COMMISSIONER OF INCOME TAX (TDS) Vs. MUTHOOT BANKERS

JUDGEMENT

(1.) This appeal is preferred by the Revenue against the order of Income Tax Appellate Tribnunal, Cochin Bench dated 28.2.2011 in ITA.No.280/Coch/2011. The matter arises from an order of penalty under Section 271C of the Income Tax Act (for short, 'the Act') for non deduction of TDS on interest paid to sister concerns in terms of Section 194A of the Act. The assessment year in question was 2014-2015. The Income Tax Officer, by order dated 25.2.2009, had found that the assessee firm had not deducted tax as required under Section 194A of the Act on Rs.9,50,05,000/-, which was interest paid to its sister concerns. The tax to be deducted was Rs.95,00,500/-. The Joint Commissioner of Income Tax (TDS) imposed penalty of Rs.95,00,500/- under Section 271C of the Act by Annexure A order dated 30.7.2009 and raised a demand. The assessee had stated before the authority that non deduction of tax was not deliberate and there was a bona fide omission on its part in not deducting tax. It was further contended that since the recipient sister concerns had already included the interest amount in their returns and paid tax thereon, there is no loss of revenue to the Government. On the ground that there was deliberate attempt to evade any payment of tax and since similar penalties in respect of a sister concern had already been deleted by the Appellate Authority, it was contended that the penalty could not be imposed in the absence of a finding of a deliberate defiance of law or dishonest intent and in conscious disregard of the obligation.

(2.) The order of the Joint Commissioner was taken in appeal by the assessee. By Annexure-B order dated 28.2.2011, after considering the contentions and the precedents relied on by the assessee, the Appellate Authority came to the conclusion that the plea of bona fide omission could not be countenanced in view of the repeated findings that there is no exemption from deduction of tax in case of interest paid to a sister concern. It was found that though the penalty levied earlier on one of the sister concerns for the year 1998-99 was deleted by the Income Tax Appellate Tribunal (ITAT) and confirmed by this Court, this Court had in it's judgment held that for repeated offences, the department is free to levy penalty as the assessee cannot take a stand in relying on payment of advance tax by recipients as a ground for failure to deduct tax. It was therefore found that the assessee committed default by not deducing TDS without any reasonable cause and the order of the assessing officer was therefore confirmed. However, in further appeal, relying on the decision of the Apex Court in Hindustan Steel Ltd. v. State of Orissa, 1972 83 ITR 26 (SC) and the decision in respect of the sister concern in ITO V. Muthoot Financiers,2006 286 ITR 71(AT) (Cochin) and of this Court in ITA.17 of 2008, ITAT set aside the orders imposing penalty and the appellate order confirming the same.

(3.) The Revenue is in appeal raising the following substantial questions of law: