2010 (4) TMI 1103 - AT - Income Tax

Summary

Issues Involved:
1. Error in appellate order by CIT(A).
2. Reasonable cause for non-deduction of tax at source.
3. Consideration of subsequent events and facts for reasonableness.
4. Relevance of Supreme Court decision in Hindustan Coca Cola Beverages (P) Ltd.
5. Applicability of Supreme Court decision in Hindustan Steel Ltd. Vs. State of Orissa.
6. Limitation on initiation of penalty proceedings.
7. Applicability of sec. 292BB to penalty proceedings.
8. Deletion of penalty u/s 271C.

Summary:

1. Error in Appellate Order by CIT(A):
The assessee contended that the CIT(A) erred on facts and in law while passing the appellate order.

2. Reasonable Cause for Non-Deduction of Tax at Source:
The assessee argued that there was a reasonable cause for not deducting tax at source, as the recipients of interest were sister concerns, and the failure to effect TDS was inadvertent and not intentional. The assessee also highlighted that the interest charged u/s 201(1A) was promptly paid, and no prejudice was caused to the revenue.

3. Consideration of Subsequent Events and Facts for Reasonableness:
The CIT(A) held that subsequent events and facts cannot be considered for determining the reasonableness of the cause for non-deduction of tax at source. The assessee disagreed, arguing that the payee paid the tax due in due time while filing the return, indicating no mala fides.

4. Relevance of Supreme Court Decision in Hindustan Coca Cola Beverages (P) Ltd.:
The CIT(A) relied on the Supreme Court decision in Hindustan Coca Cola Beverages (P) Ltd. (293 ITR 226), which the assessee argued was not relevant to the facts of their case. The assessee cited the decision of ITO Vs. Muttoot Financiers (286 ITR 71) (AT) (Cochin) as more applicable.

5. Applicability of Supreme Court Decision in Hindustan Steel Ltd. Vs. State of Orissa:
The assessee argued that the CIT(A) failed to follow the ratio of the Supreme Court decision in Hindustan Steel Ltd. Vs. State of Orissa (83 ITR 26), which emphasizes that penalty should not be imposed if there is a reasonable cause.

6. Limitation on Initiation of Penalty Proceedings:
The CIT(A) held that the initiation of penalty proceedings was not barred by limitation. The assessee contended that the penalty proceedings were time-barred, citing judicial decisions in this regard.

7. Applicability of Sec. 292BB to Penalty Proceedings:
The assessee argued that sec. 292BB provisions are applicable only for assessment proceedings and not penalty proceedings. The CIT(A) disagreed, applying sec. 292BB to the facts of the case.

8. Deletion of Penalty u/s 271C:
The assessee prayed for the deletion of the penalty u/s 271C, arguing that there was no contumacious conduct, and the tax and interest were paid by the payees, sister-concerns, without any demand for TDS u/s 201(1) or 201(1A).

Tribunal's Decision:
The Tribunal dismissed the appeals, holding that the assessee's failure to deduct tax at source was not justified by reasonable cause. The Tribunal emphasized that ignorance of law is no excuse and that the provisions of sec. 271C apply even to first-year operations. The Tribunal also rejected the argument that penalty proceedings were time-barred, citing the ITAT Delhi Bench decision in Thai Airways International Public Company Ltd. Vs. ACIT (2 SOT 389).

Conclusion:
The appeals of the assessee were dismissed, and the penalty u/s 271C was upheld. The order was pronounced in the court on 23.4.2010.