2016 (10) TMI 1299 - AT - Income Tax

Penalty u/s 221 - failure on the part of the assessee to remit the TDS in time - HELD THAT - Levy made under section 221 is in accordance with law and hence the Department s ground is sustained in this regard Non-payment of TDS in time is a serious violation of the Trust reposed by the Government on the deductor. Such an action causes serious problems to the payees as they were not getting credit for the tax paid by them by way of TDS. In fact the AO records that the Department received complaint from the assessee for not issuing TDS certificates despite repeated request. The delay in remittances are in the range of four months to fifteen months. As in Relience industries Ltd v CIT others 2015 (7) TMI 812 - BOMBAY HIGH COURT held that the obligation to deduct and pay tax upon the assessee is unconditional under the Act. It is the responsibility of the assessee to deduct taxes and to pay to the Revenue within the period provided under the Act. Financial stringency would not justify deducting tax from the amount paid to the payee and not paying it to the Revenue. Otherwise, it would amount to using somebody else's money for the purposes of one's business. In such circumstances, the question of financial stringency, to our mind, hardly gives rise to a good and sufficient reason for not depositing tax which was an amount otherwise payable to the payee or on behalf of the payee to the Revenue. Assessee s plea cannot be accepted as good and sufficient reason for not depositing tax within time - levy made by the AO at the rate of 5% per month on the defaulted TDS is unreasonable. We consider that levy of penalty u/s.221 @ 10% on the unpaid TDS at ₹ 2,05,55,731/- would meet the ends of justice. Hence the AO is directed to restrict the levy to ₹ 20,55,573/- in the place of ₹ 77,95,155/-. - Decided partly in favour of revenue

Summary

Issues Involved:
1. Whether the assessee was justified in not remitting the TDS within the stipulated time due to financial difficulties.
2. Whether the penalty levied under Section 221 for the delayed remittance of TDS was appropriate.

Detailed Analysis:

1. Justification for Non-Remittance of TDS:
The assessee, a company engaged in civil construction, was subjected to a survey revealing that it had deducted taxes amounting to ?2.05 crores from salary, contract payments, professional fees, etc., during the year ending 31/3/2012 but failed to remit these taxes to the Central Government within the stipulated time. The Assessing Officer (AO) passed an order under Section 201(1)/201(1A) treating the assessee as an 'assessee-in-default' and subsequently levied a penalty under Section 221 for the delayed remittance.

The CIT(A) held that the assessee faced genuine financial difficulties during the said period and had remitted the TDS along with interest within four days of the demand notice. However, the AO found that the assessee's claim of financial crunch was bogus, as the examination of its books revealed surplus funds and payments towards non-essential items like land, cars, and investments, disproving the claim of financial difficulty.

2. Appropriateness of Penalty Under Section 221:
The AO levied a penalty of ?77,95,155/- at 5% per month on the defaulted TDS. The CIT(A) directed the deletion of this penalty, considering the assessee's subsequent remittance of TDS along with interest. The Revenue appealed, arguing that the penalty under Section 221 was justified as the assessee had no good and sufficient reasons for the delay.

The Tribunal referred to the Bombay High Court's decision in Reliance Industries Ltd v CIT, which stated that the obligation to deduct and pay tax is unconditional and financial stringency does not justify the delay. The Tribunal concluded that the assessee's plea of financial difficulties was not a good and sufficient reason for the delay. However, it found the penalty rate of 5% per month unreasonable and reduced it to 10% of the unpaid TDS, amounting to ?20,55,573/-.

Conclusion:
The Tribunal upheld the levy of penalty under Section 221 but reduced the amount from ?77,95,155/- to ?20,55,573/-, finding the original penalty rate excessive. The appeal of the Revenue was partly allowed. The judgment emphasizes the unconditional responsibility to remit TDS on time and clarifies that financial difficulties do not constitute a valid reason for delay.