TMI Blog2012 (8) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... f non-resident – penalty set aside - appeal of the assessee is allowed. - IT APPEAL NOS.4051 & 4081 (AHD.) OF 2008 - - - Dated:- 26-8-2011 - T.K. SHARMA AND A. MOHAN ALANKAMONY, JJ. Sumant Chadha for the Appellant. G.S. Souryavanshi for the Respondent. ORDER T.K. Sharma, Judicial Member. - These cross appeals are against common order of the CIT(A)-XI, Ahmedabad dated 19-09-2008 sustaining the penalty u/s 271C of the IT Act to the extent of Rs.1,73,50,660/- out of penalty of Rs.3,52,96,067/-levied by the Joint Director of Income Tax for assessment year 2003-04. 2. Briefly stated, the facts are that the assessee is a company incorporated under the Indian Companies Act, 1956 and is a 100% subsidiary of National Highway Authority of India (NHAI). It was incorporated as special purpose vehicle to construct, operate and maintain Expressway between Ahmedabad and Vadodara. It was implementing construction contract as per terms of contract dated 11th July, 2000 entered into between NHAI and contractor for the project - M/s. P.T. Sumber Mitra Jaya, Indonesia. To replace the Company in place of NHAI, a Novatio Agreement dated 7th August, 2002 was entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17/- to Rs.71,16,256/-. This revision was made due to an error happened in consideration of rate of TDS while giving the original order. The JCIT (TDS), Ahmedabad Range also issued penalty notice u/s 271C of the IT Act. In response to this notice the assessee contended as under: ( i )A Novatio Agreement dated 07-08-2002 was entered into by the assessee company, NHAI and M/s. P.T. Sumber Mitra Jaya. The DDIT (Intnl. Taxn.), Chennai, who was the Assessing Officer of the Contractor Company had issued certificate u/s 194C (4) for Nil deduction dated 07/06/2002. This certificate was valid till 31/03/2003. Previously, another certificate dated 24/01/2001 was issued which was valid up to 31/03/2002. Therefore, it is submitted by the assessee that it was not liable to deduct the TDS on payment made to the Contractor Company. ( ii )It is argued that DDIT (Intl. Taxn.), Chennai had mistakenly issued certificate u/s 194 C and not u/s 195. ( iii )The Ld. CIT(A) applied the ratio of Hon'ble Gujarat High Court in the case of Rishikesh Apartments Co-op. Housing Society Ltd. (253 ITR 311). While applying the said ratio, the Ld. CIT(A) has failed to take into account the fact that tax and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Souryavanshi, learned DR appeared and contended that the learned CIT(A) erred in excluding the two payments made on 31-03-2002 and from June,2002 to March, 2003 for the purpose of penalty stating that they were covered by the nil deduction certificate issued u/s.194C for the year 31-03-2002 and the payment from June, 2002 to March,2003 stating that they were covered by ' Nil deduction certificate' issued u/s 194C of the IT Act. The learned DR further pointed out that for payment made to non-resident, section 195 of the IT Act is applicable because these were made to non-resident. The assessee was required to deduct tax (TDS) u/s 195 of the IT At @ 48% and not @ 2% u/s 194C of the IT Act, 1961. With regard to confirmation of penalty u/s 271C of the IT Act in respect of two payments, he pointed out that the view taken by the learned CIT(A) be upheld as there is no reasonable cause within the meaning of section 273B of the IT Act, 1961. 5. On the other hand, Shri Sumant Chanda, appearing on behalf of the assessee, pointed out the view taken by the learned CIT(A) in allowing partial relief by canceling the penalty in respect of two payments be upheld as there was reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. ( ii ) CIT v. Mitsui Co. Ltd. [2005] 272 ITR 545 /[2004] 140 Taxman 430 (Delhi) - Held, that the assessee-company was required to prove the existence of a reasonable cause by preponderance of probability only and not by way of adducing any proof beyond reasonable doubt. So far as the levy of penalty under section 271C is concerned these are extraneous considerations as what the revenue authorities are required to consider while levying such penalty is existence of reasonable cause for non-deduction of tax at source and the reasonable cause as shown by the assessee-company has not been properly appreciated and deliberated by the lower authorities. ( iii ) Woodward Governor India (P.) Ltd. v. CIT [2002] 253 ITR 745 /[2011] 118 Taxman 433 (Delhi) - Held, that section 273B starts with a non obstante clause and provides that notwithstanding anythi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax at source. The contention of the assessee was that it was not advised by its chartered accountant that it was liable to deduct tax at source under section 194C of the Act. The assessee was anew firm, the partner was a matriculate and therefore depended entirely on the advice given by the chartered accountant. It appears that the chartered accountant did not correctly advise the assessee. The Tribunal found this explanation to be bona fide. It accordingly cancelled the levy of penalty imposed by the Assessing Officer, which had been upheld by the Commissioner of Income-tax (Appeals). Another factor held against the assessee was that after the mistake was realised, he did not deposit the tax due. The Tribunal found this to be incorrect because the assessee had deposited two cheques of Rs. 4 lakhs and Rs. 3.4 lakhs during the survey proceedings. The Tribunal concluded on these facts that the assessee was not avoiding its liability and had co-operated with the revenue in the payment of tax. It also held that the assessee had not been correctly advised by its chartered accountant in regard to its liability. We may note that section 273B of the Act does not make a levy of penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to deduct TDS @ 2%. When the assessee made two payments to the Contractor, namely, M/s. P.T. Sumber Mitra Jaya in the month of May, it deducted tax at source @ 2% under section 194C because no certificate under section 194C was available. The assessee has deducted the tax at source under section 194C. In these circumstances, we are of the view that there is no justification whatsoever for confirming the penalty by the ld. CIT(A), in the impugned order, in respect of following two payments. ( a )03.05.2002 - Rs.3,00,78,105/- ( b )18.05.2001 - Rs.1,34,04,259/- We, accordingly, cancel the same in respect of both the aforesaid payments. 7.1 With regard to direction of the ld. CIT(A) for excluding the payments made on 31.03.2002 and from June to March, 2003 for the purpose of penalty under section 271C stating that the payments were covered by the certificate issued for the year ended on 31.03.2002 and from June to March, 2003 stating that they were covered by the Nil deduction certificate issued under section 194C, we are of the view that the view taken by the ld. CIT(A) is fair and reasonable. We, therefore, decline to interfere. 8. In the result, the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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