2002-VIL-179-ITAT-BLR

Equivalent Citation: TTJ 081, 887,

Income Tax Appellate Tribunal BANGALORE

Date: 30.08.2002

WIPRO FINANCE LTD.

Vs

INCOME TAX OFFICER.

BENCH

Member(s)  : G. S. PANNU., N. R. S. GANESAN.

JUDGMENT

These two appeals are by the assessee against the order of the CIT(A) in ITA No. 7/TDS/CIT(A)V/2001-02, dt. 28th Nov., 2001, pertaining to the asst. yr. 2000-01. The grievance of the assessee in the two appeals relates to the levy of interest under s. 201(1A) and penalty under s. 271C pertaining to asst. yr. 2000-01. Since these appeals in respect of an assessee involve common issues, they were taken up for hearing together and a consolidated order is being passed for the sake of convenience and brevity.

ITA No. 833/Bang/2001:

2. The grievance of the assessee in this appeal is against the levy of interest under s. 201(1A). Before we advert to the rival arguments, it would be appropriate to refer to the facts and background giving rise to the appeal before us. The assessee-company is a subsidiary of M/s Wipro Ltd. It appears that the company credited an income of Rs. 6,51,74,974 representing interest to the account of Wipro Ltd., as on 31st March, 2000. The assessee was required to deduct tax at source on such income in terms of the provisions contained in s. 194A. However, the assessee did not deduct the tax at source. The AO enquired from the assessee the reasons for such non-deduction. It was, in turn, pleaded by the assessee that the required tax deduction at source was not made as the recipient holding company, Wipro Ltd., had promised to furnish an exemption certificate in terms of s. 197(1) of the Act. Subsequently, such certificate was not furnished by the recipient-company, but it claimed that an adequate amount of tax was deposited with the Government before April, 2000. On this basis, if was argued that the recipient-company had complied with the requirements of s. 191 of the Act for having made good the default of the assessee is not deducting the tax at source. The assessee also submitted that as the impugned interest income has been credited to the account of the recipient on the last day of the accounting year, therefore, in accordance with r. 30(1)(b)(i) of IT Rules, 1962, the assessee had time till 31st May, 2000, to deposit the same with the exchequer, whereas the recipient had deposited a sum of Rs. 7.92 crores on 28th April, 2000, itself, thereby mitigating the default on the part of the assessee and, therefore, it should not be treated as an assessee-in-default either under s. 201(1) or under s. 201(1A) of the Act. However, the aforesaid pleas of the assessee were rejected by the AO and interest in terms of s. 201(1A) of the Act was charged for the period starting from the date on which it was deductible, i.e., 31st March, 2000, up to the date of passing of order under ss. 201 and 201(1A), dt. 30th March, 2001. However, the assessee was not treated in default in terms of s. 201(1). The matter was carried in appeal before the first appellate authority who has modified the action of the AO. Substantively, it was held by the first appellate authority that the assessee was indeed deemed to be on assessee-in-default under s. 201(1A) but restricted the levy of interest up to the date of filing of the return by the recipient holding company. Presently, the assessee is in appeal before the aforesaid findings of the first appellate authority.

3. At the time of hearing before us, the learned counsel appearing on behalf of the assessee advanced detailed arguments against the levy of interest. At the out set, it was submitted that the assessee had not been treated as an assessee-in-default under s. 201(1) of the Act on the plea that the required amount of tax has been paid by the recipient and, therefore, no further liability remained against the assessee. The learned counsel submitted that if on one hand the assessee was not treated as an assessee-in-default under s. 201(1), the same logic should apply while evaluating the conduct of the assessee for levy of interest under s. 201(1A).

3(i). It was also submitted that the recipient holding company had paid advance tax of Rs. 8.47 crores on 16th March, 2000, and a further tax of Rs. 7.92 crores on 28th April, 2000. The recipient-company had claimed refund of the amount of tax which was higher than the tax that was required to be deducted at source by the assessee amounting to Rs. 1,43,38,494. Accordingly, it was submitted that the tax that was required to be deducted at source by the assessee was indeed lower than the amount of refund accruing to the recipient-company. Thus it could be taken to mean that the exchequer did not stand to lose in terms of collection of tax. It was argued that the due date of deposit of tax deductible by the assessee in the instant case was 31st May, 2000, while factually it could be appreciated that the impugned amount deposited with the Government on 16th March, 2000, and if not so, latest by 28th April, 2000, wherein an amount of Rs. 7.92 crores was paid, the only difference being that the said amount was deposited by the recipient of the income instead of the assessee itself.

3(ii). It was further submitted by the learned counsel that the levy of interest under s. 201(1A) is to be regarded as compensatory in nature. The objection being to compensate the exchequer for the delay in depositing and for withholding the taxes which ought to have been deposited with the Government before the specified dates. Ostensibly, it was submitted that on the due date of 31st May, 2000, there was no amount left to be paid by the assessee as the same was paid by the recipient and that also within the time prescribed under law, hence, the assessee could not be deemed to have been in default in terms of s. 201(1A). The counsel for the assessee placed heavy reliance on the decision of the 'E' Bench of the Delhi Tribunal in ITO vs. Sood Enterprises (1992) 41 ITD 234 (Del) in support of his submissions. He also placed reliance on the decision of the High Court of Madhya Pradesh in CIT vs. New India Assurance Co. Ltd. (1983) 33 CTR (MP) 248 : (1983) 140 ITR 818 (MP) as also CIT vs. LIC (1986) 52 CTR (MP) 278 : (1987) 166 ITR 191 (MP) and CIT vs. M.P. State Co.op. Development Bank Ltd. (1982) 31 CTR (MP) 187 : (1982) 137 ITR 230 (MP) in support of his submissions.

3(iii). Without prejudice to the above, an argument was advanced by the counsel for the assessee to the effect that the interest charged by the AO being up to the date of passing of the order which has been modified by the CIT(A) as being chargeable up to the date of filing of the return by the recipient-company, was fallacious. He submitted that the provisions of s. 201(1A) required an assessee to pay interest at the specified percentage on the amount of such tax starting from the date on which it was deductible and up to the date on which it had actually been paid. It was submitted that as the assessee had paid the tax by 28th April, 2000, a date falling within the period allowed by the statute for deposit of tax, no interest would be levied.

