TMI Blog2015 (11) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 view of facts and circumstances of the case, we are of the view that the CIT(A) has rightly deleted the penalty and we confirm the same. - Decided in favour of assessee. - I.T.A No. 1939/Kol/2010 - - - Dated:- 5-10-2015 - Shri Mahavir Singh, JM And Shri Waseem Ahmed, AM For the Appellant : Dr. Adhir Kumar Bar, CIT, DR For the Respondent : Shri R. N. Bajoria, Sr. Advocate ORDER Per Shri Mahavir Singh, JM: This appeal by revenue is arising out of order of CIT(A)-1, Kolkata in Appeal No608/CIT(A)-1/Range-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) of the Act. This assessment was accepted by assessee and no appeal was filed against quantum addition. However, the AO initiated penalty proceedings u/s. 271C of the Act for short deduction of TDS u/s. 194D of the Act on insurance commission. Before Addl. CIT (TDS) the assessee contended that as per written agreement between 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 (TDS) has not accepted the explanation of the assessee and levied penalty for short deduction of tax to the tune of ₹ 8,80,89,883/-. Aggrieved, assessee preferred appeal before CIT(A). 4. The CIT(A) after considering the submissions of the assessee and various case laws deleted the penalty by treating the payments as contractual receipts. The CIT(A) concluded th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assist the Agency Company in obtaining and/or procuring prospect for insurance business through the utilization of the services of the Network. 2.2. Golden Trust Financial Services shall, in its capacity as Pure Agent of the Agency Company make payment of the incentive/other expenses/service charge due to the Network from the Agency Company for the prospect for insurance business obtained and/or procured by the Network for the Agency Company. 2.3. Golden Trust Financial Services shall provide to the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GTFS from August, 2008 to Marc, 2009. Even for making available necessary services of infrastructure, the assessee was under obligation to make payment to GTFS amounting to ₹ 2 cr. from the Agency company for the same period. In term of the above, Ld. Counsel 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 delivered his opinion dated 05.11.2008 wherein after considering the agreement entered into between the assessee and GTFS, he opined that GTFS was appointed to carry out certain work on behalf of the assessee in pursuance of a contract and accordingly, the payments by assessee to GTFS for carrying out the aforesaid work falls within the ambit of contractual obligation and consequently, TDS is to be deducted u/s. 194C of the Act i.e. paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions 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 with section 271C(1)(a). Thus, section 271C(1)(a) makes it clear that the penalty leviable shall be equal to the amount of tax which such person failed to deduct. We cannot hold this provision to be mandatory or compensatory or automatic because under section 273B Parliament has enacted that penalty shall not be imposed in cases falling there under. Section 271C falls in the category of such cases. Section 273B states that notwithstanding anything contained in section 271C, no penalty shall be 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 sufficient reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o relied on the decision of Hon ble Supreme Court in the case of Mak Data P. 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 available before the AO at the time of assessment of tax. On this, Ld. Counsel for the assessee stated that the entire agreement was referred to by the AO during penalty proceedings and the clauses of the agreement are verbatim reproduced in the same. Now question arises, whether the short deduction of TDS u/s. 194D of the Act treating the payments as contractual receipts u/s. 194C of the Act, in the given facts and circumstances as above, attracts penalty u/s. 271C of the Act or not. The facts above narrated are undisputed. The assessee has made payments treating the same as contractual payments in lieu of the agreement after obt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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