2013 (8) TMI 599 - HC - Income Tax

High Court Upholds Penalty Deletion Decision in Income Tax Case

The High Court upheld the ITAT's decision to delete a penalty of Rs.34,30,000/- under Section 272-B of the Income Tax Act, 1961 for the assessment year ... Discretionary imposition of penalty under section 272-B - reasonable cause under section 273-B - obligation to intimate PAN under section 139A(5A) - obligation to quote PAN by deductor under section 139A(5B) - application of Hindustan Steels principle on penaltiesObligation to intimate PAN under section 139A(5A) - obligation to quote PAN by deductor under section 139A(5B) - reasonable cause under section 273-B - Whether the assessee was liable to penalty under section 272-B for non-mentioning of PAN in Form 16A where certain deductees had not intimated their PAN to the deductor - HELD THAT: - Section 139A(5A) places the duty on the person receiving payment (the deductee) to intimate his PAN to the person responsible for deducting tax, while section 139A(5B) obliges the deductor to quote the PAN in specified documents. The record in this case shows that certain contractors did not intimate their PAN to the respondent-assessee and, therefore, the deductor could not quote PAN in Form 16A. Section 272B imposes a penalty for failure to comply with section 139A but must be read with section 273B which relieves liability where reasonable cause is shown. The Tribunal found (and this Court agrees) that the defaults were technical, not contumacious or fraudulent, there was no loss of revenue, and the assessee had otherwise complied with TDS obligations (deduction, deposit, returns and issuance of certificates). On these facts the assessee established reasonable cause under section 273B and the discretionary penalty under section 272B was not warranted.Penalty under section 272-B deleted as reasonable cause under section 273-B was established for non-mentioning of PAN where deductees had not intimated their PAN.Discretionary imposition of penalty under section 272-B - application of Hindustan Steels principle on penalties - Whether the principle laid down in Hindustan Steels Ltd. concerning imposition of penalties is applicable to penalty under section 272-B - HELD THAT: - Penalty for failure to perform a statutory obligation is a discretionary, quasi-criminal measure and will not ordinarily be imposed unless the party acted deliberately in defiance of law or was guilty of contumacious, dishonest or conscious disregard of obligation. Section 272B uses the word 'may' and must be construed with section 273B's requirement of reasonable cause; thus the Hindustan Steels principle that technical or venial breaches or breaches flowing from bona fide belief do not ordinarily attract penalty is applicable. Applying that principle to the facts-technical breach, absence of intention, and no revenue loss-the Tribunal correctly relied on Hindustan Steels to set aside the penalty.Hindustan Steels principle is applicable; discretionary penalty under section 272-B should not be imposed for a technical, non-fraudulent breach where reasonable cause is shown.Final Conclusion: The order of the Income Tax Appellate Tribunal deleting the penalty imposed under section 272-B for assessment year 2003-04 is upheld; both substantial questions are answered in favour of the assessee and the revenue's appeal is dismissed. Issues Involved:1. Justification of penalty deletion under Section 272-B.2. Applicability of the Hindustan Steels Ltd. Vs. State of Orissa decision.Issue-wise Detailed Analysis:1. Justification of Penalty Deletion under Section 272-B:The appeal was filed by the revenue against the ITAT's decision to delete a penalty of Rs.34,30,000/- under Section 272-B of the Income Tax Act, 1961, for the assessment year 2003-04. The respondent-assessee, a public sector undertaking, deducted and deposited tax at source as per Sections 194-C and 194-J but failed to mention the PAN of 350 contractors in Form-16A. The Additional Commissioner imposed a penalty, which was upheld by the CIT (Appeals) but reduced for defaults prior to the introduction of Section 272-B. The ITAT, however, deleted the penalty, noting that the assessee had complied with other statutory requirements and that the omission was due to contractors not providing their PANs, which constituted a technical error. The High Court upheld the ITAT's decision, emphasizing that Section 272-B is discretionary and can be waived if reasonable cause is shown, as per Section 273-B.2. Applicability of the Hindustan Steels Ltd. Vs. State of Orissa Decision:The revenue contended that the Supreme Court's decision in Hindustan Steels Ltd. Vs. State of Orissa was inapplicable. However, the High Court found that the principles from Hindustan Steels Ltd. were relevant. The Supreme Court had held that penalties should not be imposed for technical or venial breaches or when the breach arises from a bona fide belief. The High Court noted that the respondent-assessee had no contumacious or fraudulent intent, and the omission did not result in any revenue loss. Therefore, the penalty was not justified, aligning with the Supreme Court's stance that penalties should be imposed judiciously and not merely because it is lawful to do so.Conclusion:The High Court concluded that the ITAT's order did not suffer from any legal or factual errors. The deletion of the penalty was upheld, and both questions of law were answered in favor of the assessee and against the revenue. The appeal was dismissed without any order as to costs.