4. On the other hand, the learned Departmental Representative, defended the orders of the lower authorities at length. At the outset, it was argued by him that having regard to the intent and purpose of s. 201(1A), the levy of interest has to be taken as not only compensatory but mandatory also and that the taxing authorities do not have a liability to consider any reasonable cause for non-payment or late payment of the taxes under Chapter XVII-B of the Act. The learned Departmental Representative has heavily relied upon the decision of the Hon'ble Kerala High Court in CIT vs. Dhanalakshmi Weaving Works (2000) 160 CTR (Ker) 374 : (2000) 245 ITR 13 (Ker) in support of his submissions.

4(i). It was submitted by the learned Departmental Representative that the factum of the recipient of the income having paid the tax was not a relevant criteria to mitigate the mandatory levy of interest under s. 201(1A) of the Act. The learned Departmental Representative dwelt at length with the phraseology of s. 201(1A) and argued that the use of the word "shall" therein makes an assessee liable, in case of default, for payment of interest mandatorily and such a levy is automatic. He referred to a host of decisions in this regard as follows :

Pentagon Engineering (P) Ltd. vs. CIT (1996) 131 CTR (Bom) 78 : (1995) 212 ITR 92 (Bom), CIT vs. Rathi Gum Industries (1995) 127 CTR (Raj) 413 : (1995) 213 ITR 98 (Raj), CIT vs. Premnath Motors (P) Ltd. (2002) 253 ITR 705 (Del), as also Grindlays Bank Ltd. vs. CIT (1992) 101 CTR (Cal) 164 : (1993) 200 ITR 441 (Cal).

4(ii). With regard to the assessee's argument that the interest was not leviable as the recipient had paid the taxes on 16th March, 2000 and 28th April, 2000, i.e., within the due dates, the learned Departmental Representative assailed the same by taking the following argument. Although the factum of recipient having paid the taxes was not in dispute, the learned Departmental Representative submitted that whether the recipient had paid taxes on the relevant income could be verified/or scrutinised by the AO only on the scrutiny of the return of the recipient. According to him, the factum of the recipient having paid the taxes corresponding to the liability that was visited on the assessee to pay the tax, could be gauged only at that point of time and, therefore, according to him, the assessee was liable to pay interest till such date as the AO scrutinised the return and not till the date of actual payment as contended by the counsel for the assessee.

5. We have heard the rival submissions, perused the material on record as also the case laws cited at Bar. We shall start our discussion by referring to the various provisions of the IT Act which have a bearing on the dispute before us. The relevant portions of ss. 194A, 201(1) and 201(1A) are reproduced hereinafter:

"Sec. 194A: (1) Any person, not being an individual or a Hindu Undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force."

"Sec. 201(1) If any such person and in the cases referred to in s. 194, the principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee-in-default in respect of the tax:

Provided that no penalty shall be charged under s. 221 from such person, principal officer or company unless the AO is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax."

"Sec. 201(1A) Without prejudice to the provisions of sub-s. (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid."

5(1). The assessee had incurred a liability to pay interest to the recipient-company on which tax was required to be deducted under s. 194A at the rates prescribed therein. Undoubtedly, it failed to deduct the same as per s. 194A. Sec. 201 deals with the provisions relating to the consequences for failure to deduct or after having deducted failure to pay such tax to the credit of the Government. Sub-s. (1) of s. 201 requires collection of tax which has not been deducted in total or in part or after having deducted there is a failure to deposit the same as required under the Act. The assessee in the present case, has not been held to be an assessee-in-default in accordance with sub-s. (1) of s. 201. This is primarily because of the fact that there is no dispute to the effect that the impugned amount of tax has indeed been deposited with the Government. It would also be relevant here to refer to the circular/instruction of the CBDT F. No. 276/201/95-IT(B), dt. 29th Jan., 1997, which is placed in the paper book before us. It is opined therein that the demand envisaged under s. 201(1) of the Act need not be enforced by the Revenue if it is found that the taxes due therein have been paid by the deductee i.e., the recipient. The next provision which is relevant is s. 201(1A). This section provides for charging of interest by the Revenue on the amount of tax not deducted or after deducting there is a failure to pay the tax as required by the Act. Such interest is chargeable on the amount of impugned tax "from the date on which such tax was deductible to the date on which such tax is actually paid". The crux of the issue before us revolves around us revolves around the levy of interest as is envisaged by the said provision.

5(ii). At this stage, it would be relevant to collate and establish certain facts which are necessary for us to draw conclusions thereafter. Admittedly, the assessee was required to have deducted the tax at source on 31st March, 2000, the date on which it credited to the account of the recipient-company, the income on account of interest. The assessee was, thereafter also required in terms of r. 30(1)(b)(ii) of IT Rules, 1962, to deposit such tax within the due date i.e., 31st May, 2000. It is also not in dispute that the recipient has deposited the tax in relation to the said income before the 31st day of May, 2000. The issue that arises is as to whether in a situation where the recipient of the income has deposited the tax which was otherwise required to be deducted and deposited by the assessee, can there be a levy of interest under s. 201(1A). An important ingredient with regard to the aforesaid question is the fact that such deposit has been made within the due date applicable to the tax deductor to deposit the tax to the credit of the exchequer.

5(iii) A perusal of s. 201(1A) leads to an inference that the interest is to be computed on the amount of tax from the date on which it was deductible up to the date on which it is actually paid. The date of deduction is the date on which the income is credited by the assessee and/or paid to the recipient deductee. Such amount of tax is required to be deposited thereafter, before the specified date to the credit of the Government. If on the date where the recipient undertakes the responsibility to pay and actually pays it before the due date of deposit under Chapter XVII-B, there does not remain any default qua the exchequer. This is so because the recovery of such tax has been effected to the credit of the Government in accordance with the intent and purpose of Chapter XVII-B albeit the difference being that the said deposit is made by the recipient-deductee and not the deductor-assessee. In our considered view, under such circumstances, it cannot be held that there was any deprivation of money to the Government and consequently, the payer has not only to be absolved of the responsibility of not only paying the tax but also the levy of interest. Therefore, the action of the lower authorities in treating the assessee to be in default under s. 201(1A) is not correct.

