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TMI Blog2013 (12) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... facts, they were heard together and are being disposed of by this common order. 2. The facts relating to the issue, which are common in both the appeals, are stated in brief. Both the assessees are partners in a firm called M/s Muthoot Estate Investments. They have drawn funds from the said firm over and above their respective capital and hence both the assessees were constrained to pay interest to the firm on their amount of over drawings. The assessee named Shri Thomas Muthoot paid a sum of Rs.1.39 crores and the other assessee named Shri Thomas John Muthoot paid a sum of Rs.6,28,28,000/- as interest to the above said partnership firm. Both the assessees did not deduct tax at source on the interest paid by them to the above said partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plea of ignorance of law is not acceptable. The Ld CIT(A) upheld the decision of the Joint Commissioner that there was no reasonable cause for the failure to deduct tax at source. With regard to the cancellation of penalty that was levied in the hands of the sister concerns, the Ld CIT(A) observed that the assessee has failed to give any explanation as to why the assessees did not follow the observations made by the appellate authorities that such default should not be repeated. Accordingly, the Ld CIT(A) upheld the penalty levied in the hands of both the assessees. Aggrieved by the orders passed by Ld CIT(A), both the parties are in appeal before us. 4. The Ld Counsel for the assessee submitted that the partners and the partnership firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship firm to its partners. No such exemption is provided for the interest paid by a partner to the partnership firm in which he is a partner. The assessees herein are assisted by a Chartered Accountant and further, they were aware of the liability to deduct tax at source, since the department had already imposed similar penalties in the hands of the sister concerns. Hence, the assessee cannot plead ignorance of law. She further submitted that the partnership firm and the partners are two different "persons" under the Income tax Act. Hence the explanations given by the assessee cannot be considered as a "reasonable cause" in terms of sec. 273B of the Act. 6. We have heard the rival contentions and carefully perused the record. The penalty u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not a legal entity though it is a separate taxable entity. 8. The tax authorities have dismissed the said explanation on the ground that these assessees were aware of the fact that similar penalties were levied on the sister concerns and further they were assisted by a Chartered Accountant. Apparently, the tax authorities have referred to the penalty u/s 271C levied on the sister concerns viz., M/s Muthoot Financiers and M/s Muthoot Bankers. Both the cases came up before the Tribunal and the Tribunal has deleted the penalty levied u/s 271C of the Act in both the hands. The case of ITO v. Muthoot Financiers [2006] 103 ITD 108 (Cochin). The assessee has filed a copy of order dated 13-09-2011 passed in the case of Muthoot Bankers in ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 850 (AP)(FB). At page 890, the Hon'ble High Court has observed as under:- "It may also be emphasised that, having regard to the penal consequences, the expression "reasonable cause" has to be liberally construed in favour of the assessee. Identical views have been expressed by other High Courts also in the following cases:- (a) Saurashtra Cement & Chemical Industries Ltd v. CIT [1978] 115 ITR 27 (Guj) (b) Nemichand Ganeshmal v. CIT [1980] 124 ITR 438 (MP) (c) CIT v. Patram Dass Raja Ram Beri (1981)(132 ITR 671)(P&H 11. The Hon'ble Delhi High Court has explained the term 'reasonable cause' as under in the case of Woodward Governor Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner and the partnership firm. As stated earlier the partners and partnership firm are not two different legal entities, though they are two different taxable entities. Further, it is stated that the partnership firm, which received interest from the assessees herein have duly included the same in its return of income filed before the department and the said partnership firm was not liable to pay any tax, since it declared loss. Hence, as observed in the case of M/s Muthoot Financiers, no loss is caused to the revenue. 14. In view of the foregoing discussions, we are of the view the explanation offered by the assessee fits in the category of "reasonable cause" in terms of sec. 273B of the Act. Accordingly, we set aside the orders passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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