MUMBAI, OCT 20, 2014: THE issue before the Bench is - Whether if assessee faces financial hardships and gets no support from its CA and has no staff, it constitutes reasonable cause for purpose of penalty u/s 272A(2). YES is the Tribunal's answer.
Facts of the case
A) The assessee company is a producer of feature films. The TDS section of the department conducted a survey operation u/s 133A of the Act at the business premises of the assessee. At the time of survey, it was noticed that the assessee company did not file its return of income. The TDS officials did not find any audited books of account also. Further, it was noticed that the assessee did not pay the tax deducted by it at source. The TDS officials intimated these details to the assessing officer and accordingly the assessing officer re-opened the assessments relating to the assessment years 2003-04, 2004-05 and 2005-06. During the course of assessment proceedings, the AO recorded a statement of the director of the assessee company, wherein he disclosed certain details about the income and expenditure. He also admitted that the assessee company did not file Form No.52A as required under Rule 9(a) of the I.T Rules. Thereafter, a person appeared before the assessing officer and filed copies of Balance Sheet and Profit and Loss account. The AO noticed that the said financial statements were signed by that person and not by any of the directors or auditors of the assessee company. From the financial statements, it was noticed that the Unsecured loans balance had increased in each of the three years. Since the assessee did not furnish any details with regard to the above said loans, the assessing officer assessed the above said amounts as income of the assessee in the respective assessment years. CIT(A) confirmed the assessment orders, since the assessee could not prove the loan credits in terms of sec. 68 of the Act.
B) TDS officials noticed that the assessee did not remit the tax deducted by it at source. Further the assessee did not deduct tax at source in respect of certain payments. Hence, the ITO (TDS) passed orders raising demand for AYs 203-04, 2004-05, 2005-06 and 2006-07. CIT(A) dismissed assessee's appeal.
C) Since the assessee had failed to deduct tax at source and also failed to pay the tax deducted at source, the Addl. Commissioner of tax imposed penalty u/s 271C of the Act upon the assessee. CIT(A) confirmed the penalty imposed.
D) Penalty u/s 272A(2)(c) was levied for assessment years 2003-04 to 2006-07, for non-furnishing in due time of any of the returns, statements or particulars mentioned in section 133 or section 206 or section 206C or section 285B of the Act. CIT(A) confirmed the penalty levied for the above said years.
Having heard the parties, the tribunal held that,
A) ++ Assessee furnished before CIT(A) certain details relating to the loan creditors for each of the year under consideration. Hence the CIT(A) has called for a remand report from the assessing officer. In the remand report, the assessing officer has pointed out that there were differences between the details so furnished and the Balance Sheet of the assessee. Further, it was pointed out by the AO that the Statement of accounts claimed to have been obtained by the assessee from the creditors have been signed by the director of the assessee company. The CIT(A) has also noticed that the assessee has failed to prove the credit worthiness of the creditors. Under these set of facts, the CIT(A) came to the conclusion that the assessee company has failed to prove the cash credits in terms of sec. 68 of the Act. It is well settled proposition that the initial burden of proof to prove the cash credits is placed upon the assessee u/s 68 of the Act, i.e., the assessee is required to prove three main ingredients viz., the identity of the creditors, the credit worthiness of the creditors and the genuineness of transactions. In the instant cases, we notice that the assessee has failed to discharge the initial burden placed upon it. Under these circumstances, we do not find any reason to interfere with the order passed by CIT(A) in all the three years referred above;
B) ++ Assessee could not controvert the findings given by the ITO(TDS) except pointing out certain computational error. Hence the CIT(A) has confirmed the orders referred above, subject to verification of the errors pointed out by the assessee. Before us, the assessee did not furnish any material to compel us to interfere with the orders of CIT(A). Though the assessee has submitted that the recipients have paid the tax on the income received by them, yet no material was furnished to substantiate the same. Hence, we do not find any infirmity in the orders passed by CIT(A) for the three years mentioned above;