5(iv). Now, coming to the argument of the learned Departmental Representative to the effect that the levy of interest under s. 201(1A) is not only compensatory but also mandatory and it is attracted automatically as soon as the default is committed. In this regard, we do not have any quarrel with the aforesaid principle, but the same can be applied only if such circumstances exist. Admittedly in the instant case, the tax has been deposited to the credit of the Government within the due date envisaged by the Act, albeit not by the assessee but by the recipient. We appreciate the argument of the learned Departmental Representative with regard to the compulsory and mandatory nature of the levy, but the same is to be understood as to operate to the extent it is required to compensate the exchequer for withholding the tax which ought to have gone to it within the time prescribed in law. In other words, in our considered view, the levy of interest under s. 201(1A) is undoubtedly mandatory and automatic but only to the extent where circumstances existed requiring compensation to the exchequer. If in a given case if is found, on facts, that the Government has not been deprived of its revenue and, therefore, there was no cause of compensation as the taxes were paid within time, merely because of the technical default of the assessee himself not having paid the tax, the mandatory nature of the section shall not help the case of the Revenue as the prerequisite of the compensation payable to the Government is missing. The compensation envisaged under s. 201(1A) is to mitigate the delay in paying to the Government the tax which it ought to have received. It is in this manner that the mandatory and compensatory nature of the levy under s. 201(1A) has to be understood. Therefore, we do not feel that the aforesaid argument of the learned Departmental Representative can be of any help to the Revenue keeping in mind the admitted facts in the present case. Needless to mention, in the instant case, it is not the case of the Revenue that the tax has not been deposited to the exchequer within the dates specified under the Act. It is precisely for this reason that the assessee has not been found in default under s. 201(1) by the AO himself.

5(v). Another argument of the learned Departmental Representative was to the effect that the levy of interest was to be done up to the date on which the return of the recipient-company was verified or scrutinised by the AO. We are not in a position to appreciate the said argument. Although the factum of the recipient-assessee having paid the due taxes on the relevant income would come to the knowledge of the AO when he takes up the return for scrutiny, however, such knowledge once acquired by the AO, has to relate back to the date of actual payment of taxes. The date of actual payment of tax does not get elongated or extended merely because of it having come to the knowledge of the AO only subsequently. In other words, the levy of interest is with reference to the period starting from the date of deduction and extending up to the date of actual payment of tax. The AO at a later stage, may notice the default, but in any case the levy has to be restricted up to the date of actual payment of tax by the assessee. Therefore, the argument of the learned Departmental Representative on this issue is fallacious. In any case, in the instant case, we have already held that there was no cause for the Revenue to have levied interest under s. 201(1A) having regard to the facts and circumstances of the case.

6. Before we part with the issue, we would like to discuss some of the case laws relied upon by the rival counsel. The learned Departmental Representative and the first appellate authority have relied upon the decision of the Hon'ble High Court of Kerala in CIT vs. Dhanalakshmy Weaving Works. Briefly the facts, before the Hon'ble Court the assessee-firm therein paid interest to the lender without deducting the tax at source. The assessee therein produced before the AO, evidence to show that the income-tax assessments of the lenders were already completed admitting interest received from the assessee and the taxes were also paid by the lender on such assessment. The Revenue in accordance with the provisions of s. 194A of the Act held the assessee to be liable for interest under s. 201(1A) even though not treating the assessee in default in accordance with s. 201(1). Against the aforesaid factual matrix, the Hon'ble High Court of Kerala held that the levy of interest was of compensatory nature for withholding the tax which ought to have gone to the exchequer and was to be understood as mandatory in nature. Therefore, it was held that the interest was chargeable. The Hon'ble High Court held that the plea of the assessee to the effect that there was no ultimate liability for tax in the hands of the recipient does not dilute the requirements for the non-compliance of law triggering levy of interest under s. 201(1A). In fact, it would be of interest to read the following observations of the Court made at p. 16 of the decision:

"The purpose of the levy is to claim compensation on the amount which ought to have been deducted and deposited and has not been done."

In the instant case, there does not arise any need for the Revenue to claim compensation from the assessee with regard to the payment of impugned taxes primarily because of the fact that the tax has been paid within the dates stipulated. Therefore, the said observations of the High Court in fact go to support the case of the assessee rather than that of the Department.

6(i). Further, the following observations of the High Court are worthy of notice:

"Looking at the nature of levy, it is clear that it is compensatory in character and not in the nature of penalty. It is seen that there are several provisions where the legislature had made a distinction between interest payable and penalty imposable. The ultimate liability for tax being not there does not dilute the requirements for the non-compliance of which interest is levied under s. 201(1A)."

The inference that can be drawn is that what was pleaded by the assessee before the High Court of Kerala in Dhanalakshmi Weaving Works was that since the lender-assessee did not have the ultimate liability to pay the tax, therefore, the escape from s. 201(1A). This proposition was rejected. In our considered view, the facts of the case before us are distinguishable. As we have already discussed in the aforesaid paragraphs, the Department does not dispute that the tax has indeed been paid to the exchequer within the due date but the only difference being that it has been paid by the recipient-company. The plea of the assessee for escapement from s. 201(1A) is not with respect to the ultimate liability to pay tax in the hands of the recipient, but in contradistinction, the plea is to the effect that the tax has been paid within the due date applicable to the assessee to pay such tax, albeit, the only difference being that it was paid by the recipient and not by the assessee itself. Therefore, the ratio of this decision in our considered view is not attracted having regard to the facts and circumstances of the present case.

6(ii). Another decision relied upon by the Revenue is of the Bombay High Court in Pentagon Engineering (P) Ltd. vs. CIT. The facts of the case before the Hon'ble Bombay High Court were that the assessee therein had failed to remit within the prescribed time into the Government treasury the taxes that had been deducted from the salaries paid to the employees. The Revenue levied interest under s. 201(1A) of the Act from the date on which the salaries were payable to the employees up to the date on which the taxes were to be paid into the Government treasury. The assessee canvassed that the levy of interest was not mandatory and there was a precondition of appraising the existence of a reasonable cause for non-payment of taxes before interest under s. 201(1A) could be levied. It was against the aforesaid facts the Hon'ble Bombay High Court held that the liability to pay interest was mandatory and that there was no precondition of considering the presence of "reasonable cause" for non-payment in time of the tax deducted at source. We fully appreciate the decision of the Hon'ble High Court of Bombay in so much as that it is held that reasonable cause cannot be a ground for non-levy of interest under s. 201(1A). In the instant case, the facts and circumstances are on a totally different footing than those before the Hon'ble High Court of Bombay. Hence, we are of the considered view that this decision does not help the case of the Revenue.

