1998 (9) TMI 107 - AT - Income Tax

Summary

Issues Involved:

1. Imposition of penalty under Section 272A(2)(g) of the Income Tax Act, 1961.
2. Validity of penalty order concerning the limitation period under Section 275(1)(c) of the Act.
3. Bona fide belief and technical default arguments by the assessee.
4. Availability of TDS forms and procedural difficulties.
5. Jurisdiction of the authority initiating penalty proceedings.

Detailed Analysis:

1. Imposition of Penalty under Section 272A(2)(g) of the Income Tax Act, 1961

The assessee, a private limited company engaged in the construction business, was required to deduct tax at source under Section 194C of the Act. The penalty of Rs. 8,37,906 was imposed by the Deputy CIT for the failure to issue TDS certificates within the stipulated period. The assessee contended that the delay was due to a bona fide belief that certificates could be issued at the end of the accounting year. The appellate authority held that the default was committed during the financial year 1st April 1992 to 31st March 1993, and the provisions relating to TDS had become almost crystallized by then. The assessee had issued certificates on different dates in April and May 1993, which indicated no bona fide belief that certificates could be issued at the end of the accounting year.

2. Validity of Penalty Order Concerning the Limitation Period under Section 275(1)(c) of the Act

The assessee argued that the penalty order was passed beyond the six-month limitation period. The appellate authority held that the ITO, TDS-III, had no jurisdiction to initiate penalty proceedings under Section 272A(2)(g), and thus his notice could not be taken into account for the limitation period. The penalty proceedings were validly initiated by the Deputy CIT on 24th June 1994, and the penalty order was passed on 22nd December 1994, within the six-month period. Therefore, the penalty order was not barred by limitation.

3. Bona Fide Belief and Technical Default Arguments by the Assessee

The assessee claimed that there was no mala fide intention and the default was purely technical. The Tribunal noted that the tax was deducted and deposited in time, and the delay in issuing certificates was due to a bona fide belief that they could be issued at the end of the accounting year. The Tribunal referred to several decisions, including Hindustan Steel Ltd. vs. State of Orissa, which held that penalty should not be imposed unless there is a deliberate defiance of law or contumacious conduct.

4. Availability of TDS Forms and Procedural Difficulties

The assessee contended that the relevant TDS forms were not easily available, which contributed to the delay in issuing certificates. The appellate authority found no material on record to support this claim and held that the assessee had not faced genuine difficulties in obtaining the forms. The Tribunal agreed with this finding, stating that the assessee had not raised this plea during the penalty proceedings.

5. Jurisdiction of the Authority Initiating Penalty Proceedings

The Tribunal held that the ITO, TDS-III, was not competent to initiate penalty proceedings under Section 272A(2)(g). The competent authority to impose the penalty was the Deputy Director or the Deputy CIT. The notice issued by the ITO, TDS-III, was beyond his jurisdiction and therefore invalid. The penalty proceedings were validly initiated by the Deputy CIT on 24th June 1994.

Conclusion

The Tribunal concluded that the imposition of a penalty of Rs. 8,37,900 against a total tax deduction of Rs. 42,510 was not justified. The default was considered technical and not deliberate, with no loss of revenue or evasion of tax liability. The penalty was canceled, and the assessee's appeal was allowed.