2025 (5) TMI 1957 - AT - Income Tax

Assessee Wins Penalty Challenge Under Section 271(1)(c) Due to Absence of Notified Rules for Form 15CA Filing

Gopal Chandak Versus The Assistant Commissioner of Income Tax, Circle-1 (2), Surat.

Case Summary:The Tribunal addressed the penalty imposed under section 271(1)(c) for non-filing of Form 15CA during the assessment year 2016-17. The key ... Penalty levied u/s 271(1)(c) - outward remittances made to various companies at China but assessee has not furnished the necessary certificate i.e. Form No. 15CA in respect of all remittances made after the date 01.06.2015. HELD THAT:- As per the amended section 195(6) of the Income Tax Act amended w.e.f 01.06.2015 the remitter is required to furnish information relating to payment in such form and manner as may be prescribed. However, the form and the manner in which information was to be furnished has been notified w.e.f 01.04.2016. Assessee thus was under bonafide belief that the furnishing of information in Form 15CA by him was not required as the relevant Rule 37BB as existing during the relevant period, did not prescribe for furnishing of Form 15CA in respect of remittances not chargeable to tax. Under the circumstances, the action of the lower authorities in imposing the impugned penalty, when the corresponding Rules/Form/manner of furnishing of information was notified, is not justified. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this appeal is whether the penalty of Rs. 43,00,000/- levied under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter 'the Act') on the assessee for failure to furnish Form 15CA in respect of outward remittances made during the Assessment Year 2016-17 is justified, given the amendments to section 195(6) of the Act and the corresponding rules governing the filing of such forms.Specifically, the Tribunal examined:Whether the assessee was obligated to furnish Form 15CA for remittances made after the amendment of section 195(6) w.e.f. 01.06.2015, considering the relevant rules prescribing the form and manner of furnishing information were notified only from 01.04.2016;Whether the failure to furnish Form 15CA during the relevant period constitutes a willful default attracting penalty under section 271(1)(c) of the Act;The applicability and interpretation of the amended provisions of section 195(6) and Rule 37BB of the Income Tax Rules, 1962, vis-`a-vis the timing of notifications and the assessee's bona fide belief;The reasonableness and justification for confirming the penalty imposed by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].2. ISSUE-WISE DETAILED ANALYSISIssue: Obligation to furnish Form 15CA post amendment of section 195(6) and timing of Rule 37BB notificationRelevant legal framework and precedents: Section 195(6) of the Income Tax Act was amended by the Finance Act, 2015, effective from 01.06.2015. The amended provision mandates that any person responsible for paying to a non-resident (including foreign companies) any sum, whether or not chargeable to tax under the Act, shall furnish information relating to such payment in the prescribed form and manner. The relevant text of section 195(6) states:'...the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed...'Prior to this amendment, the obligation to furnish Form 15CA was limited to payments chargeable to tax. The corresponding Rule 37BB of the Income Tax Rules, which prescribes the form and manner of furnishing such information, was amended only w.e.f. 01.04.2016. Before this amendment, Rule 37BB mandated furnishing Form 15CA only for payments chargeable to tax.Court's interpretation and reasoning: The Tribunal noted that although the statutory provision (section 195(6)) was amended effective 01.06.2015 to broaden the scope of information to be furnished, the corresponding rules prescribing the form and manner of furnishing such information were not notified until 01.04.2016. Consequently, during the period between 01.06.2015 and 31.03.2016, the assessee was under a bona fide belief that Form 15CA was not required to be furnished for remittances not chargeable to tax, consistent with the unamended Rule 37BB and prevailing practice.The Tribunal emphasized that the assessee's reliance on the existing Rule 37BB and the absence of any demand from bank authorities for Form 15CA further substantiated this bona fide belief. The Tribunal held that the statutory obligation under section 195(6) to furnish information 'in such form and manner as may be prescribed' could not be enforced without the corresponding rules being notified.Key evidence and findings: The assessee made outward remittances for importing machinery from foreign countries, which were not chargeable to tax at the hands of the payee. The AO observed non-filing of Form 15CA for remittances made after 01.06.2015 and levied penalty under section 271(1)(c). The CIT(A) confirmed the penalty. The assessee contended that the relevant rules prescribing the form and manner were not notified at the time of remittances.Application of law to facts: The Tribunal applied the principle that a statutory obligation to furnish information in a prescribed form cannot be imposed in the absence of notified rules prescribing such form and manner. Since the rules were notified only from 01.04.2016, the assessee's non-filing of Form 15CA for remittances made between 01.06.2015 and 31.03.2016 was not a willful default.Treatment of competing arguments: The Revenue argued that the amendment to section 195(6) imposed a blanket obligation to furnish information irrespective of the chargeability of tax and that the assessee's failure to comply attracted penalty. The Tribunal rejected this argument, holding that the absence of notified rules during the relevant period meant the obligation was not enforceable. The assessee's bona fide belief and absence of demand from banks supported this stance.Conclusions: The Tribunal concluded that the penalty under section 271(1)(c) was not justified as the assessee was under bona fide belief that filing Form 15CA was not required in the absence of notified rules, and therefore, the default was not willful or deliberate.Issue: Justification of penalty under section 271(1)(c) for failure to furnish informationRelevant legal framework and precedents: Section 271(1)(c) of the Income Tax Act empowers the assessing authority to impose penalty for failure to furnish information or documents required under the Act, provided such failure is willful or deliberate. The penalty is discretionary and is not automatic.Court's interpretation and reasoning: The Tribunal observed that the assessee's failure to furnish Form 15CA was not due to willful neglect but arose from a bona fide interpretation of the law and rules as they existed at the time. The Tribunal reiterated that penal provisions must be applied strictly and not in a manner that penalizes honest mistakes or bona fide beliefs.Key evidence and findings: The assessee's conduct, including reliance on existing Rule 37BB and absence of any demand from banks for Form 15CA, demonstrated lack of deliberate default. The Tribunal found no evidence of mala fide intent or gross negligence.Application of law to facts: Applying the principle that penalty under section 271(1)(c) requires a willful default, the Tribunal held that the assessee's failure was not willful or deliberate but arose from a genuine misunderstanding of the applicability of the amended provisions in the absence of corresponding rules.Treatment of competing arguments: The Revenue's contention that the amendment to section 195(6) imposed an immediate obligation was countered by the Tribunal