltd. [2001] 248 ITR 689 . He held that acceptance of reasonable cause in other cases was not relevant inasmuch as the position in the case of the assessee had to be evaluated w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be treated as interest. Therefore discounting charges do not fall in the definition of word "interest" defined under section 2(28A) of the Act. 10. He further submitted that there was no conscious act or mens rea on the part of the assessee for not deducting tax at source. He placed reliance on the decision of Hon ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26. He also submitted that the assessee did not have any knowledge that bill discounting charges were in nature of interest. There was confusion as to the nature of discounting charges. The moment the assessee came to know that tax at source was deductible, the entire tax was paid. Therefore the assessee cannot be penalized for non-deduction of tax at source. He placed reliance on the decision of Hon ble Madhya Pradesh High Court in the case of CIT v. Senior Accounts Officer, Madhya Pradesh Electricity Board [2005] 276 ITR 84 and the decision of Hon ble Delhi High Court in the case of CIT v. Itochu Corpn. [2004] 268 ITR 172. It has been further submitted that there was a reasonable cause for non-deduction of tax at source and therefore penalty under section 276C was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source and therefore penalty was rightly imposed. Replying to the submissions made by ld. Departmental Representative, Shri Sampath submitted that the contention of the Ld. DR that the assessee was well aware about the nature of payment is not based on any material brought on record. Even the experts cannot visualize as to how the law is going to take place. Therefore, there existed confusion about the nature of bill discounting and hence penalty is not exigible. 15. We have heard both the parties and perused the material available on record. Before we deliberate on the issue whether the assessee was prevented by reasonable cause or not to deduct tax at source, the facts of the case are to be understood first. During the course of survey under section 133A, from the copies of trial balances, the Assessing Officer found that assessee debited amount of Rs. 45,96,349 and Rs. 49,40,717 for financial years 1999-2000 and 2000-01 respectively under the head Discounting charges . From the copies of accounts of financiers to whom so called discount charges were paid, the Assessing Officer found that they were maintaining running accounts with the assessee and lending funds to it on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing charges, if the purchasers of goods have issued post dated cheques (Bills of exchange) to the assessee and the same were exchanged for cash on discount by the assessee from financiers. This is not the case of the assessee. Therefore, the story of bill discounting charges has been advocated to confuse the whole issue. A simple short-term loan arrangement with financiers has been presented as bill discounting arrangement. We may like further say that even the bill discounting charges are also in nature of interest falling in the definition of section 2 (28A) of the Act. In view of the above, we are of the view that the transactions with the financiers were of simple loan arrangement and remain uncontroverted by the assessee. The Director of the assessee-company during the course of survey had also admitted that so-called bill discounting charges were in nature of interest. Under section 58 of the Indian Evidence Act, 1872, admitted facts need not be proved. We find support from the decision of Hon ble Madras High Court in the case of P. Govindaswamy v. CIT [2000] 244 ITR 510 wherein it has been held as under (Head Notes) : " Held , that in the instant case, an addition of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use also for non-deduction of tax at source. The assessee fails on this count also. 18. Ld. AR of the assessee had relied on various decisions of Hon ble jurisdictional High Court on non-deduction of tax at source in respect of the payments made outside India to expatriates working in India are distinguishable on facts from the facts of the case before us. In the cases of NHK Japan Broadcasting Corpn. ( supra ); Sencma Sa France ( supra ); Hitachi Ltd. ( supra ); Itochu Corpn. ( supra ) and Mitsui Co. Ltd. ( supra ) Hon ble Delhi High Court considered the issue relating to payment of salary outside India to expatriate working in India. In these cases, the Tribunal recorded a finding of the fact that there was a reasonable cause for not making deduction under section 192 as there was confusion as to whether the payment made outside India was to be taken into account for deduction of tax at source under section 192 of the Act. It was after issue of circular the assessee started deducting tax at source and therefore there was a bona fide belief on the part of the assessee that payments made abroad were not taxable in India. The facts of the case before us are entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Gujarat Travancore Agency ( supra ) has held that "unless there is something in the language of the statute indicating the need to establish, the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has accrued. In our opinion there is nothing in section 271(1)( a ) which requires that mens rea must be proved before penalty can be levied under that provision". Hon ble Supreme Court in the case of Addl. CIT v. I.M. Patel Co. [1992] 196 ITR 297 following the decision in the case of Gujarat Travancore Agency ( supra ) held that : "it is no longer open to argument whether any mens rea is required to be established under section 271(1)( a )." Like provisions of section 271(1)( a ), provisions of section 271C also do not have any requirement of mens rea to be proved before levy of penalty under section 271C of the Act. Therefore for the levy of penalty under section 271C existence of mens rea is not necessary as nothing has been provided in the language of the section to this effect. 21. Thus the only requirement before levy of penalty under section 271C is to see whether there existed a re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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