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Hindustan Coca Cola Beverages Pvt. Ltd. Versus Joint Commissioner of Income Tax

2016 (8) TMI 169 - DELHI HIGH COURT

Penalty u/s 271C - non deduction of tds - bonafide mistake - Held that:- A perusal of the impugned orders of the CIT(A) and the ITAT in the penalty proceedings reveals that neither of the said authorities considered the issue whether in fact there was reasonable cause for the Appellant to not have deducted TDS under Section 194-I of the Act. The ITAT on its part appears to have relied on the order passed by it on 12th July 2002 in the quantum proceedings, where it commented on the lack of bona f .....

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uld not plead ignorance of law in view of the CBDT Circulars dated 8th August and 22nd August 1995. The CBDT’s circulars were at best the opinion of the CBDT and to the extent they were adverse to the Appellant, they were not binding on the Appellant. However, they were binding on the Revenue. As far as the Appellant was concerned, it was entitled to challenge the CBDT's circulars which did not support its case. In fact that is what the Appellant did in the present case. It questioned the order .....

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rs clarifying the position. Even this Court was persuaded to again frame a question on the issue in its order dated 5th September 2005. - For all of the above reasons, the Court is inclined to accept the plea of the Appellant that since the issue whether the TDS was to be deducted from warehouse charges under Section 194-C or 194-I of the Act was a debatable one, there was a reasonable cause for the failure of the Appellant to deduct TDS under Section 194-I of the Act at the time such deduct .....

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al ( ITAT ) in ITA Nos. 649 & 650/Del/2002 with respect to Financial Years ( FYs ) 1998-99 and 1999-2000. 2. By an order dated 5th September 2005, while admitting the appeal, the following question was framed for consideration: Whether in the facts and circumstances of the case and in particular clauses 11 and 12 of the agreement executed between the assessee and Pradeep Oil Corporation, the ITAT was justified in holding that the penalty was rightly levied upon the assessee u/s 271 C of the .....

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warehouser' i.e. a licensee in respect of the railway land of 96750 sq. ft at 13 km, Rohtak Road, Shakur Basti, Delhi on which POC had constructed a warehouse of constructed area of 47000 sq. ft. The agreement was for a period of three years with a renewal clause at the option of the Appellant. 5. In terms of the agreement, the POC agreed to warehouse the products of the Appellant either owned by the Appellant or its authorized representatives/dealers. During the period of agreement the Appe .....

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ement. The Appellant was to further pay POC a sum of ₹ 67.50 lakhs which was to be refunded without interest by POC to the Appellant upon the expiry of the agreement. Clause 11 of the agreement stated that the said agreement should not be construed to be assignment, mortgage, sublet, lease, licence or transfer otherwise, the warehouse belonging to the warehouser and/or any privileges and facilities connected thereto; and the possession of the warehouse and the privileges and facilities con .....

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payment, as tax deducted at source ( TDS ). Quantum proceedings 8. The Assessing Officer ( AO ) passed an order under Section 201(1) read with Section 201(1A) of the Act on 31st March 2001 holding that the payments made by the Appellant to POC were in the nature of rent from which TDS ought to have been deducted @ 20% under Section 194-I of the Act. A demand was accordingly raised on the Appellant for the alleged short deduction together with interest thereon. 9. In the appeal filed by the Appel .....

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came to be dismissed by the ITAT by an order dated 12th July 2002. The ITAT, inter alia, held that in terms of Circular No 718 dated 22nd August, 1995 the Appellant ought to have deducted TDS under Section 194-I of the Act and that there was no bona fide plea/reasonable cause for the Appellant to deduct TDS under Section 194-C of the Act. 11. The above order of the ITAT dated 12th July 2002 was affirmed by this Court by order dated 21st May 2004 in ITA No. 282 of 2002. The Court was of the view .....

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e Appellant filed an application, being Misc. A No. 287/Del/2004, under Section 254(2) of the Act before the ITAT. The application was purportedly for rectification of mistake apparent from the record in the ITAT s order dated 12th July 2002. The Appellant contended that the ITAT had in its order failed to consider its alternative plea that POC had already paid taxes on the payment received from the Appellant, and had in fact received refunds from the Revenue, and therefore the Revenue could not .....

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e recovered from the assessee. However, the grievance is that the assessee s alternate contention has not been considered by the Tribunal. The alternate contention is stated to be that the warehouser has been assessed on its income and due tax has been recovered from it by the department. Since tax has already been recovered by the department on the income paid by the assessee, no further tax should be recovered from the assessee on the same income. In support of this contention, the learned cou .....

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lso referred to in support of the contention. 15. The ITAT in the said order dated 13th September 2004 agreed with the Appellant that the above plea regarding the tax paid by POC had been missed by it while disposing of the appeal. Accordingly the ITAT recalled its order dated 12th July 2002 for the limited purpose of adjudicating the above ground. 16. Aggrieved by the order dated 13th September 2004, the Revenue filed ITA No.478 of 2005 in this Court. The said appeal came to be allowed by this .....

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he first order. Certainly, this cannot be characterised as a mistake, much less a mistake apparent from the record justifying a rectification of the first order." The order dated 13th September 2004 passed by the ITAT was set aside. 17. Aggrieved by the above order of this Court, the Appellant went in appeal to the Supreme Court by filing Civil Appeal No. 3765 of 2007. 18. In the meanwhile, on 18th January 2005, the ITAT modified its order dated 12th July 2002, as regards Ground No.7 and he .....

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ed 29th January 1997 issued by the Central Board of Direct Taxes ( CBDT ), which declared that no demand under Section 201(1) of the Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS that taxes due have been paid by the deductee-assessee. However, this did not alter the liability to charge interest under Section 201(1A) till the date of payment of taxes by the deductee/assessee or the liability for penalty under Section 271C. The Supreme Court held that sin .....

