No penalty for deduction of TDS at Lower Rate under wrong section

IN THE INCOME TAX APPELLATE TRIBUNAL

The Relevant Text of the Order as follows :

9. We have heard rival contentions and perused the records placed before us. The sole grievance raised by all the three assessee(s) namely S/Shri Jitendra Sharma, Bharat Sharma and Shartrughan Sharma are against the finding of Ld. CIT(A) confirming the levy of penalty at Rs. 5,15,000/- to each u/s 271C of  the Act for low deduction of tax at source.

10. We observe that all three assessee(s) jointly planned to purchase an immoveable property valuing at Rs.75 lakhs. Consideration of Rs.25 lakhs each was paid by the buyers. Seller is the single person namely Shri Manish Gangwal. In the sale deed seller’s local address is of Uttar Pradesh and the present address is at Colorado, USA. As claimed by the Ld. Counsel for the assessee this transactions was carried out through broker. The copy of PAN card of the seller was given who himself was available at the time of transaction. In the PAN card address is mentioned. No other documentary evidence of the residential status of the seller was shown.

11. Though the provisions of Section 194(IA) of the Act relates to deduction of tax at source on payment for transfer of immoveable property other than agriculture land and refers to the payment made by person being a transferee to the respective transferer if the consideration for transfer of immoveable property is Rs.50 lakhs or more, in the instant case all the three assessee(s) individually were paying the consideration of Rs.25 lakhs only (which is less than Rs.50 lakhs) as mentioned in Section 194IA) of the Act but still being at a safer side they deducted tax at source @1% of the purchase consideration and deposited it.

12. We further observe that subsequently when proceedings were carried out u/s 201(1)/201(1A) r.w.s. 195 of the Act and respective assessee(s) were brought to the notice that the seller is a Non Resident Indian they bonafide deducted the TDS @20.6% (Tax + surcharge) of Rs. 5,15,000/- each on the payment of Rs.25 lakhs and also paid interest at Rs.1,03,000/- for the delay and in total all the three assessee(s) they deposited Rs. 6,18,000/- each before the conclusion of the proceedings and thus no demand was payable.

13. However Ld. A.O further initiated the proceedings u/s 271C for levy of penalty at Rs. 5,15,000/- in each of the case for low deduction of tax. Now the short issue remains is whether in these given circumstances as discussed above the Ld. A.O was justified in levying penalty on the assessee(s) u/s 271C of the Act.

14. Before proceeding further we will like to go through the finding of the Co-ordinate Bench of Mumbai in the case of DCIT V/s Sms India Ltd (supra) (2006) 7 SOT 424 Mum dated 30.11.2005 wherein similar issue has been dealt with respect to levy of penalty u/s 271C of the Act and the assessee had reasonable cause due to which there was short payment of tax and subsequently the assessee paid the remaining amount of short deducted tax and interest. The Hon’ble Tribunal decided in favour of the assessee confirming the finding of Ld. CIT(A) observing as follows :-

10. We have considered the submissions made by both the sides, material on record and orders of the authorities below. Admittedly, the assessee filed its annual salary return for each year in the prescribed forms within the time specified. It is also an admitted fact that in the earlier years the annual salary returns were accepted by the department as such. In the year under consideration the assessee was required to clarify the basis of deduction of tax under section 192 of the Act. It has been stated by the assessee’s counsel that at this point only the assessee took professional advice relating to deduction of tax at source and when advised to deduct the tax on impugned payments the assessee paid the short deducted tax and interest thereon voluntarily and filed revised annual salary returns for all four years. The assessing officer levied the penalty mainly on the ground that the deposits of the short deducted tax was made after initiation of the proceedings and therefore, the same was in voluntary and also relied on the principle that ignorance of law was no excuse. From the facts of the case it is observed that the assessee filed return for all years within the time and once the return for first year was accepted as such, the belief on the part of the assessee that he rightly deducted the tax got strengthened and the same practice continued till the assessee was advised professionally otherwise and this leads to obvious inference that when the assessee was confronted with this issue for the first time he immediately acted and rectified the same. Therefore, in our considered opinion bona fide belief in short deduction of tax coupled with voluntary compliance in the term of depositing the same immediately on coming to know the same would constitute reasonable cause. The assessing officer also gave a finding that ignorance of law is no excuse but simultaneously it is also true that there is no presumption that everyone knows the law. What is important is the fact that the moment a person comes to know that he has committed a mistake and being a person of reasonable intelligence and ordinary prudence if he takes the corrective measures to rectify the same immediately, then it cannot be said that he acted deliberately with complete disregard to law. There is also considerable force in the contention of the assessee that non-recording of satisfaction by assessing officer in the order under section 201(1) with regard to the fact that case is fit for levy of penalty makes the levy of penalty void ab initio. In view of above discussion and in the totality of facts and circumstances of the case we are of the considered opinion that the findings of learned Commissioner of Income Tax (Appeals) in his appellate order are in accordance with law and therefore, we uphold the order of learned Commissioner of Income Tax (Appeals). Thus, all grounds
of revenue in all appeals are rejected.

