2023 (9) TMI 1021 - AT - Income Tax

Penalty u/s 271C - TDS u/s 194H - assessee appoints the distributors for issuing and sale of pre-paid SIM card and recharge vouchers - proceedings u/s 201 201(A) initiated on failure on the part of the assessee to deduct tax on the amount allowed by the assessee to its distributors/dealers which in the opinion of the department was in the nature of commission - diversified views on issue - HELD THAT - There is no dispute that whether the transaction of allowing discount/commission to the distributors by the assessee as well as other telecom service providers for sale of SIM Card and pre-paid Recharge Vouchers would fall in the ambit of section 194H or not is a highly debatable issue as there are a series of decisions of this tribunal, as well as various High Courts on this point. Some of the judgment of Hon ble High courts are in favour of the assessee and some are in favour of the revenue upholding that the transactions of sale of SIM Card and Recharge vouchers are in the nature of sale and discount allowed by the assessee to the distributors is in the nature of commission attracting the provision of section 194H and consequently, the assessee was rightly held as deemed to be an assessee is in default as per the provision of section 201 of the Act. Similarly, a good number of other decisions have held that transaction in question does not fall in the ambit of section 194H and thereby the assessee was not liable to deduct TDS at source on these transactions. Apart from a series of decisions of this Tribunal there are divergent views of Hon ble High courts on this issue of liability of the assessee to deduct tax u/s 194H. It is undisputed fact that this is debatable issue having two possible views and the assessee was of the view that it was not under obligation to deduct tax at source as per the provisions of chapter XVII of Income Tax and particularly u/s 194H of the tax. This belief of the assessee is one of the possible view and therefore failure to deduct the tax at source in respect of the discount/commission allowed to the distributors in light of divergent decisions by the different High Courts as well as by the different benches of this Tribunal clearly established the genuine and bona fide decision of the assessee not to deduct tax u/s 194H. Hence there was a reasonable cause as provided u/s 273B of the Act to have not deducted TDS on these transactions. See SINGAPORE AIRLINES LTD. 2022 (11) TMI 783 - SUPREME COURT and GM. (TELECOM), BSNL 2014 (2) TMI 800 - ALLAHABAD HIGH COURT Thus penalty levied by the AO u/s 271C is not justified and liable to be deleted. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment order.
2. Violation of natural justice and fair play.
3. Ex-parte order by CIT(A).
4. Addition of interest paid to Hyundai Motor India Ltd.
5. Penalty under section 271C for non-deduction of TDS under section 194H.

Summary:

1. Validity of the Assessment Order:
The assessee contended that the assessment order was bad in law, perverse, based on irrelevant material, unreasonable, and involved misapplication of the law. However, the Tribunal did not find merit in these contentions and upheld the assessment order.

2. Violation of Natural Justice and Fair Play:
The assessee argued that the assessment order was passed without following the rule of natural justice and fair play, rendering it null and void. The Tribunal did not find sufficient grounds to declare the assessment order null and void on these bases.

3. Ex-Parte Order by CIT(A):
The assessee claimed that the CIT(A) passed an ex-parte order without allowing additional time, especially since the previous counsel did not attend the mail and the hearing date coincided with the Deepawali festival. The Tribunal noted these circumstances but did not provide relief based on this argument alone.

4. Addition of Interest Paid to Hyundai Motor India Ltd.:
The CIT(A) maintained the addition of Rs. 34,64,131/- on account of interest paid to Hyundai Motor India Ltd. The Tribunal upheld this addition, finding no error in the CIT(A)'s decision.

5. Penalty under Section 271C for Non-Deduction of TDS under Section 194H:
The primary issue was whether the discount allowed by the assessee to its distributors constituted commission, thereby attracting TDS under section 194H. The Tribunal acknowledged that this issue was highly debatable, with divergent views from various High Courts and pending adjudication before the Supreme Court. The Tribunal noted that the assessee had a bona fide belief that no TDS was required, supported by precedents like the Supreme Court's judgment in Singapore Airlines Ltd. vs. CIT and various High Court decisions. Consequently, the Tribunal found that the assessee had a reasonable cause under section 273B for not deducting TDS and thus deleted the penalty levied under section 271C.

Conclusion:
The Tribunal allowed the appeals of the assessee, particularly on the issue of penalty under section 271C, by recognizing the debatable nature of the issue and the bona fide belief of the assessee. The order was pronounced in the open court on 03.05.2023.