C) ++ Additional Commissioner has imposed penalty for failure to remit the tax deducted at source also. However, a careful reading of the provisions of sec. 271C would show that the penalty under that section is leviable for failure to deduct tax at source under the provisions of Chapter XVII-B of the Act. However, the penalty for failure to remit the whole or part of tax is leviable only if such failure is related to sec. 115-O(2) relating to dividends and the second proviso to sec. 194B of the Act relating to lottery winnings. In the instant cases, the failure to remit the TDS amount is not related to the items referred to sec. 115O(2) or sec. 194B of the Act. Hence the penalty levied by the Additional Commissioner for failure to remit the TDS amount is liable to be set aside, as the same is not in accordance with the mandate of sec. 271C of the Act;
++ provisions of sec. 271C is subject to the provisions of sec. 273B of the Act. As per the provisions of sec. 273B of the Act, the penalty u/s 271C is not imposable if the assessee proves that there was reasonable cause for the said failure. It is well settled proposition that the "reasonable cause" has to be examined from the point of view of a common man with reasonable mind. In the instant cases, the assessee has stated that it is facing acute financial problems. It has substantiated the said claim by stating that it could not pay salary to staffs and fee to its Chartered Accountant. This claim is further fortified by the fact that the assessee did not appear or could not engage anybody to appear before the Additional Commissioner. Further, there was delay in filing appeals before CIT(A) for identical reasons. All these facts cumulatively show that the assessee appears to be in deep financial crisis;
++ CIT(A) has taken the view that the financial problems and heavy losses do not constitute reasonable cause. We tend to disagree with his views. The financial problem, i.e., lack of money, in our view, may be considered reasonable cause, since the financial problem has made the staffs and Chartered Accountant to leave the assessee company. Hence, there is merit in the submission of the assessee that it did not get proper assistance to comply with the tax laws. Accordingly, we are of the view that the assessee has shown that there was reasonable cause for his failure to deduct tax at source;
++ we set aside the orders of CIT(A) and direct the Additional Commissioner of Income tax to delete the penalty levied u/s 271C of the Act in all the years under consideration;
D) ++ The provisions of sec. 272A(2) is subject to the provisions of sec. 273B of the Act. As per the provisions of sec. 273B of the Act, the penalty u/s 272A(2) is not imposable if the assessee proves that there was reasonable cause for the said failure. It is well settled proposition that the "reasonable cause" has to be examined from the point of view of a common man with reasonable mind. While dealing with the appeals relating to the penalty levied u/s 271C of the Act, we have held that the financial crisis faced by the assessee coupled with the fact of no staffs and lack of help from Chartered Accountant may be considered to be reasonable cause. The assessee has offered identical explanations for non-furnishing of annual return prescribed in sec. 206 of the Act in time. In the instant cases, the assessee did not file the annual return for all the four years under consideration. The reason for the same is understandable, i.e., when the assessee did not remit the tax deducted at source, then it would not be in a position to file the annual return prescribed in sec. 206 of the Act. Hence, we are of the view that there was reasonable cause for the assessee for the failure to furnish the annual returns for all the years under consideration;
++ we set aside the orders of CIT(A) and direct the Additional Commissioner of Income tax to delete the penalty levied u/s 272A(2)(c) of the Act in all the years under consideration.
B) TDS officials noticed that the assessee did not remit the tax deducted by it at source. Further the assessee did not deduct tax at source in respect of certain payments. Hence, the ITO (TDS) passed orders raising demand for AYs 203-04, 2004-05, 2005-06 and 2006-07. CIT(A) dismissed assessee's appeal.
C) Since the assessee had failed to deduct tax at source and also failed to pay the tax deducted at source, the Addl. Commissioner of tax imposed penalty u/s 271C of the Act upon the assessee. CIT(A) confirmed the penalty imposed.
D) Penalty u/s 272A(2)(c) was levied for assessment years 2003-04 to 2006-07, for non-furnishing in due time of any of the returns, statements or particulars mentioned in section 133 or section 206 or section 206C or section 285B of the Act. CIT(A) confirmed the penalty levied for the above said years.
