TMI Blog2013 (12) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... nership firm was not liable to pay any tax, since it declared loss – Following case of Muthoot Financiers [2005 (10) TMI 224 - ITAT COCHIN] - The penalty should be avoided, if there is no loss to Revenue – Decided in favour of assessees. - IT Appeal Nos. 385 & 391 (Coch.) of 2011 - - - Dated:- 11-1-2013 - N.R.S.GANESAN AND B.R.BASKARAN , JJ. For the Appellant : R. Sreenivasan. For the Respondent : Smt. Susan George Varghese. ORDER:- PER : B.R. Baskaran The appeals of the assessees are directed against the orders passed by Ld CIT(A)-III, Kochi in their respective hands and they relate to the assessment year 2006-07. Both the assessees are assailing the decision of Ld CIT(A) in confirming the penalty levied in their res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees are assisted by a leading chartered accountant and further they were aware of the fact that the penalty u/s 271C of the Act has been levied in the hands of other group concerns for similar failures to deduct tax at source. The assessee submitted that the penalty levied u/s 271C in the hands of the sister concern was cancelled and the Joint commissioner rejected the said contention on the ground that every case is distinct and different. 3. Both the assessees challenged the penalty orders by filing appeal before Ld CIT(A). The first appellate authority held that the partners and the firm are different 'Person' and the Income tax Act imposes liability to deduct tax only on any "Person". Further he held that the plea of ignorance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs made from the firm, in which they are partners. The Ld A.R submitted that the said belief entertained by the assessees would constitute a reasonable cause in terms of sec. 273B of the Act. The Ld A.R further submitted that the penalty levied u/s 271C of the Act in the hands of the sister concerns, viz., M/s Muthoot Financiers and M/s Muthoot Bankers have been cancelled by the Hon'ble Tribunal. Further the decision rendered by the Hon'ble Tribunal in the case of Muthoot Financiers has been upheld by Hon'ble Kerala High Court. 5. On the contrary, the ld D.R submitted that, as per the provisions of sec. 194A of the Act, exemption from deduction of tax at source is given only to the interest credited or paid by a partnership firm to its p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of exemption to the interest paid by a partner to the partnership firm in which he is a partner. 7. The rigours of provisions of sec. 271C is softened by the provisions of sec. 273B, which provide that the penalty under that section shall not be imposable of the person, if he proves that there was reasonable cause for the said failure. Now, the question that arises is whether the explanation given by the assessee can be considered as a reasonable cause in terms of sec. 273B of the Act. The explanation of the assessees was that they were under the bonafide belief that they need not deduct tax at source on the interest paid by them to the partnership firm, as the firm is only a compendious expression for its partners and is not a legal en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our view, the said view entertained by the assessees herein cannot be altogether be discounted with as untenable, since the issue that the TDS provisions shall not apply to the payment made by a partner to the partnership firm is a debatable one. Hence the facts prevailing in the case of Muthoot Bankers (supra) and Muthoot Financiers (supra) being different, it cannot be said that the assessees were aware of the TDS liability, in the context of facts prevailing in the instant cases. 10. The full bench of Hon'ble Andhra Pradesh High Court had an occasion to interpret the term "reasonable cause" in the context of the then existing provisions of sec. 271 in the case of Addl. CIT v. Dargapandarinath Tuljayya Co. [1977] 107 ITR 850 (AP)(FB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant case also, it is represented that the partnership firms has declared the interest paid by the assessees herein as its income and they were not liable to pay any tax, since the said partnership firm ended up with a loss. 13. If we consider the explanation furnished by the assessees, in the context of the legal decisions referred above, we are of the considered view that the belief entertained by the assessees that they were not liable to deduct tax at source on the interest paid by them to the partnership firm in which they are partners, can be considered as a "reasonable cause" in view of the legal position existing between a partner and the partnership firm. As stated earlier the partners and partnership firm are not two differen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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