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M/s Srinivasa Civil Works (P) Ltd Versus Addl. Commissioner of Income-tax, Hyderabad.

Penalty levied u/s 271C - non deduction of TDS from the payments made to creditors for expenses, unpaid labour charges, job work charges, transport charges, labour charges and royalty payments - Held that:- Assessee in the present case has given explanation before the authorities below that the due to circumstances prevailing and under bonafide belief that tax was not required to be deducted at source U/S.194C on the payments in question. Moreover, no such issue was made out by Revenue in A.Y. 2 .....

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of the Tribunal in quantum appeal. Therefore, there was lapse on the part of the assessee by short deducting tax at source from payments made to Job work charges and Transportation charges u/s 194A and 194C for the A.Y. 2003-04 and u/s 194C for the A.Y. 2004-05, which was accepted by the authorized representative before the Bench. Thus short deduction of TDS u/s 194A amounting to ₹ 38,268/- and Job work charges and transportation charges u/s 194C amounting to ₹ 65,555/- for the A.Y. .....

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yderabad dated 28.1.2013, for the assessment year 2003-04 and 2004-05 respectively. Since, the issue involved in these two appeals is common, they are heard together and disposed off by common order for the sake of convenience. 2. The assessee raised common ground in these two appeals, challenging the orders of learned Commissioner of Income Tax (Appeals)-II, Hyderabad, confirming the penalty levied u/s 271C by the Addl. Commissioner of Income -tax, Range-15, Hyderabad. 3. The facts of the case, .....

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i.e. A.Y. 2003-04 and A.Y. 2004-05. The Assessing Officer, after examining the books of accounts quantified the defaults and levied tax and interest u/s 201(1) and 201(1A). 4. The assessee filed an appeal before the learned Commissioner of Income Tax (Appeals), against the order of Assessing Officer u/s 201(1) and 201(1A). The learned CIT(A) vide order dated 17-9-2007 confirmed the order of Assessing Officer u/s 201(1) and 201(1A). The assessee further, challenged the CIT(A) order by filing appe .....

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ly for the A.Y. 2003-04 and A.Y. 2004-05. The assessee preferred appeals before Commissioner of Income-tax (Appeals)-II, Hyderabad and challenged the levy of penalty u/s 271C. The learned CIT(A)-II, Hyderabad, confirmed the penalty levied by the Assessing Officer for both the years vide order dated 28-01-2013. Aggrieved, the assessee is in appeal. 6. The authorized representative of assessee submitted that the assessee never engaged the maistries for the purpose of supply of labour and the asses .....

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ions of section 194C does not arise. The AR contended that both labourers and maistry are employed by the company and when both are employees of the company, the assessee is justified in not deducting the tax at source from payments made to the labour charges. The AR, further, argued that the assessee is under the bonafide belief that no tax is to be deducted at source from payments made to charges covered under section 194C or 194J under these circumstances. The AR, further, submits that with r .....

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1(1A) before filing appeal before first appellate authority, i.e. CIT (A).Therefore, requested to restrict the penalty to that extent, wherever short deduction is there and delete the penalty levied for non-deduction of TDS u/s 194C and 194J. 7. The Departmental representative, on the other hand strongly supported the order of lower authorities. He further argued that, the assessee company business magnitude is very high and labour oriented, as such the assessee itself cannot mobilize such large .....

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. To this effect, he has furnished copy of orders of ITAT in assessee own case. Therefore, he urged to confirm the order of CIT(A). 8. I have heard both the parties and perused material on record. The factual matrix of the case is that the assessee is a company engaged in the business of execution of works contract mostly on Government projects. A survey operation under section 133A of the I.T. Act was conducted on 11.02.2004. At the time of survey, the A.O. noticed that the assessee has default .....

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ner of Income-tax, Range-15, levied the penalty u/s 271C for the reasons recorded in his order. The learned CIT(A), upheld the action of the AO and confirmed the penalty. 9. The question whether there was a reasonable cause because of which, the requirement of relevant provisions could not be complied with is primarily essential question of fact and it has to be decided in each case on consideration of material placed before the concerned authority. Levy of penalty under s. 271C is not automatic .....

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ds the reason for failure, was on account of reasonable cause. 10. In the instant case, the assessee makes out its case and contended that, it was on the bonafide belief that no TDS is applicable, when payments are made to labourers employed by it on its own without assigning any contract work to the labour contractors. Though, the assessee did not succeed in its arguments in the quantum appeal before the authorities, the reasonableness in its argument that it has make the payment through its ow .....

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r the facts, such as place of work and nature if work executed. The assessee contended that it has executed work away from its place of business, for which it has hired labourers locally by paying them directly, though group leader appointed by the Company, therefore, the argument that it was hired its own labourers and payments are directly made, thereby believed that no TDS is deductible is having some sense of reasonableness. Therefore, it is relevant to consider the ratio laid down by Hon bl .....

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ted reasonable cause which was the reason Tor the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider the explanation offered by the assessee or the person, as the case may be. 'Reasonable cause' as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a stat .....

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had not deducted tax at source on such payments under the bonafide belief that the payments in question being labour charges were in the nature of labour payments paid for its own labourers and therefore, not liable to TDS u/s.l94C, which has also been accepted by the auditor who had issued tax audit report issued u/s 44AB without pointing out any lapses in his report. This explanation of the assessee was not accepted as "reasonable cause". But, I am of the opinion that on bonafide bel .....

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