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Income Tax Officer, TDS Ward, Faridabad Versus Mitsubishi Heavy Industries Ltd.

2015 (10) TMI 2658 - ITAT DELHI

Levy of penalty u/s 221 (1) - Tax Deductor continued deducting the tax, but failed to deposit the same into the Central Govt. account within the stipulated time - assessee in default - binafied belief - CIT-A deleted the penalty - Held that:- No reason to interfere with the order of the CIT(A). The order was passed in the light of the Hon’ble Supreme Court decision in the case of Amit Mohan Bindal [2009 (8) TMI 44 - SUPREME COURT] saying that the penalty (in the context of section 271(1)(c)) is .....

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r not making compliance to the provisions of law. There is no doubt that the issue of deduction of tax at source from the salary of non residents expatriated to India has been debatable issue in as much as whether the tax was required to be deducted by their employer abroad while making payment in their country or by their joint venture partners in India. In the context of provisions of section 192 read with section 9 of the Act vis-a-vis the deduction of tax at source, the Hon 'ble Apex court i .....

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y those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. - The present case is not the case of the Revenue that the tax has been deducted but not paid to the credit of the company. Hence, we uphold the order of ld. CIT(A) and dismiss the appeal filed by the Revenue. - Decided in favour of assessee. - ITA No. 2915/Del/2011 - Dated:- 30-10-2015 - SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER Appell .....

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deposit the same into the Central Govt. account within the stipulated time. ii. On the facts and in the circumstances of the case, the finding of Ld. CIT(A) deleting the penalty on the ground that the tax Deductor was ignorant of Indian Tax Laws is not correct as it took the Tax Deductor more than one year to understand and comply with the Indian Tax Laws. iii. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of the appe .....

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rs and steam turbine generators and related parts. Subsequently, MHI entered into Joint Venture agreements with L&T for engaging in business of design, engineering, manufacture, selling and distribution of supercritical boilers and supercritical steam generators. For this purpose, MHI and L&T have made investments in 2 joint venture companies in India viz. - L&T -MHI Boilers Private Limited; and -L&T-MHI Turbine Generators Private Limited 1.2 During the previous year 2008-09, the .....

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axability of salary being paid to the deputed personnel and the modalities to discharge the liability of payment of taxes on salary and other requirements in India. 1.3 At the outset, it is submitted that under the scheme of employment, all the employees deputed to India were covered under the tax equalization policy of the respondent assessee company. As per the said tax equalization policy, the employer is required to bear the tax liability arising out of the employment in India. The tax borne .....

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salary to the credit of employees account. 1.4 The respondent assessee company was deciding the manner in which the compliances need to be undertaken including the entity which shall undertake the withholding tax compliances i.e. respondent assessee company vis-a-vis the joint venture companies. 1.5 After establishing the liability, the respondent assessee company filed an application for Tax Deduction Account Number (TAN) on March 18, 2009 as the same was required for depositing the taxes with .....

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tion 201(1A) of the Act aggregating to ₹ 2,23,65,425 (including interest under section 201(IA) of ₹ 14,90,655). 1.6 Subsequent to the payment of taxes, the Ld. AO initiated proceedings under section 201(IA) by issuing a notice dated April 13, 2010 (which was received by the respondent assessee company on August 2, 2010) and penalty proceedings under section 221(1) of the Act for levy of penalty for payment of taxes of ₹ 2,08,74,773 not being in accordance with the provisions of .....

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otto deposited amount of interest due by it, as per the provision 201(1A) of the Act even before the receipt of the impugned notice. 1.8 The penalty proceedings were concluded and an order under section 221 of the Act was passed by the Ld. AO raising a demand for penalty of ₹ 25,00,000. Being aggrieved, an appeal was filed before the learned CIT(A), who vide order dated 14th March, 2011 deleted the penalty vide paras 6 & 6.1 of his order, which read as under: 6. I have considered the s .....

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ere covered under the tax equalization policy of the appellant in which the employer is required to bear the tax liability arising out of the employment in India. The tax borne by the employer was grossed up and included as part of the salary for the period the services rendered by the employees in India. The payrolls of such expatriates were processed partly in India and partly in Japan, The appellant, being a corporate entity registered under the laws of Japan, was in the process of ascertaini .....

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his leads to the inference that the appellant was in default in non deduction of tax at source at the time of making payment of salary in Japan to its employees expatriated to India. The appellant has admitted that only after ascertaining its 'liability to deduct and pay the TDS, an application for Tax Deduction Account Number (TAN) was filed on l8.03.1999. The learned counsel has contended that since the expatriates were covered under a tax equalization policy, the appellant was of the view .....

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on its own under the tax equalization policy, it had suo- motto made such tax payments along with interest'. 6.1. There is no dispute to the fact that the tax actually required to be deducted, has been deducted and paid to the Govt. account alongwith due interest. But there was certainly delay in depositing the TDS. It has been contended that appellant had no mala fide intentions as to non- compliance of Indian tax laws. All the taxes have suo-motto been paid by appellant even before the iss .....

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the levy of penalty. However, second proviso to section 221 (1) of the Act states that where the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons, no penalty shall be levied under this section. The proviso to section 201(1) also lays down that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay .....

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nless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. However, recently, it has been held by the Hon'ble Supreme Court in the case of Amit Mohan Bindal (317 ITR 1) that the penalty (in the context of section 271(1)(c)) is a civil liability albeit a strict liability. Irrespective of tfe fact whether the tax was deducted at source at the time of making payment of salary to the e .....

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ia has been debatable issue in as much as whether the tax was required to be deducted by their employer abroad while making payment in their country or by their joint venture partners in India. In the context of provisions of section 192 read with section 9 of the Act vis-a-vis the deduction of tax at source, the Hon 'ble Apex court in the case of CIT vs. Eli Lilly and Co. (312 ITR 225) has held that this was the first instance' that such an issue was examined by the Court. The Hon'b .....

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under Section 271 C were quashed on the ground that the assessee was under a genuine belief not to deduct taxes and therefore, there was a reasonable cause for not imposing penalty. It has been held that for these reasons, no penalty proceedings under section 271 C shall be taken in any of these cases as the issue involved was a nascent issue. The Hon ble Apex Court has also held that the Indian Joint Venture partners were under obligation to deduct tax at source in respect of salary paid by th .....

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t has quashed penalty proceedings u/s 271C initiated for default of non deduction of tax at source by the Indian joint venture partners. The Hon'ble Court has specifically restricted the action only to the charging of interest for non compliance to the provisions relating to the TDS. In para 38 of the order is reproduced below: "38. For the reasons mentioned hereinabove, however, no penalty proceedings under section 271 C shall be taken in any of these cases as the issue involved was a .....

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