No penalty U/s. S. 271(1)(c) for disallowance U/s. 40(a)(i) if TDS deducted next year

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INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI

BEFORE SHRI I. P. BANSAL, J. M. AND SHRI SANJAY ARORA, A. M.

I.T.A. No. 2415/Mum/2011
Assessment Year: 2003-04)

Dynatron Private Limited.

Vs.

Dy. CIT, Range 8(1), Mumbai

Appellant by : Shri Ajay R. Singh

Respondent by : Mrs. R. M. Madhavi

Date of Hearing : 14.05.2013

Date of Pronouncement : 29.05.2013

 

Merely because a claim (per the return of income) is a legal claim, or has a legal aspect to it – which would be in each case – the same by itself cannot be a cause for non levy of penalty in every case, as where there is no valid basis for the same (i.e., the legal claim). That is, the claim must rest on some reasonable premises or basis, i.e., have some basis to it. In CIT vs. Escorts Finance Ltd. [2010] 328 ITR 44 (Del), the hon’ble court found the assessee’s claim u/s.35D, said to be based on the opinion of its Chartered Accountant, a tax expert, as without basis in view of the clear language of the provision, extending the benefit of the said deduction to an industrial company, while the assessee-respondent was admittedly a finance company. In CIT vs. Zoom Communication (P.) Ltd. [2010] 327 ITR 510 (Del.), the claim was qua income-tax, barred by section 40(a)(ii), so that the plea of ‘omission’ was considered as not acceptable. In CIT vs. Usha International Limited [2013] 214 Taxmann.com 519 (Del), again, the claim was u/s.35CCA, which was found as de hors any basis. Penalty u/s.271(1)(c) of the Act was accordingly confirmed in all these cases by the hon’ble court, confirming thus that furnishing of a plausible explanation for default continues to be the building block or an essential ingredient for saving levy penalty u/s.271(1)(c) of the Act, and would apply even in respect of legal claims and, further, even after the decision in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC), which decision was considered in these cases.So, however, in the instant case, the deposit of TDS subsequently would operate as a mitigating factor. Though admittedly of little consequence in-so-far as the claim for deduction (as made per the return of income) for the relevant year is concerned in view of the clear language of the provision, it serves as a substantial compliance thereof. No doubt, it does not explain the basis of the claim for the current year; the provision itself providing for the contingency and consequence of delayed payment, deferring the claim to the year of actual payment – the fact remains that the deduction becomes exigible for the subsequent year. The terms of section are thus, as afore-noted, not absolute, so as to render the subsequent payment of TDS as of no consequence. The assessee would be entitled to claim the deduction for the immediately succeeding year, and which it has ostensibly not. In terms of the provision itself, therefore, it becomes a case of satisfaction of the principal condition for deduction, i.e., the payment of TDS, though subsequently. It is this that prompted us to state of the provision as having been substantially complied with. It would decidedly be a different matter if the provision made no such exception, as in that case there would be no question of the principal condition of the payment having been met and, thus, of the assessee being substantially compliant. This, therefore, serves as a valid explanation under Explanation (1B) to section 271(1)(c).

We may also, before parting, state that though the assessee may not have explained its case in this manner; the counsel, rather, misleading the court, the same is firstly borne out of the relevant law as well as the assessee’s conduct; it stating the primary facts in the course of the assessment proceedings itself, and on which no doubt has been expressed by the Revenue at any stage. In our clear view, therefore, this is not a fit case for levy of the penalty u/s. 271(1)(c) qua the non deduction of tax on the FTS payment of Rs. 4,52,538/-.