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ADIT (IT) , 4 (1) , Mumbai Versus Leighton Welspun Contractors P. Ltd.

Penalty u/s Sec. 271C - non deduction of tds on five foreign remittances u/s 195 - (i) Engineering and Draughting services provided by AEC. - (ii) Payments for purchase of shrink wrapped software (i.e. standard computer software) - Held that:- It is noted that there is huge controversy on this issue, and therefore, assessee placed reliance on the judgments which were in its favour including the judgment of Hon’ble Supreme court in the case of Tata consultancy services [ 2004 (11) TMI 11 - Suprem .....

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n by the assessee was not one of the possible view and was not bonafide view, and accordingly there could not have been any reasonable cause for non-deduction of TDS on the impugned payments”. In our considered opinion, the decision with regard to the obligation of the assessee for deduction of TDS on the aforesaid payments was highly debatable, in the given facts of the case and legal scenario discussed above. The view adopted by the assessee based upon the certificate of the C.A., was one of t .....

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evenue : Shri Amerender Reddy (DR) For The Respondent : Shri Paras Savla & Shri Harsh Kapadia (AR) ORDER Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Revenue against the order of Ld. Commissioner of Income Tax (Appeals)-11, Mumbai {(in short Ld. CIT(A)} dated 05.03.2013 for the assessment year 2009-10, decided against the penalty order passed by the Jt. Director of Income Tax (International Taxation) u/s 271C of the Act. The Revenue has filed following grounds of .....

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Ld. CIT(A) erred in holding that provisions of Sec. 271C would not be applicable in the absence of any desire on the part of appellant to make payments without TDS and whether such observation can be considered 'reasonable cause' u/s 273B. 3.On the facts and the circumstances of the case and in law whether the Ld. CIT(A)'s finding in para 31 of his order that Ld. AR relied on CA certificate and made payment without TDS under bonafide belief is sufficient to arrive at 'reasonable .....

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argued the case. 3. All the grounds address the common issue of deletion of penalty of ₹ 11,55,280/- by the JDIT u/s 271C of the Act, therefore, these are disposed of together. 3.1. The Brief background of the case is that the JDIT passed an order u/s 201/201(1A) dated 30th March, 2012 upon the assessee company, wherein it was held that the assessee has failed to deduct TDS on the following foreign remittances/payments:- (i)Rs.11,80,727/- towards engineering and draughting services provid .....

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een informed by the parties to us that no appeal was filed by the assessee company against the aforesaid order, and it was accepted so as to bury the litigation and to buy peace, otherwise there was no failure on the part of the assessee, as no TDS was liable to be deducted on the aforesaid remittances/payments, as per law. 3.3. Subsequently, be that as it may, the JDIT, initiated proceedings u/s 271C for levy of penalty on the failure of the assessee in deducting tax as source. During the penal .....

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nd in any case M/s. AEC Technology Ltd. was not engaged in development and transfer of technical and transfer of plan or technical design and that M/s. AEC Technology Ltd. has not made available any technical know-how etc. to the assessee. This payment is in the nature of business income of M/s. AEC Technology Ltd. and in absence of PE (Permanent Establishment), such income is not taxable in India. (ii) Payment to Lye Singapore Pte. Ltd. is for providing engineering services and these services d .....

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re, penalty should not have been levied for not deducting the TDS, on the basis of CA s certificate. The assessee relied upon the various judgments in its support to demonstrate that issues involved were decided in favour of the assessee or these were at least debatable, and in any case there was reasonable cause for not deducting TDS, and therefore, this case was not liable for levy of penalty u/s 271C. 3.5. But the JDIT did not agree with the submissions of the assessee and he levied the penal .....

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allenged by the assessee, thereby accepting the failure on the part of the assessee. Thus, now, when the penalty has been levied, the assessee is trying to make out case that the impugned payments were not subject to deduction of TDS. These arguments are after thought in view of clear position of law. It was further submitted that the argument of debatable issue is not available to the assessee as he has accepted the order u/s 201, holding the assessee in default. It was further submitted that a .....

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ubmit that the assessee has to strictly comply with the provisions of section 195 and he cannot justify his failure in deduction of TDS by relying upon any CA s certificate, in view of specific and clear provisions of section 195. It was, thus, requested by the Ld. DR that penalty was rightly levied by the AO and therefore, it should be confirmed, and order of Ld. CIT(A) should be reversed. 3.7. On the other hand, Ld. Counsel of the assessee has submitted that penalty was unjustified and illegal .....

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on the impugned payments is highly debatable, b) The assessee had bonafide belief while making payment without deducting TDS, more so by relying upon CA s certificate c) In any case the assessee had a reasonable cause and this case is covered by section 273B. He has relied upon various judgments to show that the issue involved is debatable. 3.9. We have gone through the orders of the lower authorities, submissions made, material placed before us for our consideration and judgments relied upon by .....

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on or the assessee as a case may be for any failure rendered to in the said provisions if he proves that there was reasonable cause for the said failure. Therefore, if assessee is able to make out that there was a reasonable cause for his failure in deduction of tax at sources then position of law is very clear that penalty u/s 271C shall not be levied. Thus, before levying the penalty, the concerned authority is required to find out if there was a reasonable cause on the part of the assessee. I .....

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inary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. 3.10. In this regard we can take reference from the judgment of Hon ble Delhi High Court in the case of Woodward Governor India (P.) Ltd. v. CIT (253 ITR 745) (Delhi) relevant para of the said judgment is reproduced below: "Levy of penalty under section 271C is not automatic. Before levying penalty, the concerned officer is required to find out t .....

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onable cause" as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that same was the right thing to do. The cause shown ha .....

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e ascertained in the facts and circumstances of each case. 3.12. In the aforesaid position of law we have analysed facts of this case, as brought before us. It is noted that as per the AO the assessee was liable to deduct tax at source on the five remittances particulars of which have been narrated in this order above. For analyzing the obligation of the assessee under the law to deduct TDS on these payments, we can put these payments into two categories i.e. 1) payments made for Engineering and .....

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that nature of payment of these services is not FTS, as per India-UK DTAA and India UK DTAA, for the reasons that as per article 13/12 of the FTS, there is a make available condition . It has been submitted that as per terms of the agreement entered into by the assessee with these parties, the assessee is charged merely to use the design services provided by the services providers and that the assessee is not eligible to apply technology contained therein. On the other hand, to make payments of .....

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source. 3.14. It has been submitted by the assessee that on this issue clear law was not available, and therefore, assessee adopted one of the views available in a bonafide manner. The submissions of the assessee was rejected by the AO on the ground that there was no debate on this issue, and the assessee was clearly liable to deduct tax at source. 3.15. We have analysed this controversy. In our considered opinion, not much is required to be deliberated to say that whether a particular service .....

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, which deal with royalties and fee for technical services. Clause 4(c) provides that the term fee for technical services excludes from its definition any service that does not enable the person acquiring the services to apply the technology contained therein. 3.16. It is further noted by us that the undisputed fact is that there was a CA s certificate, and relying upon the same only the assessee took a view that it was not liable to deduct tax at source on the payments made to these two parties .....

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