2014 (1) TMI 1233 - AT - Income Tax

Validity of admission of Additional grounds penalty u/s 271C - period of limitation - Held that - The CIT (A) is correct in admitting the additional ground raised before him for adjudication as this additional ground raised by the assessee goes to the root of the matter in deciding the case - The Assessing Officer has been requested to submit his comments on the additional ground raised - the additional ground raised by the assessee has been admitted by the CIT (A) in view of the Hon ble Supreme Court s decision in the case of NTPC vs. CIT 1996 (12) TMI 7 - SUPREME Court there was no infirmity in the action of the CIT (A) for admitting the additional ground raised by the assessee. Deletion of penalty u/s 271C of the Act Held that - Bona-fide belief in non-deduction of TDS would constitute a reasonable cause - Ignorance of law may be no excuse but simultaneously it is also true that there is no presumption that everyone knows the law - The assessee submitted evidence from hospitals wherein the payment received was reflected in their incomes and paid tax - Thus, the assessee is not treated as an assessee in default for the purpose of section 201(1) of the Act Relying upon Hindustan Coco Cola Beverage Pvt. Ltd. vs. CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA - interest u/s. 201(1A) is mandatory and is required to be charged thus, it is evident from the assessment order that the assessee was not treated as an assessee in default u/s. 201(1) of the Act. When the AO himself treated the assessee as an assessee not in default in respect of the amounts of TDS to be deducted, then there cannot be any scope for levying penalty u/s. 271C of the Act - the amount of tax has been paid by the recipient of the income - the provisions of section 271C cannot be applied to the assessee s case as these provisions clearly state that if any person fails to deduct whole or any part of the tax as required under the provisions of Chapter XVII-B, then such person shall be liable to pay by way of penalty an amount equal to the amount of tax which such person failed to deduct or pay as above said thus, the assessee is not in default in respect of the amount of tax itself, there cannot be any levy of penalty u/s. 271C, more so, where there was a reasonable cause for not deducting the TDS on the payment made by the assessee Decided against Revenue.

Summary

Issues Involved:

1. Admittance of additional grounds by CIT (A).
2. Justification for deleting the penalty levied under section 271C of the Income Tax Act.

Detailed Analysis:

1. Admittance of Additional Grounds by CIT (A):

The Revenue argued that the CIT (A) improperly admitted additional grounds without citing reasons. The additional grounds raised by the assessee included questions about the legality of the Addl. CIT's jurisdiction to levy penalty under section 271C, the validity of the show cause notice due to being barred by limitation, and the correct time frame for finalizing penalty proceedings. The CIT (A) admitted these grounds based on the principles laid down by the Supreme Court in the case of National Thermal Power Corporation (NTPC) vs. CIT (229 ITR 383-387), which allows new grounds to be admitted if they go to the root of the matter. The Tribunal upheld the CIT (A)'s decision, confirming that the additional grounds were rightly admitted for adjudication as they were crucial to deciding the case.

2. Justification for Deleting the Penalty Levied Under Section 271C:

The Revenue contended that the CIT (A) was incorrect in deleting the penalty under section 271C, arguing that the assessee did not provide reasonable cause for not deducting TDS. The Revenue cited CBDT Circular No. 8 of 2009, which clarified that payments made by TPAs to hospitals fall under section 194J, and failure to deduct tax would attract penalty under section 271C. The Revenue also referenced case law supporting the necessity of TDS deduction by TPAs.

The assessee argued that the Assessing Officer had not treated them as a defaulter under section 201(1), and hence, penalty under section 271C could not be levied. They further argued that there was reasonable cause for not deducting TDS, citing confusion and lack of clarity regarding the applicability of section 194J to TPAs until the issuance of CBDT Circular No. 8 of 2009. The assessee also pointed out that the penalty proceedings were barred by limitation under section 275(1)(c).

The Tribunal considered various judicial precedents, including the Supreme Court's decision in Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT (293 ITR 226) and other High Court rulings, which supported the assessee's position that reasonable cause existed for non-deduction of TDS. The Tribunal noted that the Assessing Officer had not treated the assessee as an assessee in default for the purpose of section 201(1), and the penalty under section 271C is consequential to such a default. Since the tax had been paid by the recipient of the income, the Tribunal concluded that there was no basis for levying the penalty under section 271C.

The Tribunal emphasized that the bona fide belief of the assessee, supported by the subsequent clarification by the CBDT and the judicial decisions, constituted a reasonable cause for non-deduction of TDS. Thus, the deletion of the penalty by the CIT (A) was upheld.

Conclusion:

The Tribunal dismissed the Revenue's appeal, confirming the CIT (A)'s decisions to admit the additional grounds and to delete the penalty levied under section 271C. The judgment highlighted the importance of reasonable cause and bona fide belief in cases of non-compliance with TDS provisions, especially in the context of evolving interpretations and clarifications by tax authorities.