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2015 (11) TMI 116 - ITAT KOLKATA

2015 (11) TMI 116 - ITAT KOLKATA - TMI - Penalty u/s. 271C - failure to deduct tax and deposit to Govt. account - short deduction of TDS u/s. 194D of the Act treating the payments as contractual receipts u/s. 194C - CIT(A) deleted penalty - Held that:- The assessee has made payments treating the same as contractual payments in lieu of the agreement after obtaining opinion from the advocate. There is no dispute that the assessee has deducted tax u/s. 194C of the Act for contractual payment on the .....

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Court]. In case the assessee is in a genuine and bona fide belief that it was not under obligation to deduct tax penalty u/s. 271C of the Act cannot levied. See CIT Versus Eli Lilly & Company (India) Pvt. Ltd. [2009 (3) TMI 33 - SUPREME COURT - Income Tax]

The advice of the expert i.e. advocate after going through the clauses of the agreement holding the same as contractual obligation may be ill conceived advice but assessee has no option except to believe the same. Accordingly, in v .....

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e-57/09-10 dated 30.07.2010. Assessment was framed by DCIT, Cir-57, Kolkata u/s 201(1)/201(1A) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for AY 2009-10 vide its order dated 12.11.2009. Penalty was imposed by Addl.CIT (TDS), Range-57, Kolkata u/s. 271C of the Act vide his order dated 01.02.2010. 2. The only issue in this appeal of revenue is against the order of CIT(A) deleting the penalty levied by Addl.CIT(TDS) u/s. 271C of the Act for failure/short deduction of TDS u/s1 .....

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has clear verdict in the judgment in the case of Union of India Vs. Dharmendra Textiles Processors (2008) 306 ITR 277 (SC) that willful concealment is not an essential ingredient for attracting civil liability. 3. Briefly stated and undisputed facts are that a survey u/s. 133A of the Act was conducted on the business premises of the assessee, which is corporate agent of Reliance Life Insurance Co. Ltd. (in short RLICL). The assessee is engaged in the business of insurance and in lieu of work it .....

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00/- as service charges. The assessee deducted TDS on total payment @ 2% considering the nature of payments as contractual payments under the provisions of section 194C of the Act. The AO during survey noticed that the payments are in the nature of insurance commission and for the purpose of TDS the same falls under the provisions of section 194D of the Act thereby assessee is liable to deduct TDS @ 20%. Accordingly, the AO issued show cause notice post survey and thereby computed differential/s .....

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n the assessee and GTFS dated 01.08.2008 these are contractual payments because the assessee is acting as a pure agent of GTFS. After that, in term of contractual payments, the assessee deducted TDS @ 2% under the provisions of section 194C of the Act and assessee does not fall under the provisions of section 194D of the Act being insurance agent. According to Ld. Counsel, the payments are not in the nature of insurance commission rather these are contractual receipts but the AO i.e. Addl. CIT ( .....

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expenses and service charges paid to GTFS due to bona fide views. Aggrieved, now revenue is in second appeal before Tribunal. 5. We have heard rival submissions and gone through facts and circumstances of the case. Before us, Ld. Counsel for the assessee Shri R. N. Bajoria, Sr. Advocate, first of all, drew out attention to the agreement entered into between assessee and GTFS dated 01.08.2008 wherein assessee disclosed it as an agency company and pure agent is the GTFS and life insurance company .....

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on behalf of the Agency Company for the prospect of insurance business procured by the Network on account of the Agency Company. (iii) Authorising the Golden Trust Financial Services to make payment to the Network for the prospect of insurance business procured by the Network on behalf of the Agency Company. Ld. Counsel for the assessee also drew our attention to Article-1 of the agreement wherein the infrastructure and obligation of various parties are mentioned. The infrastructure and obligat .....

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Golden Trust Financial Services. 1.3. Such provisions of Infrastructure by Golden Trust Financial Services to the Agency Company shall not be exclusive and Golden Trust Financial Services shall be at liberty to provide the Infrastructure also to other business enterprises and/or carry on its own business at or through the Infrastructure. ARTICLE 2: OBLIGATIONS OF GOLDEN TRUST FINANCIAL SERVICES 2.1. Golden Trust Financial Services, in its capacity as Pure Agent of the Agency Company shall assis .....

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Agency Company basic infrastructure i.e. office premises, employees, computers, equipments, air conditioners, furniture & fixture and all office stationeries. 2.4. Golden Trust Financial Services shall through the utilization of its infrastructure assist Agency Company to process all data as may be required by the Agency Company, enter into all correspondence with the customers, take all steps which are required to be taken by the Agency Company in processing the claim and do all other acts, .....

