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Himachal Pradesh State Electricity Board Versus Additional Commissioner of Income-Tax (TDS)

2016 (5) TMI 69 - ITAT CHANDIGARH

Penalty under section 271C - failure to deduct tax - Held that:- In the present case, we find that the assessee has not been treated as an "assessee-in-default" as per section 201 of the Act and is, therefore, neither liable to deduct nor pay any tax as per Chapter XVII-B. In such circumstances, we find that the question of levy of penalty under section 271C does not arise.

In view of the same we find no merit in the contention of the learned Departmental representative that the asses .....

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r : Ashwani Kumar For the Respondent : Manjit Singh ORDER Annapurna Mehrotra (Accountant Member) 1. These four appeals have been filed by the assessee against the order of the Commissioner of Income-tax (Appeals), Shimla, Himachal Pradesh, dated October 29, 2014, in each case, for the assessment year 2007-08 to 2010-11 upholding the levy of penalty under section 271C of the Income-tax Act, 1961. 2. The brief facts of the case are that the assessee is a company incorporated under the Electricity .....

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d at the business premises of the assessee on February 11, 2009, during the course of which it was noticed that the assessee had made payments of transmission charges to PGCIL without deducting tax at source. The Assessing Officer, after detailed discussion in the assessment order, imposed penalty under section 271C of the Act, amounting to ₹ 1,36,00,187, ₹ 2,48,13,453, ₹ 2,76,67,625 and ₹ 5,71,017 for the financial years 2006-07, 2007-08, 2008-09 and 2009-10 after findin .....

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see and dismissed the appeal of the assessee, upholding the levy of penalty under section 271C by holding at paragraphs 5.1 to 5.4 of its order as follows : "5.1 The main issue in this case is whether penalty under section 271C is imposable in the fact and circumstances of the assessee's case. The assessee has taken additional ground during the appellate proceedings that since notice under section 271C read with section 274 was issued on May 16, 2012, and penalty was imposed on March 20 .....

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governed by section 275(1)(c), i.e., when the Assessing Officer initiated the independent penalty proceedings under section 271C on May 16, 2012, the order should have been passed on or before March 31, 2013, in accordance to the abovementioned provisions. Thus, the order passed on March 20, 2013, is a valid order. As such no time limit for initiation of penalty proceedings under section 271C has been provided under the law and it is not mandatory that these proceedings should be initiated duri .....

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failure to deduct is liable to be penalised under section 271C independently. 5.3 The assessee placed reliance on Asst. CIT v. Good Health Plan Ltd. (I.T.A. No. 155/Hyd/2013) of the Income-tax Appellate Tribunal, Hyderabad, in this respect the judgment is not from jurisdictional Tribunal and the facts of the case are different from the facts of the assessee's case. Moreover, it is pointed out that Chapter XVII-B starts from section 192 to section 206CA. Mere non-violation of section 201 does .....

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ions of Act. 5.4 The assessee has further argued that the assessee was under honest belief that since the transmission charges are regulated by CERC, the assessee was not to deduct TDS on transmission charges. This argument cannot be accepted as reasonable cause for failure to deduct. Keeping in view, above facts, the contention of the assessee is not accepted and the appeal is dismissed." 5. Aggrieved by the same the assessee filed the present appeal before us taking the following grounds .....

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levied was not barred by limitation. 6. In ground No. 1 the assessee has agitated the levy of penalty under section 271C. 7. Before us the learned authorised representative reiterated the contentions raised before the learned Commissioner of Income-tax (Appeals) and argued that no penalty under section 271C was leviable since the assessee had not been treated as an assessee-in-default for the purpose of section 201(1) of the Income-tax Act, 1961, by the learned Income-tax Officer (TDS) vide his .....

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ised representative argued that the very basis of such penalty is the amount of tax which the assessee had failed to deduct and pay as per law and when there was no such amount in existence, since the assessee was not an assessee-in-default as per section 201(1) of the Act, the penalty under section 271C could not be imposed. The learned authorised representative placed reliance in the case of Asst. CIT v. Good Health Plan Ltd. (I. T. A. No. 155/Hyd/2013). 8. The learned authorised representativ .....

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hat in view of the same PGCIL had collected all due taxes from the assessee in the various bills raised on it for the relevant assessment years. Therefore, the learned authorised representative stated that the assessee was under the bona fide belief that since it has already paid taxes to PGCIL any further tax deduction at source would only amount to double taxation, and, therefore, did not deduct tax at source. The learned authorised representative stated that since there was a reasonable cause .....

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nce the two were separate provisions and could not be interlinked and hence penalty under section 271C was rightly levied. 10. We have heard the submissions made by the representative of both the parties and perused documents placed before us and the order of the authorities below. 11. The undisputed facts emerging in the present case are that the assessee was liable to deduct tax at source but had failed to do so on payments made to PGCIL during the impugned financial year as follows : Financia .....

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cts it has now to be seen whether the assessee is liable to penalty under section 271C of the Income-tax Act. 14. For a better understanding of the issue we hereby reproduce the provision of section 271C of the Income-tax Act, 1961. 271C.(1) If any person fails to- (a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B ; or (b) pay the whole or any part of the tax as required by or under,- (i) sub-section (2) of section 115-O ; or (ii) the second pro .....

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to the amount of tax which such person fails to deduct or pay as stated in the provision. 16. Chapter XVII-B which deals with the provisions relating to tax deduction at source, outlines the incomes on which the provision applies and other procedural aspects of TDS. Section 201, which is part of Chapter XVII-B, states that in case of default in deduction of tax at source or payment of the same, the person responsible shall be treated as an assessee-in-default. The first proviso to section 201 s .....

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ragraph 30 of its order : "As per section 201 if returns has been filed by the recipient and he has computed tax liability and/or has paid the tax, the payer referred to under section 201 of the Act was not liable for payment of tax or to deduct." 17. In the present case, we find that the assessee has not been treated as an "assessee-in-default" as per section 201 of the Act and is, therefore, neither liable to deduct nor pay any tax as per Chapter XVII-B. In such circumstanc .....

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s an assessee not in default in respect of the amounts of TDS to be deducted, then there cannot be any scope for levying penalty under section 271C of the Act. As in this case the amount of tax has been paid by the recipient of the income. Being so, the provision of section 271C cannot be applied to the assessee's case as these provisions clearly state that if any person fails to deduct whole or any part of the tax as required under the provisions of Chapter XVII-B, then such person shall be .....

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m deletion of penalty by the Commissioner of Income-tax (Appeals)." 18. In view of the same we hold that no penalty under section 271C could be levied in the present case. 19. Moreover, the fact that the tax on the impugned sums had been reimbursed to PGCIL has not been controverted by the Revenue. In such circumstances, the belief harboured by the assessee that by deducting further TDS, it would tantamount to double taxation, appears to be a reasonable and bona fide belief. The hon'ble .....

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uld 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 has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences follow." 20. In view of the same we find no merit in the contention of the learned Departmental representative that the assessee had no reasonable cause for not deducting tax at source. Fu .....

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er 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 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 .....

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