2004 (3) TMI 346 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under Section 271C of the Income-tax Act, 1961.
2. Limitation period for imposing the penalty.
3. Validity of the show cause notice.
4. Voluntary payment of tax and interest by the appellant.
5. Ignorance of law as a reasonable cause.
6. Applicability of Section 192 to payments made outside India.
7. Sufficiency of reasons for non-deduction of tax.
8. Excessiveness of the penalty amount.

Detailed Analysis:

1. Levy of Penalty under Section 271C of the Income-tax Act, 1961:
The assessee was aggrieved by the imposition of a penalty of Rs. 59,67,098 for the financial years 1990-91 to 1997-98. The CIT(A) confirmed the AO's order imposing the penalty under Section 271C, which deals with the failure to deduct tax at source.

2. Limitation Period for Imposing the Penalty:
The primary issue raised was whether the penalty was imposed within the limitation period prescribed under Section 275 of the IT Act. The appellant argued that the penalty, levied on 29th Oct. 1999, was beyond the six-month limitation period from the date of the initial notice on 31st Aug. 1998. The Tribunal found that the letter dated 30th Aug. 1998, served on 31st Aug. 1998, was indeed a show cause notice. Therefore, the six-month period expired in March 1999, making the penalty imposed in October 1999 barred by time.

3. Validity of the Show Cause Notice:
The Tribunal examined the letter dated 30th Aug. 1998, which was argued to be a general communication by the Revenue but was deemed a show cause notice by the appellant. The Tribunal concluded that the letter, titled as a show cause notice and detailing the alleged defaults, constituted a valid show cause notice under Section 271C. The Tribunal referenced a similar case (Lurgi India Co. Ltd. vs. Jt. CIT) to support this conclusion.

4. Voluntary Payment of Tax and Interest by the Appellant:
The appellant had voluntarily paid the shortfall in TDS and the corresponding interest after becoming aware of its liability during a survey conducted on 20th Aug. 1998. This voluntary compliance was noted but did not influence the decision on the penalty's timeliness.

5. Ignorance of Law as a Reasonable Cause:
The appellant contended that ignorance of the law regarding fiscal legislation should constitute a reasonable cause for not deducting TDS. However, this argument was secondary to the primary issue of the penalty being time-barred.

6. Applicability of Section 192 to Payments Made Outside India:
The appellant argued that Section 192, dealing with TDS on salaries, should not apply to payments made outside India. The Tribunal did not delve into this argument due to the primary finding on the limitation period.

7. Sufficiency of Reasons for Non-Deduction of Tax:
The appellant claimed that the failure to deduct tax was based on a bona fide belief that payments made outside India were not taxable. This argument was also secondary to the limitation issue.

8. Excessiveness of the Penalty Amount:
The appellant argued that the penalty amount was excessive. However, this argument was rendered moot by the Tribunal's finding that the penalty was time-barred.

Conclusion:
The Tribunal quashed the penalty imposed by the AO and confirmed by the CIT(A) on the grounds that it was barred by time, as it was not imposed within the six-month period prescribed by law. Consequently, the appeals filed by the assessee were allowed, and no further adjudication on other grounds was necessary.