Nagar Palika Parishad vs ACIT(TDS)

These appeals have been filed by the assessee against the orders of ld. CIT(A), Ghaziabad dated 28.06.2019.

Since, the issues involved in all these appeals are identical, they were heard together and being adjudicated by a common order.

In ITA No. 7399/Del/2019, following grounds have been raised by the assessee:

“1. That the provision of Section 271CA of the Income-tax Act, 1961 (the Act) in terms is not applicable to assessee’s case and consequently the penalty of Rs. 1,07,570/- as levied by the Assessing Officer and sustained by CIT (Appeals) is arbitrary, unjust and illegal.

2) That in the absence of any allegation that the assessee fails to collect/deduct the TCS/TDS, the provision of Section 271CA of the Act in terms is not applicable and consequently the penalty as levied by the Assessing Officer and sustained by CIT (Appeals) is invalid and bad in law.”

Owing to the legal issue involved, the additional grounds filed by the assessee are admitted.

In this case, the ITO (TDS), Ghaziabad has submitted a proposal dated 14.06.2018 for levy of penalty u/s 271CA of the Income Tax Act, 1961 as the assessee collector has not collected tax as required u/s 206C of the Income Tax Act, 1961. During the survey, the revenue noticed that the collector has not collected tax from source from the receipts on contract of parking u/s 206 of the Income Tax Act, 1961. Consequently, the Addl. CIT levied penalty u/s 271CA of the Income Tax Act. The ld. CIT(A) confirmed the action of the ld. Addl. CIT.

Heard the arguments of both the parties and perused the material available on record.

We find that the notice of penalty has been issued for levy of penalty u/s 271C and the penalty has been levied u/s 271CA. After listening to the argument of the ld. DR who passionately tried to convince the Bench that in fact the notice has been issued u/s 271CA but due to typographical error, the letter “A” stands omitted and hence the penalty notice must be treated as issued properly. However, we find that owing to the details in the penalty notice which mentions that there has been a “total short deduction of TDS” which proves that the penalty notice has been issued for default of TDS but not TCS.

Section 271C reads as under:

“Penalty for failure to deduct tax at source.

271C. (1) If any person fails to—

(a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or

(b) pay the whole or any part of the tax as required by or under—

(i) sub-section (2) of section 115-O; or

(ii) the second proviso to section 194B,

then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.”

Section 271CA reads as under:

“Penalty for failure to collect tax at source.

271CA. (1) If any person fails to collect the whole or any part of the tax as required by or under the provisions of Chapter XVII-BB, then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to collect as aforesaid.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.”

On the issue, we are guided by the judgment of Hon’ble High Court of Kerala in the case of Lakshadweep Development Corporation Ltd. Vs Addl. CIT (TDS) (411 ITR 213) held as under:

Head note

Section 271C of the Income-tax Act, 1961 - Penalty - For failure to deduct tax at source (Sub-sections (1)(a) and (1)(b)) - Whether there being specific extent and application stipulated under section 271C(1)(a) and 271C(1)(b) for imposition of penalty for omission (i) to deduct tax at source and (ii) in not remitting tax deducted at source separately, it could not be said that section 271C(1)(b) will take in section 271C(1)(a) as well, to attract penalty for non-payment of tax deducted at source - Held, yes - Whether non-payment of tax which was deducted in terms of sub-section (2) of section 115-0 or covered by 'second proviso' to section 194B alone would constitute an instance where penalty can be imposed in terms of section 271C(1)(b) - Held, yes - Whether therefore, non-remittance of tax deducted under section 194C of Chapter XVIIB is not covered by section 271C(1)(b) to attract penalty - Held, yes [Paras 37, 43 and 44]

“37. Section 271C of the Income Tax Act is quite categoric. Its scope and extent of application is discernible from the provision itself, in unambiguous terms. When the non-deduction of the whole or any part of the tax, as required by or under the various instances/provisions of Chapter XVII-B would invite penalty under Clause 271C(1)(a); only to a limited extent, involving sub-section (2) of Sec.115-O (coming under Chapter XIID) or covered by the 'second proviso' to Section 194B (coming under Chapter XVIIB) alone would constitute an instance where penalty can be imposed in terms of Section 271C(1)(b) of the Act. Since there is no obscurity in the above provision, it is not for the Court to read something more into it, contrary to the intent and legislative wisdom, which stands to be a forbidden field for the Court. It is settled law that the rule of 'strict interpretation' is the relevant one in so far as the fiscal statute is concerned. We find support from the ruling rendered by the Apex Court in Sneh Enterprises v. Commissioner of Customs, 2006 taxmann.com 1512 (SC).

The Division Bench of this Court in U.S Technologies International (P.) Ltd. (195 taxmann 323), despite the specific extent and application stipulated under Section 271C(1)(a) and 271C(1)(b) for imposition of penalty for omission (i) to deduct tax at source and (ii) in not remitting the tax deducted at source separately, to the specified extent and within the boundaries mentioned therein held that the circumstances under Section 271C(1)(a) can be read into Section 271C(1)(b). Whether such 'reading into' the provision is possible or permissible in a 'fiscal statute' is an important question.

…………….

Coming back to the case in hand, despite the fact that Section 271C(1)(b) is quite clear and unambiguous, the learned Judges, while declaring law in U.S. Technologies International (P.) Ltd. case (cited supra) simply read 271C (1)(a) into Section 271C(1)(b), which is not correct and stands contrary to the dictum laid down by the Apex Court.

In the light of the above discussion, the Reference is answered as follows:

The finding of the Division Bench in U.S. Technologies International Pvt. Ltd. (supra) and Classic Concepts Home India Pvt. Ltd. (supra) to the effect that Section 271C(1)(b) will take in Section 271C(1)(a) as well, to attract penalty for non-payment of the tax deducted at source, does not reflect the correct provision of law. They stand overruled.

The finding and reasoning in U.S. Technologies International Pvt. Ltd (supra) and Classic Concepts Home India Pvt. Ltd. (supra) that the benefit of waiver/reduction of penalty [once good and sufficient reason is established in terms of Section 273B of the Income Tax Act] is not attracted in a case covered Section 271C(1)(b) (involving failure as to non-deposit of the tax deducted at source) is not correct. It also stands overruled.”

In the instant case, it is hereby reiterated that owing to the judgment of the penalty notice has been in the case of Lakshadweep Development Corporation Ltd. Vs Addl. CIT (TDS) which has over ruled the finding of the Division Bench in the case of U.S Technologies International (P.) Ltd. case (supra), penalty levied u/s 271CA after issuing notice u/s 271C cannot be held to be legally valid.

In the result, the appeals of the assessee are allowed. Order Pronounced in the Open Court on 07/12/2022.