6(iii). Another judgment referred before us is of the Rajasthan High Court in CIT vs. Rathi Gum Industries. The facts before the Hon'ble High Court were that the assessee therein had entered into a contract with several suppliers whereby they were providing raw materials at the proper time and at the rates agreed. The assessee did not deduct any tax on the payments made to the various parties on the plea that it was in the nature of commission and the quantum relating to finance was not severable from the contract. It was also convassed by the assessee that the taxes due on the income were paid by the recipients. It was contended that if the assessee had deducted any tax, it would have also resulted in refund in the hands of the recipient. Against the aforesaid background, the Hon'ble High Court held that the provisions for payment of interest under s. 201(1A) were mandatory and automatic and the interest had to be paid from the date from which tax was deductible till the date on which the tax is actually paid. It was further held that if the tax was already paid on such income, the IT Department while not being justified to recover the said amount of tax, but in so far as the liability of interest was concerned, the same could not be considered to be non-existent on account of deposit of tax by the recipient at a subsequent or later stage. Evidently, the aforesaid reasoning on a prima facie view helps the case of the Revenue. However, the following observations of the Hon'ble Court are noteworthy:

"The interest is to compensate the Revenue for the loss which it has suffered on account of late receipt of the tax. It has not been stated in the present case that the recipient has deposited the tax received within the time at which the assessee was required to deduct and deposit the tax. The Tribunal has ignored the fact that the provisions of interest are mandatory and automatic and interest has to be paid from the date on which the tax was deductible till the date on which the tax is actually paid. In the present case, the assessee who has entered into agreements with different persons, it cannot be possible nor it has been discussed or found as a fact by the Tribunal that the tax amount was deposited in time. The view which has been taken by the Tribunal following the decision of the Kerala High Court referred to above is not applicable to the facts of the present case as that was a case where the assessment was already completed and the tax was paid and thereafter proceedings under s. 201 were initiated to demand further tax/interest from the employer."

The underlined portion of the aforesaid extract provides an insight into the reasoning that prevailed with the Hon'ble Court to conclude that the levy of interest under facts as found therein was attracted. The plea of the assessee to the effect that the taxes were deemed to have been collected in the hands of the recipient was rejected and it was so held by the High Court in the following extract:

"The provision of s. 201 provides not only for collection of tax which has not been deducted but for levy and charge of interest also. If the tax has already been paid by the recipient on such income it may not be justified to recover the said amount of tax, but so far as the liability of interest is concerned, that cannot be considered to be non-existent on account of deposit of tax by the recipient at a subsequent or later stage."

Therefore, it was noted by the Hon'ble High Court that the facts were not such that prima facie it could be appreciated that the recipient had deposited the tax within the time which the deductor-assessee was required to do. In the absence of such clear finding, it resulted in the Hon'ble Rajasthan High Court taking the view that levy of interest was justified. A pertinent fact which is different in the instant case before us is that herein the deductee-recipient has deposited the tax within the due date within which the deductor-assessee before us was required to deposit. Therefore, in view of the aforesaid discussion and the facts being different, in our considered view, the aforesaid decision does not come to the aid of the Revenue. In fact, the observations of the Hon'ble Court which we have underlined are applicable to the fact of the present case, support the case of the assessee and not of the Department.

6(iv). Another case law relied upon by the learned Departmental Representative is the decision of the Delhi High Court in CIT vs. Prem Nath Motors (P) Ltd. which is akin to the decision of the Kerala High Court in Dhanalakshmi Weaving Works, which we have already held is not applicable to the facts of the case before us. After perusing the aforesaid judgment, we are of the similar view.

6(v). Another decision referred before us is of Madras High Court in the case of CIT vs. Ramesh Enterprises (2001) 169 CTR (Mad) 513 : (2001) 250 ITR 464 (Mad) for the proposition that the assessee had a duty to deduct the tax in all cases except in cases where the recipient of the income files the necessary certificate under s. 197(1) of the Act. Briefly the facts before the Hon'ble Madras High Court were that the assessee therein had borrowed monies from two of its sister-concerns and paid interest to these concerns without deducting the tax at source as required under s. 194A of the Act, although no declaration or certificate was filed by the recipient-concerns to the effect that their income was below taxable limits. Against the aforesaid facts, the Tribunal therein had accepted the plea that no interest under s. 201(1A) was leviable on the ground that one of the lender concerns had filed a loss return and the other lender concern had claimed refund. The Hon'ble High Court reversed the decision of the Tribunal by holding that the provision requiring deduction of tax on interest payment does not make the duty to effect deduction contingent upon the likely liability to tax in the hands of the recipient of such income. The Hon'ble High Court found that one of the lender-concerns which had filed the loss return was at the time of assessment found liable to pay tax and the other lender-concern which had claimed refund at the time of filing the return was found during the course of assessment not entitled to refund. Under these circumstances the Hon'ble High Court held that the assessee therein had a duty to deduct the tax at source, which the assessee had failed to do; hence the interest under s. 201(1A) was attracted. The facts of the instant case before us are on a different footing. The aforesaid decision of the Madras High Court does not envisage the situation wherein the recipient of income had made good the default on the part of the assessee by depositing the tax within the due date applicable to the assessee. Therefore, the said decision does not help the case of the Revenue. We are not discussing in detail the other case laws cited by the learned Departmental Representative as they are on similar lines as discussed by us in the aforesaid paragraphs and ratios laid down therein are not attracted to the facts of the present case.

7. Therefore, in conclusion, in our considered view and in the facts and circumstances of the case before us, the levy of interest under s. 201(1A) has to be deleted. We allow the prayer of the assessee on this count.

