2017 (11) TMI 313 - AT - Income Tax

Penalty u/s 271C - non deduction of tds to overseas group entities - demands under section 201(1)/201(1A) - sufficient cause for non deduction of tax at source - Held that - Claim of the assessee that the overseas entities have absolutely no presence in India remains uncontroverted even before us as the department has not brought any material on record to prove the contrary. Furthermore, the assessee has obtained a certificate from an independent Charted Accountant in Form No. 15CB, wherein, the concerned Chartered Accountant has opined that TDS is not required to be made on such payment. Also it is a fact on record that, though, the assessee has made payment of identical nature to overseas group entities in past several years without deducting tax at source, no proceedings has been initiated by the Department under section 201(1), except assessment years 2010 11 and 2011 12. In as much as, no disallowance under section 40(i)(a) has ever been made. Even though, similar payment was made in A.Y. 2010 11 and facts for both the assessment years are identical, the Assessing Officer has not initiated proceedings for imposition of penalty under section 271C for A.Y. 2010 11. Thus one can reasonably conclude that the failure on the part of the assessee to deduct tax at source while making such payment was for bona fide reasons, hence, in terms of section 273B of the Act there being a reasonable cause for such failure, no penalty can be imposed under section 271C of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Delay in filing appeals by the assessee.
2. Penalty proceedings under section 271C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Delay in Filing Appeals by the Assessee:
The assessee filed appeals against the orders passed under section 201(1) and 201(1A) of the Income Tax Act, 1961, with a delay of 217 days. The Commissioner (Appeals) dismissed the appeals in limine due to the delay, finding the reasons provided by the assessee unsatisfactory. The assessee argued that the delay was due to the preoccupation and inexperience of the employee handling tax affairs. The Commissioner (Appeals) believed the assessee was represented by a professional Chartered Accountant firm, which the assessee refuted, stating the firm only audited the accounts and did not represent them before the Assessing Officer.

The Tribunal noted that the assessee did not benefit from the delay and emphasized that the expression 'sufficient cause' should be interpreted liberally to serve justice. The Tribunal found that the Commissioner (Appeals) was not justified in dismissing the appeals without deciding on merits and directed the assessee to pay a cost of ?10,000 for each appeal to the Revenue. Upon payment, the Commissioner (Appeals) was instructed to hear the appeals on merit after providing due opportunity to the assessee.

2. Penalty Proceedings under Section 271C:
The Department's appeal challenged the deletion of penalty imposed under section 271C for the assessment year 2011–12. The Assessing Officer had imposed a penalty for the assessee's failure to deduct tax at source on payments made to overseas entities. The Commissioner (Appeals) restricted the penalty to ?10,57,155, while the Department contested the deletion of penalty on payments amounting to ?10,45,82,003 made to overseas entities.

The Tribunal examined whether there was a reasonable cause for the assessee's failure to deduct tax at source, as required under section 273B. The assessee argued that the payments were made for services rendered outside India by entities with no presence in India and relied on a Chartered Accountant's certificate in Form No. 15CB, which stated no TDS was required. The Tribunal noted that the Department had not initiated similar penalty proceedings in previous years or for the assessment year 2010–11, despite similar payments being made. The Tribunal concluded that the failure to deduct tax was due to bona fide reasons and upheld the Commissioner (Appeals)'s decision, dismissing the Department's appeal.

Conclusion:
The Tribunal allowed the assessee's appeals for statistical purposes, directing the Commissioner (Appeals) to hear the appeals on merit after condoning the delay upon payment of costs. The Tribunal also dismissed the Department's appeal regarding the penalty under section 271C, finding the assessee had reasonable cause for not deducting tax at source. The cross-objection by the assessee was dismissed as infructuous.