2019 (3) TMI 533 - AT - Income Tax

Penalty u/s.271C - assessee has not deducted tax at source on payment made to M/s Indiabulls Distribution Services Ltd - income recognition - assessee was treated as assessee-in-default u/s 201(1) - assessee liability for tax audit u/s 44AB - HELD THAT - As gone through the profit and loss account of the assessee for the years under consideration we find that no income has been recognized by the assessee from projects. The perusal of the profit and loss account and balance sheet of the assessee goes to prove that the assessee is not liable for tax audit u/s.44AB for the year under consideration. We find that the second proviso to Section 194H stipulates that if the assessee is liable for tax audit in A.Y.2015-16 then, he is bound to deduct tax at source and comply with the provisions of Chapter XVIIB of the Act in respect of transactions carried out by him in A.Y.2016-17. We find that there is no evidence brought on record by both the parties or from the orders of the lower authorities that whether assessee was liable for tax audit in the A.Y.2015-16. For this limited purpose, we deem it fit and appropriate to remand this issue to the file of the AO to verify the same and decide the issue in accordance with second proviso to Section 194H of the Act, after affording reasonable opportunity of being heard to the assessee. The other propositions made by the AR are not required to be adjudicated as it is a simple case of factual verification for the A.Y. 2016-17. The assessee is also at a liberty to raise fresh propositions and adduce fresh evidences in support of her contentions before the AO in the fresh round of proceedings. Accordingly, the grounds raised by the assessee for the Asst Year 2016-17 are allowed for statistical purposes. Since we had given a finding supra that the assessee was not liable for tax audit u/s 44AB of the Act during the F.Y. 2015-16 relevant to Asst Year 2016-17, we hold that as per section 194H of the Act, the assessee is not liable for deducting tax at source in respect of payment of marketing fees / commission to M/s India Bulls Distribution Services in Asst Year 2017-18.

Summary

Issues involved:
1. Imposition of penalty u/s.271C of the Income Tax Act for failure to deduct tax at source on payment made to a marketing representative and underwriter.
2. Justification of upholding levy of penalty u/s.271C by the Ld. CIT(A).
3. Whether provisions of Section 44AB of the Act could be invoked on the assessee for not recognizing income from projects.
4. Debatability of the issue regarding whether advances received should be considered as turnover for the purpose of reckoning the limits u/s.44AB of the Act.
5. Verification of whether the assessee was liable for tax audit in the A.Y. 2015-16.

Analysis:
1. The appeals filed by the assessee were directed against the order of CIT(A)-1, Thane for A.Y.s 2016-17 & 2017-18 regarding the imposition of penalty u/s.271C for failure to deduct tax at source on payments made to a marketing representative and underwriter. The Ld. CIT(A) upheld the penalty, leading to the current appeal.
2. The main issue in the appeal was whether the Ld. CIT(A) was justified in upholding the levy of penalty u/s.271C. The assessee contended that the penalty should not be levied as the issue was debatable. The Tribunal found that the assessee's income from projects was not recognized during the year, and there was no completion of any project, questioning the invocation of Section 44AB of the Act on the assessee.
3. The Ld. AR highlighted the debatable nature of the issue regarding whether advances received should be considered as turnover for the purpose of reckoning the limits u/s.44AB of the Act. The Tribunal noted the contradictory decisions by various Tribunals on this matter and remanded the issue to the Ld. AO for verification.
4. The Tribunal emphasized the need to verify whether the assessee was liable for tax audit in the A.Y. 2015-16 as per the second proviso to Section 194H of the Act. The Tribunal held that the assessee was not liable for tax audit u/s 44AB of the Act for the relevant years, thereby allowing the appeals for statistical purposes and dismissing the stay petitions as infructuous.