ITA No. 834/Bang/2001:

8. The grievance of the assessee in this appeal is against the levy of penalty under s. 271C. The facts giving rise to the levy of penalty under s. 271C has already been discussed by us in the assessee's appeal in ITA No. 833/Bang/2001 in the preceding paragraphs. In brief to recapituate, it would be sufficient to observe that the assessee had not deducted the tax at source under s. 194A on the amount of interest income credited to the account of the recipient, namely, M/s Wipro Ltd., its holding company on 31st March, 2000. The AO initiated and asked the assessee to show cause as to why the penalty under s. 271C should not be levied for such failure. The assessee pleaded that the recipient-company had assured the assessee that a certificate envisaged under s. 197(1) exempting the tax deduction at source would be furnished to the assessee. The assessee accepted the plea made by recipient-company to furnish the certificate in due course of time and, therefore, proceeded to close its accounts on 31st March, 2000, without subjecting the income so credited to deduction of tax at source. Subsequently, the assessee was informed by the recipient-company that the required certificate under s. 197(1) of the Act could not be furnished to the assessee as promised. However, the due amount of tax was paid by the receipient company immediately, i.e., by 28th April, 2000, and, therefore, it was pleaded that there was no loss of revenue to the Department. It was with the aforesaid pleadings that a case was sought to be made out by the assessee for having a reasonable cause for not having deducted the tax at source on interest income credited to the account of its holding company on 31st March, 2000. The aforesaid plea was rejected by the AO and the penalty was levied under s. 271C. The AO while doing so noticed that the reasonable cause pertaining to the obtaining of the certificate under s. 197 for nil deduction was only an afterthought as the recipient-company could not have obtained the same in view of its positive taxable income. The AO also disapproved of the assessee's argument to the effect that the ultimate tax liability having been discharged by the recipient, and held that it was of no help to the assessee and held it liable for non-compliance with the requirements of s. 194A. Aggrieved by the aforesaid findings, the matter was carried in appeal before the first appellant authority wherein similar arguments were taken by the assessee. The first appellate authority has sustained the action of the AO. The first appellate authority did not find any substance in the argument that the non-deduction was with reasonable cause arising out of the bona fide belief that the recipient would furnish the certificate as promised and such non-furnishing was a circumstance beyond the control of the assessee. According to the first appellate authority, as the assessee-company was well-versed with the TDS matters it was certainly conscious of its duty as a tax deductor and was very much aware that the non-production of the promised certificate under s. 197 would not be a mitigating factor. Presently, the assessee is in appeal before us against the impugned order.

9. At the time of hearing, the learned counsel for the assessee assailed the orders of the lower authorities. According to him, the assessee in the present case has admittedly not deducted tax at source while crediting the income on 31st March, 2000, to the account of the recipient-company as prescribed under s. 194A. At the outset, the learned counsel submitted that it was a case of mere technical default insomuch as that the required tax has been paid by the recipient-company even before the due date for the assessee to deposit the same. The learned counsel placed reliance on the decision of the apex Court in Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC) as also the decision of the jurisdictional High Court of Karnataka in All India Sewing Machine Co. vs. CIT (1974) 96 ITR 206 (Mysore) in support of his arguments.

9(i). The learned counsel further submitted that the fact that the assessee has not been treated as an assessee-in-default under sub-s. (1) of s. 201 is established. Our attention was drawn to the order of the AO in this regard. It was submitted that an assessee is absolved of being teated as an assessee-in-default under s. 201(1) for good and sufficient reasons. The learned counsel submitted that the requirement of there being a good and sufficient reason was more stringent than establishing of reasonable cause. While in the former case, it acts as a mitigating factor vis-a-vis s. 201(1) while in the case of the latter, it acts as a mitigating factor for the levy of penalty under s. 271C. He submitted that if a cause is found to be good and sufficient for the assessee not being treated as an assessee-in-default, then certainly the same should be appreciated as a reasonable cause for s. 273B as it is a much milder yardstick. In support of the said argument, the learned counsel referred to the decisions of the Delhi High Court in Sequoia Construction Co. (P) Ltd. vs. P.P. Suri, ITO (1986) 47 CTR (Del) 277 : (1986) 158 ITR 496 (Del); Azadi Bachao Andolan vs. Union of India (2001) 167 CTR (Del) 154 : (2001) 252 ITR 471 (Del), Detecon India Project Office vs. ITO & Ors. (1995) 123 CTR (Del) 416 : (1994) 210 ITR 260 (Del), Tribunal decision of Delhi "C" Bench in Mitsui & Co. Ltd. vs. Dy. CIT (1999) 65 TTJ (Del) 1 as also the decision of the Tribunal, Bangalore Bench in P.C. Mohan vs. Asstt. CIT (1993) 47 TTJ (Bang) 221 : (1993) 45 ITD 251 (Bang).

9.(ii). The learned counsel submitted that the reason for the assessee for not deducting the tax at source on 31st March, 2000, was the explicit promise made by the recipient-company to furnish prescribed certificate under s. 197(1) for nil deduction of tax at source. He submitted that this imbibed in the assessee a bona fide belief that the said certificate shall be forthcoming and, therefore, it was not required to deduct the tax at source. It was only subsequently it transpired that the said certificate was not forthcoming. Therefore, at a subsequent date, the only recourse open to the assessee was to ensure that the default is made good by depositing the tax due within the time stipulated for the assessee to deposit the same. It was submitted that after 31st March, 2000, the assessee could not have deducted the tax at source and, therefore, the only recourse open was to ensure that no loss of revenue entails to the Government. Therefore, the assessee through the recipient-company took steps to deposit such tax within the due date. The learned counsel also relied on the decision of the Delhi High Court in Woodward Governor India (P) Ltd. vs. CIT & Ors. (2001) 168 CTR (Del) 394 : (2002) 253 ITR 745 (Del) in support of his submissions. He also drew the attention of the Bench to Circular F. No. 276/201/95/IT(B), dt. 29th Jan., 1997, to submit that if the due tax has already been recovered by the Department, it would amount to sufficient compliance and no further liability should be raised under s. 201(1). Therefore, according to the assessee, it had a reasonable cause for not deducting the tax at source and hence no penalty under s. 271C was leviable.

9(iii) The learned counsel submitted that the assessee has voluntarily-ensured that the required tax is paid into the exchequer albeit by the recipient-company and that it has established its bona fides and, therefore, penalty could not be levied having regard to the decision of the Hon'ble Delhi High Court in Azadi Bachao Andolan.

