2001 (8) TMI 274 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT (Appeals) erred in cancelling the penalty under section 221 of the Income-tax Act.
2. Whether the payment of interest under section 201(1A) by the assessee is sufficient to avoid penalty under section 221.
3. Whether financial crisis faced by the assessee constitutes a good and sufficient reason for the delay in depositing TDS.
4. Whether the mode of payment by crediting the amount to the account of the payee provides a sufficient cause for delay in TDS payment.
5. Reasonability of the amount of penalty imposed under section 221.

Detailed Analysis:

1. Error in Cancelling Penalty under Section 221:
The department contended that the CIT (Appeals) erred in cancelling the penalty under section 221 on the ground that interest was paid by the assessee. The tribunal noted that the assessee failed to deposit the tax deducted at source (TDS) within the stipulated time, thereby making the assessee liable to be treated as an assessee in default under section 201(1). This default attracts penal consequences under section 221 unless good and sufficient reasons for the delay are shown.

2. Payment of Interest under Section 201(1A):
The tribunal held that the payment of interest under section 201(1A) by the assessee is immaterial in determining liability under section 221. The provisions of sections 201(1) and 201(1A) operate simultaneously and are without prejudice to each other. The Hon'ble Calcutta High Court in Jubilee Investments & Industries Ltd. v. Asstt. CIT [1999] 238 ITR 648 established that the payment of interest does not absolve the assessee from penalty.

3. Financial Crisis as a Reason for Delay:
The assessee argued that financial crisis prevented timely TDS payment. However, the tribunal rejected this argument, referencing the jurisdictional High Court's decision in Jubilee Investments & Industries Ltd., which stated that business losses do not excuse the failure to deposit TDS. The tribunal emphasized that the responsibility to pay TDS on time lies solely with the deductor, irrespective of financial conditions.

4. Mode of Payment by Crediting Account of Payee:
The assessee contended that following the mercantile system of accounting and crediting the amount to the payees' accounts should be considered a sufficient reason for delay. The tribunal clarified that Rule 30 of the Income-tax Rules provides a larger period of two months for making the payment of TDS when the amount is credited to the payee's account. Thus, the existing provisions already account for such contingencies, and this mode of payment does not justify the delay beyond the prescribed period.

5. Reasonability of Penalty Amount:
The tribunal found the penalties of Rs. 75,000 and Rs. 1,00,000 imposed by the Assessing Officer to be excessive given the circumstances. Considering the voluntary payment of TDS and interest by the assessee and the delay of only 27 days, the tribunal deemed it appropriate to reduce the penalties to Rs. 25,000 and Rs. 30,000 respectively for defaults under sections 193 and 194A.

Conclusion:
The tribunal partly allowed the appeals, reducing the penalties imposed under section 221 while affirming the liability of the assessee for the delay in TDS payment. The tribunal emphasized the simultaneous operation of sections 201(1) and 201(1A) and rejected the arguments of financial crisis and mode of payment as sufficient reasons for the delay.