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Services shall assist the Agency Company in all possible manners so as to enable the Agency Company to carry on the Agency Business. ARTICLE 3: OBLIGATIONS OF THE HEIGHT INSURANCE SERVICES LTD 3.1. The Agency Company shall from time to time provide the following to Golden Trust Financial Services so as to enable Golden Trust Financial Services to perform its obligations under this Agreement: (a) Provide adequate quantity of all necessary forms of stationery, publicity materials, brochures, propo .....

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g the prospect for insurance business. 3.3. The Agency Company shall also discharge its other obligations as provided in this agreement. 6. Further, Ld. Counsel for the assessee stated that the assessee has to reimburse the expenses of GTFS in its capacity as pure agent of the Agency Company on account of payment of incentives, other expenses and service charges etc. According to Ld. Counsel, GTFS shall be reimbursed for the incentive and other expenses paid by it to the network as pure agent of .....

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for the assessee stated that there is no element of insurance commission to be received or to be paid rather this is only contractual obligation between assessee and the Agency Company. When this was pointed out to the Ld. Counsel for the assessee by the Bench that how this is to be treated as contractual obligation and not insurance commission, Ld. Counsel for the assessee stated that an expert s opinion was taken qua this proposition by the assessee and one Advocate Shri Chandan Dutta deliver .....

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bove opinion referred to the case law of Hon ble Gujarat High court in the case of ITO Vs. Sachinam Trust (2010) 320 ITR 445 (Guj) wherein the Tax Audit Manual published by Bombay Chartered Accountants Society, contained the opinion of eminent counsel that in the case of a person carrying on banking business, the appropriate expression to be considered for deciding the applicability of the provisions of section 44AB of the Act would be on the term gross receipts and on the basis of this opinion, .....

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na fide belief which constituted reasonable cause in the facts and circumstances of the case. Under the provisions of section 273B of the Act, the Legislature has provided that notwithstanding anything contained in the provisions of section 271B of the Act, no penalty shall be imposable on a person or an assessee for any failure referred to in the said provisions if it is proved that there was reasonable cause for the said failure. 7. Ld. Counsel for the assessee then drew our attention to the d .....

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he Act cannot levied and for this, Ld. Counsel for the assessee referred to para 36 at page 251 of the report, which reads as under: (iv) On the scope of section 271C read with section 273B: Section 271C, inter alia, states that if any person fails to deduct the whole or any part of the tax as required by the provisions of Chapter XVII-B then such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct. In these cases we are concerned .....

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imposed on the person or the assessee for failure to deduct tax at source if such person or the assessee proves that there was a reasonable cause for the said failure. Therefore, the liability to levy of penalty can be fastened only on persons who do not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The burden, of course, is on the person to prove such good and su .....

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in computation of its business income. This is one more reason for not imposing penalty under section 271C because by not claiming deduction under section 40(a)(iii), in some cases, higher corporate tax has been paid to the extent of ₹ 906.52 lakhs (see Civil Appeal No. 1778 of 2006 entitled CIT v. Bank of Tokyo-Mitsubishi Ltd.). In some of the cases, it is undisputed that each of the expatriate employees have paid directly the taxes due on the foreign salary by way of advance tax/self-as .....

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ala High Court in the case of CIT Vs. Mr. Thomas Muthoot, ITA No. 139 of 2013( arising out of order in ITA No. 385/Coch/2011 of I.T.A. Tribunal , Cochin Bench dated 11.01.2013) dated 03.07.2015 and stated that merely good and sufficient reasons asked by the assessee cannot be the basis for deletion of penalty and it cannot be a plea that the assessee firm has returned loss and not liable to pay any tax in view of the decision of Hindustan Coca Cola Beverage (P) Ltd. Vs. CIT (2007) 293 ITR 226 (S .....

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Ltd. Vs. CIT (2013) 358 ITR 593 (SC) and also Union of India & Ors. Vs. Dharmendra Textiles Processors & Ors. (2008) 306 ITR 277 (SC), wherein willful concealment is not an essential ingredient for attracting civil liability. Ld. Sr. DR was again asked whether the decisions of Dharmendra Textiles Processor, supra and Mak Data P. Ltd., supra have been diluted in the case of T. Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC). Ld. Sr. DR also stated that the opinion of the Advocate was not availa .....

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narrated are undisputed. The assessee has made payments treating the same as contractual payments in lieu of the agreement after obtaining opinion from the advocate. There is no dispute that the assessee has deducted tax u/s. 194C of the Act for contractual payment on the basis of the opinion of advocate and this is also not under dispute that the deductions were required to be made by the assessee u/s. 194D of the Act from the payments being made by the assessee either reimbursement of expenses .....

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