10. On the other hand, the learned Departmental Representative while defending the orders of the lower authorities assailed the arguments of the assessee's counsel. He submitted that the reason advanced by the assessee for non-deduction, namely, furnishing of certificate under s. 197 could not have been relied upon by the assessee insomuch as that the same was required to be obtained before the actual date of deduction which apparently has not been done. He argued that in order to appraise the existence or otherwise of a reasonable cause to mitigate the penal provisions under s. 271C, only the circumstances as they existed on the date of default are required to be evaluated and not the subsequent developments. Reliance on the Madras High Court decision in Pirani & Co. vs. Asstt. CIT was made in this regard. Further, with regard to the explanation of reasonable cause furnished by the assessee, the learned Departmental Representative submitted that it was merely an averment made by the assessee and the same was not demonstrated on facts. Therefore, according to him, the same needs to be disregarded by the Bench. Reliance has also been placed on the Gujarat High Court decision in Ganapatlal N. Dalwadi vs. CIT (1993) 112 CTR (Guj) 294 : (1993) 200 ITR 503 (Guj) in this regard. The learned Departmental Representative submitted that the averments regarding the furnishing of certificate under s. 197 was merely an afterthought as by the date of deduction i.e., 31st March, 2000, evidently the recipient-company has not even made an application in this regard to its AO.

10(i). With regard to the reliance placed by the assessee on the case of Hindustan Steel Ltd. the learned Departmental Representative made the following argument. Our attention was drawn to the following observations of the apex Court:

"Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute."

The learned Departmental Representative submitted that the proposition laid down by the apex Court to the effect that a technical or venial breach of the provisions of the Act should not be penalised but with the help of the aforesaid extract, it was argued that the same must be demonstrated to flow from a bona fide belief that the offender was not liable to act in the manner prescribed under the Act. It was submitted that in the instant case, the assessee was very well aware that it was required to deduct the tax at source in terms of s. 194A and, therefore, it could not have entertained a bona fide belief that it was not liable to act in the manner as prescribed in the statute. On this reasoning, the learned Departmental Representative argued that the ratio of the decision of the apex Court itself does not apply to the facts of the instant case.

10(ii). The learned Departmental Representative also referred to the decision of the apex Court in Gujarat Travancore Agency vs. CIT (1989) 77 CTR (SC) 174 : (1989) 177 ITR 455 (SC) to submit that the element of mens rea was not required to be proved by the Revenue in certain penal provisions of the Act. Although according to him, the said case was dealing with the levy of penalty under s. 271(1)(a), however, the apex Court held that regard must be made to the terms which the penalty relates. According to the apex Court, unless there is something in any of the statute indicating the need to establish the element of mens rea, it is generally sufficient to prove that a default complying with the statute has occurred. With this background, the learned Departmental Representative submitted that undoubtedly in the instant case, the assessee has failed to deduct the tax at source as required under s. 194A and also that the reasonable cause being professed is factually not borne out. Therefore, the levy of penalty was justified.

10(iii). The learned Departmental Representative relied upon the decision of the Rajasthan High Court in Universal Supply Corpn. vs. State of Rajasthan & Anr. (1994) 118 CTR (Raj) 481 : (1994) 206 ITR 222 (Raj) specifically with regard to the argument of the assessee's counsel that as the assessee was not penalised under s. 201(1), therefore, it was for good and sufficient reasons and the same should be treated as also coming to the aid of the assessee in mitigating the rigors of s. 271C, which inter alia required only the assessee to establish reasonable cause. He submitted that the Hon'ble High Court of Rajasthan has in similar circumstances held that the provisions relating to charging of interest under s. 201(1A), the penal provisions under Chapter XXI and the criminal prosecution envisaged under s. 276B are separate and independent provisions and the existence or the absences of one or the other is no bar to any one of them.

11. We have heard the rival submissions, perused the material on record as also the case laws cited at Bar. We have already in the earlier part of the order dealt with the various provisions of the Act which have a bearing on the impugned dispute. Evidently, the assessee was required in terms of s. 194A to deduct the tax at source on the income credited to the account of the recipient-company before 31st March, 2000. Failure to do so led to the invoking of penalty provisions of s. 271C, which read as under:

"Sec. 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-s. (2) of s. 115-O; or

(ii) the second proviso to s. 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."

The said section provides for the levy of penalty of a sum equal to the amount of tax which a person has failed to deduct or pay as required by or under the provisions of Chapter XVII-B. The failure of the assessee to deduct the required tax is admittedly not in dispute. The crux of the matter before us revolves around the provisions of s. 273B which provides for cases wherein penalties need not be imposed in certain cases. Sec. 273B provides that no penalty under certain sections including s. 271C need be imposed on the assessee for the failure referred therein provided if it is proved that there was a reasonable cause with the assessee for the said failure. Therefore, the leviability of the penalty in the present case has to be evaluated from this angle.

11(i). The first argument of the assessee is that this being a technical default, therefore, in view of the decision of the apex Court in Hindustan Steel, the same is not leviable. We do not find much force in the argument of the assessee under the facts and circumstances of the present case. The apex Court therein was dealing with a case where the appellant was erecting factory building for its steel plant, residential buildings for its employees and ancillary works such as roads, water supply and drainage, some of these constructions were being done by its departments and the rest through contractors. The company was supplying to the contractors for use items such as bricks, coal, cement, steel, etc., for a consideration which in addition to the cost price included some additional amounts which were charged by it. The question before the apex Court was as to whether such supply of building material amounted to sale and whether the appellant-company was to be treated as a dealer for the purposes of the relevant Sales-tax Act. The apex Court held that the supply constituted sale and went on to hold that the failure on the part of the assessee to register itself as a dealer was motivated by a honest and genuine belief that it could not be construed as a dealer for the sales-tax law. It was under these circumstances the apex Court held that there was no case for imposing penalty. A reading of the aforesaid decision leads to the inference that the assessee therein was substantively liable to sales-tax on its transaction, therefore, was required to register itself as a dealer. In this light the company is seen to have committed merely a technical and venial breach by not registering itself with the State authorities.

11(ii). However, in the instant case, we are dealing with the provisions relating to collection and deduction of taxes at source on various payments made by an assessee. Undoubtedly, the deduction of tax at source by a payer of income/amounts as envisaged under Chapter XVII-B is de hors the substantive taxing provisions contained in the IT Act. In fact, the entire provisions of Chapter XVII-B relating to the collection and deduction of tax at source are independent of the actual liability to tax of the recipient. Therefore, they are to be understood as sections requiring technical compliance, both procedurally and otherwise by the assessee. The distinction between the facts before the apex Court and the case before us are unambiguous, while the breach in the case of Hindustan Steel Ltd. was seen as technical and venial with regard to the substantive provisions, whereas in the instant case before us, the assessee has committed a breach of the provisions requiring technical and procedural adherence as opposed to the substantive provisions. Therefore, the provisions of Chapter XVII-B by itself being of technical nature, the said proposition of the apex Court cannot be applied to the instant defaults.

