TaxTMI 
TaxTMI 
2010 (12) TMI 272
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....ection 133A was carried out by the department on 2.9.2004. It was noted by the survey officers that assessee has not deducted the tax on remuneration paid to the directors as under :-Asst. Year 2003-04 Sl. No. Name of the directors Amount paid (Rs.) Tax (Rs.) 1. Shri Rameshchandra M. Shah 12,00,000 3,50,000 2. Shri Manharlal M. Shah 6,00,000 1,61,700 Asst. Year 2004-05 Sl. No. Name of the directors Amount paid (Rs.) Tax (Rs.) 1. Shri Rameshchandra M. Shah 12,00,000 3,67,400 2. Shri Manharlal M. Shah 2,17,516 40,156 The AO accordingly initiated penalty proceedings under section 271C. It was explained to the AO that the two directors had given a declaration to the company to the effect that they will pay the advance-tax and, therefore, TDS should not be made from the payments of remuneration to them. The advance tax was paid accordingly. Since there was no loss of revenue penalty under section 271C cannot be levied on them. The assessee also relied on the judgment of the Tribunal in the case of Wipro GE Medical Systems Ltd. (2005) 3 SOT 627(Bang.) and the decision of the Hon. Delhi High Court in the c....
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....0.11.2003 1,00,000 29,951 20.12.2003 1,00,000 29,951 2,00,000 15.12.2003 31.1.2004 1,00,000 29,951 28.2.2004 1,00,000 29,951 31.3.2004 1,00,000 29,951 2,10,000 15.3.2004 Total 12,00,000 2,54,612 4,10,000 Therefore, if taxes are paid as advance tax then company should not be held liable for not deducting tax at source. The ld. CIT(A), however, did not agree. According to him the letters submitted by the directors were only of intention to pay the tax and it was not a confirmation of having paid tax. Secondly, if letters issued by the payee for not deducting the tax is accepted as a reasonable cause then provisions of Chapter XVII-B would become redundant. The ld. CIT(A) in this regard held as under:- "It has been held in the above referred Tribunal decision that levy of penalty under section 271C for failure to deduct tax at source is not automatic and absence of reasonable cause has to be established before levy of such penalty. It is therefore to be seen that whether non-TDS on the basis of Chapt. XVII-B copy of the letters of directors can ....
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....r the fact that there has been default in compliance nor it would mitigate the offences. It should also be seen that the liability arose on each payment which remained due for months till the advance tax was paid in December and March. To that extent the Government was deprived of its due. Interest charged, if any, on delayed payment only partly compensates the monetary loss. It does not take care of defiance/violation of law without reasonable cause. In the instant case, the letter given by the Director cannot be considered as reasonable cause. Considering the above facts, I hold that the penalty has been correctly levied in this case." He accordingly confirmed the levy of penalty. 4. Before us, the ld. AR for the assessee primarily raised the same arguments as he had taken before the ld. CIT(A). In brief they are - (1) It is only a technical or venial breach of the provisions and assessee was under bona fide belief that on the strength of letters received from the directors, company is not liable to deduct the tax. (2) Once tax demand is paid by the recipients then there is no reason to levy the penalty under section 271C as there is no loss of Revenue ....
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....t case. The liability of the company to deduct tax from the payment made to the directors is not disputed but recourse is taken to reasonability of the explanation which in our view is not. The statute provides three methods of collection of taxes during the Financial Year. One is the advance-tax which is provided under sections 207 to 211. The second is collection of taxes at source which is provided under sections 206 to 206CA and the third is deduction of tax at source which is provided u/ss 192 to 206. In sequence under Chapter XVII-B it is first the deduction of tax at source, second it is collection of tax at source and the third is the advance-tax. Section 209(1)(d) really provides that advance-tax would be paid out of tax payable in the Financial Year after reducing therefrom tax deductible and the tax collectible at source during Financial Year under any provisions of the Act. For the sake of convenience we reproduce section 209(1)(d) as under:- "Section 209[(1) The amount of advance tax payable by an assessee in the financial year shall subject to the provisions of sub-sections (2) and (3) be computed as follows namely - (a) ................ (b) .........