Having heard the parties, the tribunal held that,
A) ++ Assessee furnished before CIT(A) certain details relating to the loan creditors for each of the year under consideration. Hence the CIT(A) has called for a remand report from the assessing officer. In the remand report, the assessing officer has pointed out that there were differences between the details so furnished and the Balance Sheet of the assessee. Further, it was pointed out by the AO that the Statement of accounts claimed to have been obtained by the assessee from the creditors have been signed by the director of the assessee company. The CIT(A) has also noticed that the assessee has failed to prove the credit worthiness of the creditors. Under these set of facts, the CIT(A) came to the conclusion that the assessee company has failed to prove the cash credits in terms of sec. 68 of the Act. It is well settled proposition that the initial burden of proof to prove the cash credits is placed upon the assessee u/s 68 of the Act, i.e., the assessee is required to prove three main ingredients viz., the identity of the creditors, the credit worthiness of the creditors and the genuineness of transactions. In the instant cases, we notice that the assessee has failed to discharge the initial burden placed upon it. Under these circumstances, we do not find any reason to interfere with the order passed by CIT(A) in all the three years referred above;
B) ++ Assessee could not controvert the findings given by the ITO(TDS) except pointing out certain computational error. Hence the CIT(A) has confirmed the orders referred above, subject to verification of the errors pointed out by the assessee. Before us, the assessee did not furnish any material to compel us to interfere with the orders of CIT(A). Though the assessee has submitted that the recipients have paid the tax on the income received by them, yet no material was furnished to substantiate the same. Hence, we do not find any infirmity in the orders passed by CIT(A) for the three years mentioned above;
C) ++ Additional Commissioner has imposed penalty for failure to remit the tax deducted at source also. However, a careful reading of the provisions of sec. 271C would show that the penalty under that section is leviable for failure to deduct tax at source under the provisions of Chapter XVII-B of the Act. However, the penalty for failure to remit the whole or part of tax is leviable only if such failure is related to sec. 115-O(2) relating to dividends and the second proviso to sec. 194B of the Act relating to lottery winnings. In the instant cases, the failure to remit the TDS amount is not related to the items referred to sec. 115O(2) or sec. 194B of the Act. Hence the penalty levied by the Additional Commissioner for failure to remit the TDS amount is liable to be set aside, as the same is not in accordance with the mandate of sec. 271C of the Act;
++ provisions of sec. 271C is subject to the provisions of sec. 273B of the Act. As per the provisions of sec. 273B of the Act, the penalty u/s 271C is not imposable if the assessee proves that there was reasonable cause for the said failure. It is well settled proposition that the "reasonable cause" has to be examined from the point of view of a common man with reasonable mind. In the instant cases, the assessee has stated that it is facing acute financial problems. It has substantiated the said claim by stating that it could not pay salary to staffs and fee to its Chartered Accountant. This claim is further fortified by the fact that the assessee did not appear or could not engage anybody to appear before the Additional Commissioner. Further, there was delay in filing appeals before CIT(A) for identical reasons. All these facts cumulatively show that the assessee appears to be in deep financial crisis;
++ CIT(A) has taken the view that the financial problems and heavy losses do not constitute reasonable cause. We tend to disagree with his views. The financial problem, i.e., lack of money, in our view, may be considered reasonable cause, since the financial problem has made the staffs and Chartered Accountant to leave the assessee company. Hence, there is merit in the submission of the assessee that it did not get proper assistance to comply with the tax laws. Accordingly, we are of the view that the assessee has shown that there was reasonable cause for his failure to deduct tax at source;
++ we set aside the orders of CIT(A) and direct the Additional Commissioner of Income tax to delete the penalty levied u/s 271C of the Act in all the years under consideration;
D) ++ The provisions of sec. 272A(2) is subject to the provisions of sec. 273B of the Act. As per the provisions of sec. 273B of the Act, the penalty u/s 272A(2) is not imposable if the assessee proves that there was reasonable cause for the said failure. It is well settled proposition that the "reasonable cause" has to be examined from the point of view of a common man with reasonable mind. While dealing with the appeals relating to the penalty levied u/s 271C of the Act, we have held that the financial crisis faced by the assessee coupled with the fact of no staffs and lack of help from Chartered Accountant may be considered to be reasonable cause. The assessee has offered identical explanations for non-furnishing of annual return prescribed in sec. 206 of the Act in time. In the instant cases, the assessee did not file the annual return for all the four years under consideration. The reason for the same is understandable, i.e., when the assessee did not remit the tax deducted at source, then it would not be in a position to file the annual return prescribed in sec. 206 of the Act. Hence, we are of the view that there was reasonable cause for the assessee for the failure to furnish the annual returns for all the years under consideration;
++ we set aside the orders of CIT(A) and direct the Additional Commissioner of Income tax to delete the penalty levied u/s 272A(2)(c) of the Act in all the years under consideration.
Regards
Prarthana Jalan
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