11(iii). The next argument of the assessee's counsel is with reference to the existence to a reasonable cause insomuch as that it was promised that a certificate under s. 197(1) shall be furnished. The second limb of the argument is to the effect that as the assessee is admittedly having good and sufficient reasons for not being treated as an assessee-is-default under s. 201(1), the rigors of s. 273B being on a lower pedestal, therefore, the non-attraction of penalty. With respect to the second limb of argument, the assessee has relied upon the decision of the Delhi High Court in Sequioa Construction Co. (P) Ltd. and the learned Departmental Representative has relied upon the decision of the Rajasthan High Court in Universal Supplies Corpn. to oppose the same. We have perused the two judgments very carefully. The facts before the Hon'ble High Court of Delhi were that the assessee therein had paid interest to certain parties who had made deposits with it. On such interest payments, the TDS was effected, but the assessee had delayed the deposit of the same into the Government account. Hence, the criminal prosecution was launched against the assessee having regard to the provisions of s. 276B of the Act. However, the AO had, as well commenced the penalty proceedings under ss. 201(1) and 221 for the failure to deposit the TDS within the time prescribed. The said penalties were, however, cancelled on merits by the first appellate authority holding that there was good and sufficient reasons for non-payment of tax within the time specified under the statute. The reasons as found by the Appellate Commissioner was that there was financial stringency and the company did not have cash to pay to the creditors and also that the AO had charged interest in respect of the delay in depositing the TDS. The Hon'ble High Court quashed the prosecution launched against the petitioners for offences under s. 276B against the aforesaid factual matrix. While doing so, the Hon'ble High Court held that the standard of proof and explanation and the onus of proof to be discharged by the assessee in proceedings under s. 201(1) was much higher and heavier than in an criminal prosecution for offence under s. 276B. The Hon'ble Court opined that in a criminal prosecution for an offence under s. 276B, the dictates of law merely demand the requirement of reasonable cause, i.e., what appears ex facie to reason. In this light, the Hon'ble Court held that such an onus was on a much milder footing than that to be discharged by the assessee in provisions under s. 201(1).

11(iv). On the other hand, the decision of the Rajasthan High Court relied upon by the Department in Universal Supplies Corpn. wherein a contrary proposition is opined by the Hon'ble Court. It is also pertinent to note that the Hon'ble High Court of Rajasthan has dealt with and referred to the decision of the Hon'ble High Court of Delhi in Sequoia Construction Co. (P) Ltd. and has departed from it by relying upon the decision of the apex Court in P. Jayappan vs. S.K. Perumal, ITO (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696 (SC). The Hon'ble Court has specifically rejected the argument that in the absence of penal provisions against an assessee, the criminal element disappears and it cannot be said that the default was without any reasonable cause. It was held by the Hon'ble Court that there are separate provisions for levy of interest, penalty and criminal prosecution each having different purposes and are independent of each other. The following observations of the Rajasthan High Court are worthy of noticing:

"In Sequoia Construction Co. (P) Ltd. vs. P.P. Suri, ITO, the income-tax deductions were made by the accused from the amount of interest paid by him but there was delay in depositing the same in the Central Government treasury. A complaint was filed under s. 276B of the Act. The ITO also commenced penalty proceedings under ss. 201(1A) and 221 of the Act. The ITO imposed a penalty, but in appeal, the order of penalty was quashed, holding that there was sufficient and good cause for the default in the payment of tax. While deciding so, it was also held that the scope and support of penalty proceedings and prosecutions are separate and independent. The existence of the one or the other was no bar to any of them. An assessee could be levied penalty as well as punished by prosecution.

On the basis of the above decisions, an argument has been raised by learned counsel for the petitioners that, in the absence of the penalty proceedings against the petitioners, the criminal element disappears and it cannot be said that the default was without reasonable cause. Learned counsel, therefore, argued that the criminal proceedings should be quashed.

This argument can be rejected for the simple reason that, in the IT Act, there are separate provisions for levy of interest, penalty and criminal prosecution. The charging of interest has a different purpose to compensate the Department for depriving it of the user of the money during the period the payment was withheld. Criminal proceedings have nothing to do either with the levy of interest or penalty. In the absence of these proceedings also, criminal prosecution can be launched if the ingredients of the offence under s. 276B of the Act are made out. No presumption can be drawn to the effect that there were good and sufficient reasons for the default in making the payment of the tax simply on the ground that penalty proceedings were not initiated. In the same way, simply charging of interest by the Department for the delay also does not, in my view, obliterate the prosecution. The assessee can be charged interest as well as punished by prosecution. No such presumption can also be drawn that, in case penalty proceedings were initiated, the petitioners would have satisfied the appellate authority that there were good and sufficient reasons for the delay in payment. I am also fortified by the judgment of the apex Court in P. Jayappan vs. S.K. Perumal, First ITO (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696 (SC) wherein it was held as under:

'It is true that, as observed by this Court in Uttam Chand vs. ITO (1982) 133 ITR 909 (SC), the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the relevant assessment proceedings but that decision is no authority for the proposition that no proceedings can be initiated at all under ss. 276C and 277, as long as some proceeding under the Act in which there is a chance of success of the assessee is pending. A mere expectation of success in some proceeding in appeal or reference under the Act cannot come in the way of the institution of the criminal proceedings under ss. 276C and 277 of the Act. In the criminal case, all the ingredients of the offence in question have to be established in order in secure the conviction of the accused. The criminal Court, no doubt, has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and, in an appropriate case, it may drop the proceedings in the light of an order passed under the Act. It does not, however, mean that the result of the proceedings under the Act would be binding on the criminal Court. The criminal Court has to judge the case independently on the evidence placed before it.'"

