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TMI Blog2010 (12) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2.9.2004. It was noted by the survey officers that assessee has not deducted the tax on remuneration paid to the directors as under :-Asst. Year 2003-04 Sl. No. Name of the directors Amount paid (Rs.) Tax (Rs.) 1. Shri Rameshchandra M. Shah 12,00,000 3,50,000 2. Shri Manharlal M. Shah 6,00,000 1,61,700 Asst. Year 2004-05 Sl. No. Name of the directors Amount paid (Rs.) Tax (Rs.) 1. Shri Rameshchandra M. Shah 12,00,000 3,67,400 2. Shri Manharlal M. Shah 2,17,516 40,156 The AO accordingly initiated penalty proceedings under section 271C. It was explained to the AO that the two directors had given a declaration to the company to the effect that they will pay the advance-tax and, therefore, TDS should not be made from the payments of remuneration to them. The advance tax was paid accordingly. Since there was no loss of revenue penalty under section 271C cannot be levied on them. The assessee also relied on the judgment of the Tribunal in the case of Wipro GE Medical Systems Ltd. (2005) 3 SOT 627(Bang.) and the decision of the Hon. Delhi High Court in the case of Azadi Bachao Andolan v. Union of India 160 Taxman 249. The AO further gave opportunity to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax then company should not be held liable for not deducting tax at source. The ld. CIT(A), however, did not agree. According to him the letters submitted by the directors were only of intention to pay the tax and it was not a confirmation of having paid tax. Secondly, if letters issued by the payee for not deducting the tax is accepted as a reasonable cause then provisions of Chapter XVII-B would become redundant. The ld. CIT(A) in this regard held as under:- "It has been held in the above referred Tribunal decision that levy of penalty under section 271C for failure to deduct tax at source is not automatic and absence of reasonable cause has to be established before levy of such penalty. It is therefore to be seen that whether non-TDS on the basis of Chapt. XVII-B copy of the letters of directors can be considered as a reasonable cause. Chapt. XVII-B of the Act does not give this option to the payer. A liability has been cast on the payer of the amount to deduct the tax as prescribed. If he does not deduct the amount of tax the penalty is imposed unless he shows reasonable cause for non-deduction. A letter from the recipient that the payer may not deduct the tax because the reci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not take care of defiance/violation of law without reasonable cause. In the instant case, the letter given by the Director cannot be considered as reasonable cause. Considering the above facts, I hold that the penalty has been correctly levied in this case." He accordingly confirmed the levy of penalty. 4. Before us, the ld. AR for the assessee primarily raised the same arguments as he had taken before the ld. CIT(A). In brief they are - (1) It is only a technical or venial breach of the provisions and assessee was under bona fide belief that on the strength of letters received from the directors, company is not liable to deduct the tax. (2) Once tax demand is paid by the recipients then there is no reason to levy the penalty under section 271C as there is no loss of Revenue (3) Penalty can be imposed only for deliberate defiance of law or where assessee is guilty of contumacious conduct. (4) Assessee has a reasonable cause in the sense that assessee has received letters from the directors that they will pay the advance-tax. (5) Advance taxes have been paid by the directors on due date. They have made the compliance and, therefore, no penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sections 206 to 206CA and the third is deduction of tax at source which is provided u/ss 192 to 206. In sequence under Chapter XVII-B it is first the deduction of tax at source, second it is collection of tax at source and the third is the advance-tax. Section 209(1)(d) really provides that advance-tax would be paid out of tax payable in the Financial Year after reducing therefrom tax deductible and the tax collectible at source during Financial Year under any provisions of the Act. For the sake of convenience we reproduce section 209(1)(d) as under:- "Section 209[(1) The amount of advance tax payable by an assessee in the financial year shall subject to the provisions of sub-sections (2) and (3) be computed as follows namely - (a) ................ (b) ................ (c) ................ (d) the income-tax calculated under clause (a) or clause (b) or clause(c) shall, in each case, be reduced by the amount of income-tax which would be deductible[or collectible] at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enhancing the extent of default of the payer who cannot have any control over the conduct of the payee in making good of the payment of taxes or otherwise. 8. Even though it is not disputed that levy of penalty is not automatic but where a cause is shown which results in making the entire provisions of deduction of tax redundant, and would create a precedence for enabling the payers not to deduct taxes cannot be said to be satisfactory. An explanation for default is highly individualistic should confine to the facts and circumstances of that case and should be seen as satisfactory only in the factual matrix of that case. It is an explanation in personem not an explanation in rem. Any explanation in rem like in the present case and which has very wide repercussion against statutory scheme cannot be accepted as satisfactory. 9. The judgments relied upon by the ld. AR are rendered on the facts of those cases and explanations in them are accepted as satisfactory under the peculiar circumstances of those cases. They are explanation in personem and therefore, there cannot be any quarrel with the decisions given in those cases. But the factual matrix in the present case is different and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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