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TMI Blog2014 (11) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... rtnership firm in which they are partners, can be considered as a “reasonable cause” in view of the legal position existing between a partner and the partnership firm - the explanation offered by the assessee fits in the category of “reasonable cause” in terms of sec.273B of the Act – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. - I.T.A No. 30 & 32/Coch/2013, I.T.A No. 31/Coch/2013, I.T.A No. 163 & 164 & 220/Coch/2013 - - - Dated:- 24-9-2014 - Shri N.R.S. Ganesan (JM) and Shri Chandra Poojari (AM),JJ. For the Appellants : Shri R Srinivasan For the Respondent : Smt. Latha V Kumar, Jr DR ORDER Per N.R.S. Ganesan (JM) All the appeals of the assessees relate to three independent assessees. ITA No.164/Coch/2013 is against the levy of interest u/s 201(1) 201(1A) for the assessment year 2009-10. All other appeals are with regard to levy of penalty u/s 271C for non deduction of tax at source on the interest payment to partnership firm. 2. Let us first take the appeal pertaining to levy of interest u/s 201(1) 201(1A) in appeal No.164/Coch/2013 in the case of Shri Thomas John Muthoot. 3. Shri R Srinivasan, the ld.represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip firm in which the assessee is a partner. For the purpose of convenience, we are reproducing the provisions of section 194A of the Act below: 194A. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section. 6. A bare reading of section 194A clearly says that any person not being an individual or HUF, who is responsible for paying to a resident any income by way of interest shall, at the time of credit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter. Therefore, the order of the lower authorities are set aside and the issue of non deduction of tax is remitted back to the file of the assessing officer to verify whether the recipient of the amount has already paid taxes or not including surcharge and thereafter decide the same in accordance with law after giving reasonable opportunity of hearing to the assessee in the light of the decision of this Tribunal in assessee s own case in ITA 383, 384 386 391/Coch/2011 order dated 12-10-2012. 10. Now coming to the remaining appeals which are in respect of levy of penalty u/s 271C, the ld.representative for the assessee, Shri R Srinivsan submitted that all the three assesees are partners in the partnership firm and the assessees paid interest to the partnership firm on the overdrawing / loan from the firm in which they are partners. The assessing officer found that the assessee has not deducted tax as required u/s 194A at the time of making payment. Accordingly penalty was levied u/s 271C of the Act. According to the ld.representative, the assessees were under the bona fide impression that they need not deduct tax. On an identical circumstance, this Tribunal in ITA No.385 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, if he proves that there was reasonable cause for the said failure. Now, the question that arises is whether the explanation given by the assessee can be considered as a reasonable cause in terms of sec.273B of the Act. The explanation of the assessees was that they were under the bonafide belief that they need not deduct tax at source on the interest paid by them to the partnership firm, as the firm is only a compendious expression for its partners and is 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 M/s Muthoot Financiers is reported in (2006) (286 ITR (AT) 71). The assessee has filed a copy of order dated 123- 09-2011 passed in the case of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences follow . 12. In the case of Muthoot Financiers (supra), the Tribunal had taken a view that the penalty should be avoided, if there is no loss to Revenue. In the instant case also, it is represented that the partnership firms has declared the interest paid by the assessees herein as its income and they were not liable to pay any tax, since the said partnership firm ended up with a loss. 13. If we consider the explanation furnished by the assesees, in the context of the legal decisions referred above, we are of the considered view that the belief entertained by the assessees that they were not liable to deduct tax at source on the interest paid by them to the partnership firm in which they are partners, can be considered as a reasonable cause in view of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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