2011 (3) TMI 880 - AT - Income Tax

Penalty u/s. 272A(2)(c) and (k) - The assessee was incurring losses and there was financial crisis and therefore due to non-availability of funds there were delays in making the payments and filing the returns - The Learned AR for the assessee has rightly pointed out that clause (c) of section 272A(2) is not applicable as the same relates to return/statement under sections 133, 206 and 206C - In this case there has been delay in both the years as indicated by the AO in the table reproduced at page 2 of this order - The quarterly returns of TDS require filling of data relating to payment of taxes and therefore such returns could be filed only after paying the tax to the Central Government Regarding default in not paying tax - In case the assessee fails to deduct the tax at source or after deducting fails to pay the same to the Central Government the assessee is deemed to be in default under section 201(1) and is liable for penalty - Therefore in our view the period for levying the penalty has to be counted from the date of payment of tax because the delay in filing the return till the date of payment of tax is already explained on the ground that the assessee could not pay the taxes for which separate penal provisions exist - Once the delay in payment of tax is explained satisfactorily, penalty under section 272A(2)(k) for the period till payment of taxes, cannot be levied in our opinion - Appeal is allowed partly

Issues Involved:
1. Imposition of penalty under sections 272A(2)(c) and 272A(2)(k) of the Income-tax Act for delayed filing of TDS returns.
2. Applicability of sections 272A(2)(c) and 272A(2)(k) to the case.
3. Reasonable cause for delay in filing TDS returns due to financial difficulties.
4. Calculation of penalty period from the date of payment of taxes.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Sections 272A(2)(c) and 272A(2)(k):
The appeals were directed against the orders of CIT(A) for the assessment years 2006-07 and 2007-08 regarding the penalty under sections 272A(2)(c) and (k) of the Income-tax Act. The AO noted delays in filing TDS returns for both years and imposed penalties of Rs. 2,22,252 and Rs. 1,09,300 respectively. The assessee argued that the penalties should be dropped as they had filed the returns and provided acknowledgment slips.

2. Applicability of Sections 272A(2)(c) and 272A(2)(k):
The assessee contended that clause (c) of section 272A(2) was not applicable as it related to returns/statements under sections 133, 206, and 206C. Section 206 was relevant only up to 31-03-2005 and pertained to tax collection, not TDS. Section 133 was unrelated to TDS. Thus, clause (c) was inapplicable. However, clause (k) was applicable as it required delivering the statement within the time specified under section 200(3). The Tribunal agreed with this interpretation, finding clause (k) applicable for the assessee's case.

3. Reasonable Cause for Delay in Filing TDS Returns:
The assessee argued that financial difficulties caused delays in making payments and filing returns. They cited losses and substantial liabilities as reasons for the delay. Reliance was placed on judgments from the Hon'ble High Court of Allahabad and the Mumbai Bench of the Tribunal, which accepted financial difficulties as a reasonable cause for delays. The CIT(A) did not accept this explanation, confirming the penalties. However, the Tribunal acknowledged the financial difficulties substantiated by the assessee's P&L account and balance sheet, noting that financial hardship could be a reasonable cause for the delay.

4. Calculation of Penalty Period from the Date of Payment of Taxes:
The Tribunal emphasized that under section 200(3) read with Rule 31A, TDS returns could only be filed after paying the tax to the Central Government. Therefore, penalties should be levied for delays starting from the date of tax payment. The Tribunal found force in the argument that penalties should not include the period before tax payment due to financial difficulties. The Tribunal referred to previous decisions where financial difficulties were accepted as a reasonable cause for not paying taxes on time, thereby not warranting penalties for the period before tax payment.

Conclusion:
The Tribunal held that penalties under section 272A(2)(k) should be levied only for delays from the date of tax payment by the assessee. The order of the CIT(A) was modified accordingly, and the appeals were partly allowed. The decision was pronounced in open court on 18.03.2011.

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