TMI Blog2022 (4) TMI 1379X X X X Extracts X X X X X X X X Extracts X X X X ..... imulate or encourage a person of ordinary intelligence under the given facts and circumstances to believe, based on observations or conversations to be not applicable or applicable as the case may be. In this regards it apt to quote the decision in the case of CIT Vs M/s Eli Lilly Company (India) Pvt. Ltd. Ors [ 2009 (3) TMI 33 - SUPREME COURT] with regards to reasonable cause for failure to deduct TDS, the Hon ble Lordship on the scope of Section 271C r.w.s 273B. The expression reasonable cause gives the impression that prima facie, if a person of average intelligence has acted and under those circumstances the said action was at that point of time not infringed the settled law then it can be reasonably held that assessee was prevented by a reasonable cause under those circumstances not to act as prescribed or determined by a case law. We are aware that ignorance of law is not an excuse but at the same time, it is not practical that every taxpayer should always be aware about the latest development of fiscal laws; which are ever and fast changing. We find that, the issue at hand was highly debatable at relevant point of time and assessee was prevented by a reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019 2012-2013 12/10/2018 12/10/2018 21/01/2019 21/01/2019 3 ITA/37/PAN/2019 2013-2014 12/10/2018 12/10/2018 21/01/2019 21/01/2019 4 ITA/38/PAN/2019 2014-2015 12/10/2018 12/10/2018 21/01/2019 21/01/2019 5 ITA/39/PAN/2019 2015-2016 12/10/2018 12/10/2018 21/01/2019 21/01/2019 6 ITA/40/PAN/2019 2016-2017 12/10/2018 12/10/2018 21/01/2019 21/01/2019 4. Before advancing the matter on facts for adjudication, it is essential to reproduce grounds of grievance assailed by the appellant company as under; 1. The order of the Commissioner of Income Tax (Appeals) is opposed to law and contrary to the facts and circumstances of the case. 2. The Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in the case of the Appellant. 12. The Commissioner of Income Tax (Appeals) ought to have appreciated that the Appellant had entered into agreement with the gang leaders only for the sake of administrative convenience and the payments to each individual harvester under each gang leader would fall below the threshold limit specified u/s. 194C and hence the Appellant is not liable to deduct tax at source. 13. The Appellant contests all the findings of fact and law and all presumptions made against the Assessee by the Commissioner of Income Tax (Appeals). 14. The Appellant craves leave to file additional grounds of appeal at or before the time of hearing. (Emphasis supplied) 5. The ground no 14 is general residuary ground, whereas ground no 1 to 13 seeks to adjudicate the matter on merits of the case, insofar as it relates to levy of penalty for non-deduction of tax at source from the payment of harvesting charges paid to contractors, and succinctly, stated facts of the case are; 5.1 The appellant assessee is a limited company incorporated under the erstwhile Companies Act, 1956 engaged in the business of manufacturing / production of sugar. In order to veri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee company was called upon to produce details regarding harvesting charges paid to the respective contractors in excess of ceiling ₹30,000/- in each case and in aggregate exceeding ₹75,000/- and to showcase the TDS/TCS compliance (if any) made relating thereto. Based on the records, submissions, and the confirmation in the form of statement recorded it was alleged that, the appellant company for the payments made to harvesting contractors was liable to deduct TDS at the prescribed rate u/s 194C but failed to deduct applicable TDS and insofar as payment to transport contractors is concern, the assessee was failed to deduct the TDS from the payment of those transport contractors whose PAN has not been placed on records u/s 194(6) of the Act. However, the appellant company in its defence through written submission tendered fourfold contention before the Ld. ITO-TDS such were; No tax is deductible on payment of purchase of goods as the payment made to harvesting contractors is part and parcel of cost of goods of sugarcane purchased. Harvesting charges are not debited to Profit Loss account of the company as expenditure in the nature of services and same is boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor. The deductor has produced documents wherein it is noticed that, the deductor has actually filed a civil suit for breach of contract against a harvesting contractors. (Emphasis supplied) 7.4 From the statement recorded in the course of survey, the Ld. ITO-TDS established on record that, the appellant procures/d the sugarcane either at ex-gate price or at gate price at the option of the farmers, leaving them with an option to avail the services of harvesting and transporters independently, consequently price for the raw material is bifurcated into two parts; first part to the farmers towards cost of sugarcane and second part towards cost of harvesting and transport. It was also brought on records that, the appellant company in respect of aforesaid transactions generates two separate bills, wherein the cane bill is generated in the name of the supplying farmer and the separate bills of harvesting contact services transport contract services are generated in the name of the respective contractors and the same were settled without reference to sugarcane bills through running account maintained for each of contractor separately in terms of agreement or contract entered into. