2011 (2) TMI 1430 - AT - Income Tax

Tax Tribunal Upholds Deletion of Penalty for TDS Non-Payment

ACIT (OSD), Circle- 9, Ahmedabad Versus M/s. Saraswati Construction Co.

The Tribunal confirmed the Commissioner of Income-tax (Appeals)'s decision to delete the penalty levied under Section 271(1)(c) of the Income-tax Act, ... Penalty levied u/s 271(1)(c) - disallowance u/s 040(a)(ia) for non payments of TDS - The brief facts leading to the issue are that assessee-firm is engaged in construction activities and it has filed it’s return income. The AO issued notice u/s.143(2) and during assessment proceedings he found that assessee had made TDS from gross contract payment to carting contractor. However, TDS amount was not deposited into govt. exchequer before expiry of time prescribed u/s 200(1). HELD THAT:- this is not allowable as deduction while computing the income chargeable under the head ‘profit & gains of business or profession’ for the year. We find from the orders of the lower authorities that there is no allegation that the payment of catering expenses on which TDS is deducted but not paid to Govt. exchequer is non-genuine or bogus. It is also a fact that the lower authorities have not brought anything or not disputed that the payment is excessive or unreasonable. The disallowance is simply made either for non-deduction of TDS in view of provisions of Section 040(a)(ia) or non-payment of TDS deducted to the govt. exchequer. In view of the above discussion, that the legal fiction created by Section 040(a)(ia) will not apply to the provisions of Section 271(1)(C), the disallowance made simply by invoking the provisions of Section 040(a)(ia) will not attract penalty for furnishing of inaccurate particulars of income because there is no inaccurate particulars of income in the return. Accordingly, we confirm the order of CIT(A) deleting the penalty and this issue of the Revenue’s appeal is dismissed. Issues Involved:1. Deletion of penalty levied under Section 271(1)(c) of the Income-tax Act, 1961, due to disallowance under Section 40(a)(ia) for non-payment of TDS on contract payments.Issue-wise Detailed Analysis:1. Deletion of Penalty Levied Under Section 271(1)(c) of the Income-tax Act, 1961The core issue in this appeal is the deletion of the penalty levied under Section 271(1)(c) concerning the disallowance made by the Assessing Officer under Section 40(a)(ia) for non-payment of TDS on contract payments to a carting contractor.Background and Facts:- The assessee, engaged in construction activities, filed its return of income declaring a total income of Rs. 36,24,921/-.- During the assessment proceedings, the Assessing Officer found that the assessee had deducted TDS of Rs. 18,115/- from a gross contract payment of Rs. 5,58,404/- but did not deposit the TDS amount into the government exchequer within the prescribed time.- Consequently, the Assessing Officer disallowed the amount of Rs. 5,58,404/- under Section 40(a)(ia) and added it back to the total income.- A penalty of Rs. 2,04,334/- was levied under Section 271(1)(c) for furnishing inaccurate particulars of income.Assessee's Argument:- The assessee argued that there was no deliberate concealment of income or furnishing of inaccurate particulars.- The delay in TDS payment was due to the harsh provisions of Section 40(a)(ia), which came into effect from the assessment year 2005-06.- The TDS amount was paid before the due date of filing the return.Assessing Officer's Stand:- The Assessing Officer rejected the assessee's argument, stating that the assessee, guided by a qualified Chartered Accountant, deliberately furnished inaccurate particulars of income.- The penalty was imposed as the assessee failed to disallow and add back the payment to the total income voluntarily.CIT(A)'s Findings:- The Commissioner of Income-tax (Appeals) deleted the penalty, stating that the technical breach of law did not warrant a penalty under Section 271(1)(c).- The CIT(A) emphasized that the TDS was deposited before the due date of filing the return.Tribunal's Analysis and Conclusion:- The Tribunal noted that the facts were undisputed regarding the deduction of TDS and its non-deposit within the prescribed time.- It was highlighted that there was no allegation of the payment being non-genuine or excessive.- The Tribunal emphasized that Section 40(a)(ia) creates a legal fiction for disallowance of expenditure but does not extend to invoking Section 271(1)(c) for penalty purposes.- Various judicial precedents were cited, establishing that legal fictions are limited to the purpose for which they are created and cannot be extended to other provisions.- The Tribunal concluded that the disallowance under Section 40(a)(ia) does not attract a penalty for furnishing inaccurate particulars of income as there were no inaccurate particulars in the return.- Thus, the Tribunal confirmed the CIT(A)'s order deleting the penalty and dismissed the Revenue's appeal.Judgment:- The Revenue's appeal was dismissed, and the order of the CIT(A) deleting the penalty was upheld.Order Pronouncement:- The order was pronounced in Open Court on 22/02/2011.