11. We have considered the submissions made by both the sides, material on record and orders of the authorities below. Admittedly, the assessee filed its annual salary return for each year in the prescribed forms within the time specified. It is also an admitted fact that in the earlier years the annual salary returns were accepted by the department as such. In the year under consideration the assessee was required to clarify the basis of deduction of tax under section 192 of the Act. It has been stated by the assessee’s counsel that at this point only the assessee took professional advice relating to deduction of tax at source and when advised to deduct the tax on impugned payments the assessee paid the short deducted tax and interest thereon voluntarily and filed revised annual salary returns for all four years. The assessing officer levied the penalty mainly on the ground that the deposits of the short deducted tax was made after initiation of the proceedings and therefore, the same was in voluntary and also relied on the principle that ignorance of law was no excuse. From the facts of the case it is observed that the assessee filed return for all years within the time and once the return for first year was accepted as such, the belief on the part of the assessee that he rightly deducted the tax got strengthened and the same practice continued till the assessee was advised professionally otherwise and this leads to obvious inference that when the assessee was confronted with this issue for the first time he immediately acted and rectified the same. Therefore, in our considered opinion bona fide belief in short deduction of tax coupled with voluntary compliance in the term of depositing the same immediately on coming to know the same would constitute reasonable cause. The assessing officer also gave a finding that ignorance of law is no excuse but simultaneously it is also true that there is no presumption that everyone knows the law. What is important is the fact that the moment a person comes to know that he has committed a mistake and being a person of reasonable intelligence and ordinary prudence if he takes the corrective measures to rectify the same immediately, then it cannot be said that he acted deliberately with complete disregard to law. There is also considerable force in the contention of the assessee that non-recording of satisfaction by assessing officer in the order under section 201(1) with regard to the fact that case is fit for levy of penalty makes the levy of penalty void ab initio. In view of above discussion and in the totality of facts and circumstances of the case we are of the considered opinion that the findings of learned Commissioner of Income Tax (Appeals) in his appellate order are in accordance with law and therefore, we uphold the order of learned Commissioner of Income Tax (Appeals). Thus, all grounds of revenue in all appeals are rejected.

15. From going through the above decision of Hon’ble Tribunal and examining the facts of instant case we find that this decision is squarely applicable on the facts of the instant case wherein also the assessee in addition to the tax deducted u/s 194(1A) @ 1% in addition also deposited deducted and deposited TDS u/s 195 of the Act along with the interest for delay.

16. Even otherwise in our view the provisions of Section 273B of the Act “the penalty is not to be imposed in certain cases” is applicable on the assessee as Section 273B of the Act contemplates that no penalty shall be imposable on the persons for any violation referred to in the said provisions (which in this case is Section 271C of the Act) if he proves that there was a reasonable cause for the said failure. In the case of the assessee(s) also when the transactions took place there was only copy of PAN card issued by Income Tax Department having no address. Seller came to India for registration. Seller has not provided any documentary evidence to show that he is a Non Resident Indian. Having local address in USA cannot be a sufficient evidence to show that the person is a Non Resident Indian. The assessee(s) prudently deducted tax @1% u/s 194 (1A) of the Act. Subsequently when it was brought to their notice that the seller is a Non Resident Indian they as law abiding citizens immediately deposited the correct amount of TDS @20.6% applicable on the said transaction u/s 195 of the Act along with interest in addition to 1% already deposited. Mens rea to evade tax is not appearing at any stage of the proceedings on the part of the assessee. It would have made no difference for them to deduct tax @1% or 20.6% since it was to be withheld from the purchase consideration. There cannot be any other mal intention for deduction of TDS at lower or wrong rate.

17. We therefore are of the considered view that in the given facts and circumstances of the case the assessee(s) are duly eligible to get the benefit of the provisions of Section 273B of the Act as they have proved beyond doubt that in a bonafide belief they deposited tax @1% u/s 194IA of the Act considering the seller as Resident Indian and later on before conclusion of the proceedings before the Ld. A.O have deposited correct amount of tax @20.6% and applicable interest. Thus they had a reasonable cause for the said failure and in addition the decision of Hon’ble Mumbai Tribunal in the case of SMS India Ltd (supra) also applies squarely on the case of the assessee. We thus set aside the finding of Ld. CIT(A) and direct the revenue authorities to delete the penalty of Rs.5,15,000/- levied u/s 271C of the Act in the case of all the three assessee(s). Thus Ground No.2 raised in all the 3 appeals are allowed.

18. The common Ground No.I referring to the action of Ld. CIT(A) of ex-parte dismissing the assessee(s) appeal and the request of restoring back for fresh hearings with Ld. CIT(A) have not been addressed by Ld. Counsel for the assessee which shows that all the three assessee(s) are not interested to press this ground, therefore this common ground No.I is dismissed as not pressed and ground No. IV is general in nature which needs no adjudication they are also.

19. In the result common grounds raised in Ground No. II & Ground III are allowed in case of all the assessee(s) and Ground No.I is dismissed as not pressed. All the three appeals (ITA No.500 to 502/Ind/2018) are partly allowed.

The order pronounced in the open Court on 14.10.2020.