2015 (1) TMI 102 - HC - Income Tax

Effect of amendment to section 272A(2) w.e.f. 1.10.91 - Penalty for default towards filing of TDS return - Whether the Tribunal was justified in holding that penalty levied u/s 272A(2) (c) should be restricted to the amount to tax deductible at source by treating the amendment to the said provision as being clarificatory in nature Held that - The Tribunal rightly observed that the quantum of penalty must be determined by reference to the law as it stood when the offence or default was committed - the amendment brought about is purely procedural in nature providing for the machinery for having and collecting penalty - this amendment does not affect the very ingredients of the default contemplated u/s 206 - Since the appeal is a continuation of the original proceedings the amendment brought about was applicable to the facts of the case, benefit under the amendment was rightly made available to the assessee and the amount of penalty was rightly restricted to the amount of tax deducted at source thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
- Interpretation of penalty under Section 272A(2)(c) of the Income Tax Act
- Application of amendments to penalty provisions
- Consideration of clarificatory nature of amendments

Issue 1: Interpretation of penalty under Section 272A(2)(c) of the Income Tax Act
The appellant challenged the order passed by the Income Tax Appellate Tribunal, Ahmedabad, regarding the penalty levied under Section 272A(2)(c) of the Income Tax Act for the delay in filing the annual return in Form No.26A. The Tribunal upheld the penalty, considering the absence of a "reasonable cause" for the delay in filing the return. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to restrict the penalty to the amount of tax deducted at source, partially allowing the appeal. The Tribunal further affirmed this decision, emphasizing that the penalty should be limited to the TDS deductible amount. The appellant contested this decision, leading to the present appeal.

Issue 2: Application of amendments to penalty provisions
The Commissioner of Income Tax (Appeals) and the Tribunal considered the amendments to Section 272A of the Income Tax Act, particularly the proviso inserted with effect from 1.10.1991. They held that the amendment, which restricted the penalty to the amount of TDS deductible, was clarificatory in nature and applicable to pending cases. Citing Circular No.772 dated 23.12.1998 of the C.B.D.T. and relevant case laws, they justified the restriction of penalties to the TDS amount. The Tribunal concurred with this interpretation, dismissing the revenue appeals and upholding the orders of the lower authorities.

Issue 3: Consideration of clarificatory nature of amendments
In analyzing the amendments to Section 272A, the Tribunal found them to be procedural and aimed at alleviating hardship faced by taxpayers due to the previous provisions. They emphasized that the amendments did not alter the essence of the default under Section 206 and were applicable to ongoing proceedings. The Tribunal concluded that the appellant was rightly entitled to the benefit of the amendment, restricting the penalty to the tax deducted at source. The High Court agreed with this interpretation, dismissing the appeal and affirming the decision in favor of the assessee based on the clarificatory nature of the amendments.