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee attended the proceedings and reiterated all the submission which were put-forth during the course of TDS assessment, and contended that, there was a reasonable cause for not deducting the tax at source on various counts, hence having regards to the nature of transaction, prayed for dropping of penalty proceedings. The submission of the representative did not impress the mind of Ld. AO, consequently a sum equal to the amount of tax which the appellant failed to deduct was levied as penalty u/s 271 of the Act. 8. Aggrieved, in an appeal before first appellate authority [for short FAA ] , the assessee company through its authorised representative [for short AR ] filed analogous submission and in sum substance contended that, harvesting activity is a part and parcel of growing sugarcane which is done by the farmers, for which the company is facilitating the farmers in harvesting activity by paying gang leader who takes care of the said activity as the farmer is not found be expert in carrying these techniques. It is also contended before the Ld. CIT(A) that, total cost of sugarcane in fact include cost payable to farmer and harvester as raw material are delivered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time either of crediting such sum or of making certain payments to the payee and the tax so deducted is required to be deposited by the payer assessee to the exchequer and in case the payer either fails to deduct the tax at source or fails deposit the deducted tax, exposes itself to a penalty u/s 271C of the Act, and for the purpose to immune therefrom it is necessary to look into the provision of the Act; 273B. Penalty not to be imposed in curtain case. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B section 271BA, Section 271BB, Section 271C, section 271CA, section 271D, Section 271E, section 271F, section 271FA, section 271FB, section 271G, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 272B or sub-section (1) or sub-section (1A) of section 272BB or sub-section (1) of section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the person 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. (Emphasis supplied) 10.5 It was submitted during the course of hearing that, the appellant on the basis of divergent judicial precedent and legal advice, had honestly and fairly formed an opinion and arrived at the conclusion that, harvesting services are part and parcel of agricultural activity irrespective of person performing it and hence disregarding the nature contractual obligation set in the principal-to-principal contract / agreement, but for a reasonable cause acted upon which led to default as held by Ld. ITO-TDS. The tax deductor assessee company was at the relevant time under a genuine and bona fide belief that it was not under any obligation to deduct tax at source consequently, penalty levied u/s 271C prayed to be deleted, as it discharged its burden of showing reasonable cause for failure to deduct tax at source. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n having an ordinary prudence. The expression reasonable cause gives the impression that prima facie, if a person of average intelligence has acted and under those circumstances the said action was at that point of time not infringed the settled law then it can be reasonably held that assessee was prevented by a reasonable cause under those circumstances not to act as prescribed or determined by a case law. We are aware that ignorance of law is not an excuse but at the same time, it is not practical that every taxpayer should always be aware about the latest development of fiscal laws; which are ever and fast changing. We find that, the issue at hand was highly debatable at relevant point of time and assessee was prevented by a reasonable cause for not complying with the provisions of chapter XVII-B of the Act, ergo placing reliance on the judgement of Hon ble Apex Court in CIT Vs M/s Eli Lilly Company (India) Pvt. Ltd. Ors (Supra), we are of considered view that, the appellant assessee is entitled to relief from 271C penalty by virtue of provisions of section 273B Act, on the aforestated reasoning, consequently penalty levied u/s 271C for all the assessment years under c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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