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er dated 13th September 2004 of the ITAT. Be that as it may, the judgment dated 11th October 2006 passed by this Court was set aside by the Supreme Court. Penalty proceedings 21. As far as the penalty proceedings were concerned, a show cause notice ( SCN ) was issued to the Appellant on 10th April 2001 and 8th/9th October 2001, asking it to show cause as to why an order imposing penalty should not be passed against it under Section 271-C for failure to deduct TDS under Section 194-I of the Act. .....

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le cause against the imposition of penalty. It is against the above order dated 24th March 2004 in the penalty proceedings that the present appeal was filed by the Appellant in which the above question was framed by this Court by the order dated 5th September 2005. 22. With the Appellant having accepted the finality of the order of this Court in the quantum proceedings as regards the Appellant s obligation to deduct TDS under Section 194-I, as against Section 194-C of the Act, it was not open to .....

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to be conclusive as far as the penalty proceedings were concerned. However, it was good evidence. It was observed that before penalty could be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. Why the question in this appeal needs to be re-framed 23. However, as far as the present case is conce .....

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s far as the Appellant was concerned, it had accepted the order dated 21st May 2004 of this Court in the quantum proceedings which imparted finality to the decision of the ITAT on the above question. The Appellant again went before the ITAT with an application in which the above order dated 13th September 2004 was passed recording the above categorical stand of the Appellant. The only issue that remained was regarding the extent of tax if any the Assessee should be asked to pay under Section 201 .....

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ined again. There is a distinction in the wording of Section 271(1) (c) of the Act and Section 271-C of the Act. The penalty imposed in the present case is under Section 271-C of the Act and not Section 271(1)(c) of the Act. When the Court in CIT v. Anwar Ali (supra) talked of the findings in the assessment proceedings not being conclusive for the purposes of penalty, it was dealing with Section 28 (1) (c) of the Income Tax Act 1922, which corresponded to Section 271 (1) (c) of the Act. Indeed, .....

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s 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 proviso to section 194B, 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 or pay as aforesaid. (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner. .....

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71(1)(c) of the Act, whether the Assessee had concealed the particulars of income or furnished inaccurate particulars. The nature and scope of the Section 271-C is such that the question of permitting an assessee to again agitate in the penalty proceedings the question that arose in the quantum proceedings, viz., whether TDS ought to have been deducted under a particular provision cannot arise particularly where an assessee, as in this case, accepts the finality of the order passed in that regar .....

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ble to show that its failure to do so was occasioned by reasonable cause in terms of Section 273-B of the Act? 28. It was urged by Mr.Ajay Vohra, learned Senior Advocate appearing for the Appellant that there was no failure to deduct TDS in terms of Section 271-C of the Act, since according to the Appellant it bona fide believed that the TDS was deductable only under Section 194-C of the Act and in fact the whole of the TDS at 2% was deducted. Therefore, according to Mr. Vohra, there was no fail .....

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DS was deducted by the Appellant @20% under Section 194-I of the Act was on the erroneous premise that Section 194C stood attracted. Therefore, the Appellant failed to deduct a substantial portion of the tax that ought to have been deducted under Section 194-I of the Act. Therefore, Section 271-C stood straightway attracted. 30. The only question, therefore, that arises is whether for the purposes of Section 273- B of the Act, it could be said that the Assessee had been able to show reasonable c .....

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DS had to be deducted from the warehouse charges under Section 194-C or Section 194-I of the Act was a debatable one. He referred to Circular No. 736 dated 13th February 1996 issued by the CBDT clarifying that Section 194-I would not be attracted to the sharing of the proceedings of a film between a film distributor and a film exhibitor owning a cinema theatre. It was clarified that the distributor did not take the building on lease, sub-tenancy or under any agreement of similar nature. Mr. Vohr .....

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charges paid by the airlines to the airport authorities partook the character of rent and attracted TDS under Section 194-I of the Act was reversed by the Supreme Court in Japan Airlines Co. Ltd. v. CIT (2015) 377 ITR 372 (SC). He further submitted that in the present case POC had paid the full tax on the monies received by it from the Appellant towards warehouse charges and therefore there was no loss of the Revenue whatsoever. The Appellant did not gain anything by not deducting TDS under Sec .....

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the Revenue, first submitted that the conduct of the Assessee did not entitle it to any relief in terms of Section 273-B of the Act. He sought to suggest that the Appellant ought to have brought to the notice of the Supreme Court the error in its order dated 16th August 2007 that the Revenue had not challenged the order dated 13th September 2004 of the ITAT, when in fact it had. He then referred to the CBDT Circular Nos. 715 dated 8th August 1995 and 718 dated 22nd August 1995 which clarified t .....

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penalty proceedings was limited. Reference was made to the decisions in CIT v. Mitsui & Co. Ltd. (2005) 272 ITR 545 (Del) and Azadi Bachao Andolan v. Union of India (2001) 252 ITR 471 (Del). Discussion and Reasons 33. Under Section 273-B of the Act, no penalty under Section 271-C of the Act "shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for the said failure." A per .....

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of the Act. This part of the order of the ITAT was in fact commented upon by this Court in its order dated 21st May 2004 while declining to frame a question of law in the appeal filed by the Assessee. The Court, however, clarified that the observations of the ITAT relating to bona fide belief/reasonable cause was of no consequence. 34. The Court is unable to agree with the submission of Mr. Singh that the Assessee could not plead ignorance of law in view of the CBDT Circulars dated 8th August an .....

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