After the aforesaid discussion, the legal position with regard to the stand alone nature of the three i.e., the levy of interest, the levy of penalty and the criminal prosecution for the defaults under Chapter XVII-B have been summarised by the High Court of Rajasthan as under:

"(i) The scope and purport of interest/penalty proceedings and prosecution under the IT Act are separate and independent. The existence or the absence of the one or the other is no bar to any one of them;

(ii) Simply charging of interest by the Department under s. 201(1A) of the Act, for the delay in the payment of the amount to the Central Government, does not obliterate the prosecution;

(iii) the non-initiation of penalty proceedings does not lead to a presumption that the default in payment was for good and sufficient reasons or that the assessee was deprived to establish that there were good and sufficient reasons for the default in payment:

(iv) non-initiation of penalty proceedings in a case cannot be equated with a case where the penalty proceedings were initiated and a finding is recorded by the competent authority that there were good and sufficient reasons for the default in payment;

(v) there is no statutory requirement either under s. 279 or under any other provision of the Act to give a show-cause notice to the assessee before criminal proceedings are initiated against him. In other words, a notice or a right of being heard before launching criminal proceedings under the IT Act for the offences mentioned under Chapter XXII is not mandatory and proceedings cannot be quashed on this ground. Though, if such notice is given by the Department, it may check frivolous and unnecessary criminal cases or such cases where the default in payment is technical or committed in good faith. The question of compounding the offence may also be considered by the concerned authority prior to the initiation of criminal proceedings if such notice is given by the assessee desirous to compound the offence."

Ostensibly, the view of the two Hon'ble High Courts differ. We are of a considered view to follow the decision of the Rajasthan High Court. The Rajasthan High Court decision is a later decision and has taken into consideration the earlier decision of the Delhi High Court. Therefore, we are not inclined to agree with the argument of the assessee's counsel to the effect that as the Department has not treated the assessee in default under s. 201(1), for good and sufficient reasons the same test should also hold good as being a reasonable cause vis-a-vis the levy of penalty under s. 271C r/w s. 273B. In fact, the levy of penalty under s. 271C is independent of the other provisions of levy of interest, penalty under s. 221, prosecution under s. 276B, etc.

11(v). The only argument of the assessee's counsel left to be dealt with pertains to the existence or otherwise of a reasonable cause for not having deducted the tax at source as required under s. 194A. The reason advanced for the non-deduction is to the effect that the recipient-company made it known to the assessee that it would furnish the certificate under s. 197(1) for non-deduction of tax at source. Admittedly, the recipient is a holding company of the assessee. It can be prudent and appropriate to envisage that if a plea is made to a subsidiary by its holding company, the subsidiary company, in all fairness would accept the same without casting any doubt. This is because of the reason that the two companies being in the same group having common interests, having common management, etc. would not in ordinary circumstances, work to deceive or jeopardise each other. Therefore, if it was made out by the holding company to the assessee before us that the necessary certificate under s. 197 shall be furnished and, therefore, the deduction under s. 194A was not required could very well have been accepted by the assessee. The subsequent non-furnishing of the same for any reasons, cannot be of aid or help to evaluate the decision taken by the assessee-company as on the date of deduction, i.e., 31st March, 2000, by way of which it accepted the plea and did not deduct the required TDS. Therefore, the said proposition coming from a holding company, we are in agreement with the stand of the assessee that it had a genuine and bona fide belief with regard to the factual aspect of the plea being advanced, which any prudent person would have done under similar circumstances. If on a later date, the said plea is found to be false or not justifiable, it cannot distract from the existence of the same on the date when it was evaluated by the parties.

11(vi). The second dimension of the existence of reasonable cause is with reference to the observations of the Delhi High Court in Azadi Bachao Andolan wherein, the following observations of the Court are apt to read:

"At this juncture, it is necessary to take note of ss. 273A and 273B. Sec. 273A dealt with power to reduce levy of penalty, etc. by the CIT, in a case which relates to penalty under s. 271(1)(c) of the Act. Waiver can be done only if the following conditions are satisfied, i.e., the assessee has:

(a) prior to the detection of the concealment of particulars of income or of inaccurate particulars furnished in respect of such income.

(b) voluntarily and in good faith made full and true disclosure of such particulars.

(c) co-operated in any enquiry relating to assessment of income.

A case of non-deduction of tax at source cannot prima facie be placed on a higher pedestal than concealment of income or furnishing inaccurate particulars. The situation is rather the reverse. Therefore, application of the ingredients/citeria applicable to s. 273A to a case governed by s. 273B cannot be held without logic or justification. The matter may be looked at from another angle. In a hypothetical case, penalty under s. 271C is levied, and the matter is carried to the Tribunal in appeal. The Tribunal applies the parameters applicable to s. 273A and cancels the penalty levied holding that reasonable cause existed. In that event a case for reference under s. 256(1) or (2) of the Act would not arise."

A perusal of the aforesaid leads to the conclusion that according to the Hon'ble High Court if in a given situation, the yardsticks which are applied for granting of waiver of penalty under s. 273A, etc. can also be used to test the efficacy of levy of penalty under s. 271C. Therefore, we proceed to test the application of the ingredients of s. 273A to the present case which is governed by s. 273B. The three conditions for allowing the waiver under s. 273A as found outlined in the aforesaid paragraphs are that firstly the assessee has prior to detection of concealment furnished particulars of its income. Secondly the assessee must have made full and true disclosure voluntarily and in good faith. Thirdly, that the assessee should have co-operated with any enquiry relating to the assessment of income. Against the aforesaid three tests, we notice that the assessee in association with the recipient of the income has made good the default before the due date applicable to the assessee i.e., 28th April, 2000 suo motu. The default has been made good before the filing of the return as required under Chapter XIV-B. Needless to mention that the Department has only issued the notice on 15th Dec., 2000, for carrying out the verification of its annual return of TDS. Therefore, in our considered view, the first condition is satisfied. The second condition regarding the full and true disclosure made voluntarily and in good faith is also not in dispute on the basis of facts as found by us and as discussed in detail in the aforesaid paragraphs. The third condition of the assessee having co-operated in all the enquiries with the Department relating to the quantification of the tax and demands is also beyond doubt. In the end, we conclude that the assessee has indeed complied with all the conditions as envisaged under s. 273A and the same must also be considered as reasonable cause as envisaged under s. 273B for taking the assessee outside the rigors of s. 271C.

12. Having regard to the aforesaid discussion, we hold that the assessee has established the existence of a reasonable cause for it having failed to comply with the provisions of s. 194A in not deducting the tax at source on the interest payment to the recipient-company.

13. In the result, the appeals of the assessee are allowed.

 

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