1993 (9) TMI 179 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 272A(2)(g) of the Income-tax Act, 1961.
2. Justification of the delay in issuing tax deduction certificates.
3. Consideration of ignorance of law as a reasonable cause.
4. Computation of delay and the number of defaults.
5. The proportionality of the penalty imposed.

Issue-wise Detailed Analysis:

1. Levy of penalty under section 272A(2)(g) of the Income-tax Act, 1961:
The appeal was directed against the levy of penalty under section 272A(2)(g) for the assessment year 1989-90. The appellant, a Semi-Government Undertaking Board, failed to issue tax deduction certificates to 162 employees within the prescribed time, resulting in a delay of 813 days. The Dy. CIT imposed a penalty of Rs. 1,31,70,600 for this failure.

2. Justification of the delay in issuing tax deduction certificates:
The appellant argued that they were unaware of the requirement to issue unified certificates in the new Form No. 16 due to lack of information and resources in their small town. The appellant's office issued certificates in the old forms, which had been accepted in previous years. The delay was attributed to the absence of an Income-tax Office or tax consultants in Phaltan, and the administrative challenges faced by the limited staff.

3. Consideration of ignorance of law as a reasonable cause:
The tribunal noted that the Supreme Court in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326 stated that there is no presumption that every person knows the law. The appellant's plea of ignorance was considered reasonable given the circumstances, including the lack of tax consultation facilities and the acceptance of old forms in previous years.

4. Computation of delay and the number of defaults:
The Dy. CIT computed the delay by considering each employee separately, resulting in 162 separate violations. The tribunal found this approach incorrect, stating that the appellant committed only one default by not issuing the TDS certificates in the new form. The computation of delay was thus deemed erroneous.

5. The proportionality of the penalty imposed:
The tribunal emphasized that penalty proceedings are quasi-criminal in nature and should consider the intention behind the default. The appellant's bona fide belief that the old forms were acceptable, coupled with the timely deposit of tax deducted at source, indicated a lack of contumacious or dishonest conduct. The imposition of a penalty amounting to Rs. 1,31,70,600 against a total tax deduction of Rs. 1,61,605 was deemed disproportionate and unwarranted.

Conclusion:
The tribunal concluded that the appellant was prevented by a reasonable cause from issuing the new Form 16 certificates and that the levy of penalty was not justified. The order of the revenue imposing the penalty was cancelled, and the appeal was allowed. The cross-objection by the revenue to support the CIT(A)'s decision was dismissed as it did not survive following the cancellation of the impugned order.