ADDL CIT (TDS) RG-1, MUMBAI v. AMERICAN SCHOOL OF BOMBAY EDUCATION TRUST, MUMBAI

0 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI R.S. SYAL (AM) & SMT. ASHA VIJAYARAGHA VAN (JM) I.T.A.NOS.136 TO 138/MUM/2010 (A.YS. 2000-01 TO 2002-03) ASST.COMMR. OF INCOME-AX(TDS) RANGE-1 8 TH FLOOR SMT.K.G.MITTAL AYURVEDIC HOSPITAL BLDG. CHARNI RD. (W) MUMBAI-400 002. VS. AMERICAN SCHOOL OF BOMBAY EDUCATION TRUST SF-2 G-BLOCK BKC BANDRA (E) MUMBAI-400 051. PAN: AAATT9038K APPELLANT RESPONDENT C.O. NOS. 155 TO 157/MUM/2010 (ARISING OUT OF I.T.A.NOS.6349 TO 6351/MUM/2010) (A.YS. 2000-01 TO 2002-03) AMERICAN SCHOOL OF BOMBAY EDUCATION TRUST SF-2 G-BLOCK BKC BANDRA (E) MUMBAI-400 051. PAN: AAATT9038K VS. ASST.COMMR. OF INCOME-AX(TDS) RANGE-1 8 TH FLOOR SMT.K.G.MITTAL AYURVEDIC HOSPITAL BLDG. CHARNI RD. (W) MUMBAI-400 002. CROSS OBJECTOR RESPONDENT DEPARTMENT BY MRS. ASHIMA GUPTA ASSESSEE BY SHRI DIVESH CHA WLA O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS BATCH OF THREE APPEALS BY THE REVENUE AND EQU AL NUMBER OF CROSS OBJECTIONS BY THE ASSESSEE ARISE OUT OF THE THREE S EPARATE ORDERS PASSED BY THE LD. CIT(A) ON 16.11.2009 IN RELATION TO THE ASSTT. YEARS 2000-01 TO 2002-03 DELETING PENALTY IMPOSED BY THE A.O U/S.271C OF THE ACT. SINCE ALL THE APPEALS ARE BASED ON IDENTICAL FACTS AND COMMON GROUND OF A PPEAL WE ARE THEREFORE ITA NOS.6349 TO 6351/M/09 & CO NOS. 141 TO 143/M/10. 2 PROCEEDING TO DISPOSE OF THESE APPEALS BY A CONSOLI DATED ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE IS RUNNING A SCHOOL IN THE NAME AND STYLE AS AMERICAL SCHOOL OF BOMBAY EDU CATION TRUST CLAIMED HAVING FOUNDED IN 1981 POPULARLY KNOWN AS AMERICA N SCHOOL OF BOMBAY (HEREINAFTER REFERRED TO AS ASB). THE SCHOOL WAS S ET UP FOR THE CHILDREN OF FOREIGN BUSINESS EXECUTIVES AND DIPLOMATS ASSIGNED TO BOMBAY TO OFFER AN EDUCATIONAL PROGRAM THAT WOULD ENABLE ITS STUDENTS TO MAKE AN EASY TRANSITION FROM ONE INTERNATIONAL SETTING TO ANOTHER HAVING TH E SAME ACCREDITATION SYSTEM. THE SCHOOL WAS SET UP AFTER OBTAINING APPROVAL FROM THE MINISTRY OF EXTERNAL AFFAIRS NEW DELHI. A SURVEY U/S. 133A OF THE I.T. ACT 1961 WAS CONDUCTED IN THE CASE OF THE ASSESSEE ON 24.1.2006 AND DURING THE SU RVEY PROCEEDINGS WAS FOUND THAT THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURC E FROM THE SALARIES PAID TO THE EXPATRIATE TEACHERS BY SOUTH ASIA INTERNATIONAL EDU CATIONS SERVICES (SAIESF) OUTSIDE INDIA. ACCORDINGLY THE AO ISSUED SHOW CAU SE NOTICE REQUIRING THE ASSESSEE TO EXPLAIN AS TO WHY IT SHOULD NOT BE TREA TED AN ASSESSEE IN DEFAULT IN TERMS OF SEC. 201(1) OF THE I.T. ACT AND ALSO INTER EST U/S. 201(1A) SHOULD NOT BE LEVIED. NOT SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE AND FOR THE REASONS DISCUSSED IN THE ORDER U/S. 201(1) AND 201( 1A) OF THE I.T. ACT THE AO HELD THAT THE ASSESSEE IN DEFAULT FOR NOT DEDUCTING TAX AT SOURCE U/S. 194C OF THE I.T. ACT AND ALSO LEVIED INTEREST U/S. 201(1A). TH E AO ALSO REFERRED THE CASE TO THE ADDITIONAL CIT(TDS) RANGE 1 FOR INITIATING PEN ALTY PROCEEDINGS U/S. 271C OF THE I.T. ACT.ACCORDINGLY THE ACIT (TDS) INITIATED P ENALTY PROCEEDINGS U/S. 271C BY ISSUING NOTICES TO THE ASSESSEE. NOT SATISFIED WITH THE EXPLANATION OFFERED BY ITA NOS.6349 TO 6351/M/09 & CO NOS. 141 TO 143/M/10. 3 THE ASSESSEE THE ACIT (TDS) RANGE-1 MUMBAI LEVIED PENALTY U/S. 271C OF THE I.T. ACT. 3. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A). THE CIT(A) HELD AS FOLLOWS: I FIND THAT THE HONBLE ITAT VIDE ORDER DT. 20.10. 2009 IN ITA NO. 3625 3626 & 3627/M/07 HAS OBSERVED THAT THE INITIA TION OF PROCEEDINGS IN THE INSTANT YEARS IS BEYOND THE PER IOD OF SIX YEARS AND HENCE IS BARRED BY LIMITATION. THEREFORE THE HONBLE ITAT HAS QUASHED THE ORDER PASSED BY THE DCIT (TDS)-1(1) MU MBAI U/S. 201(1) AND 201(1A) AND HAS SET ASIDE THE RESULTANT IMPUGNED ORDER. 4. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) REVENU E IS IN APPEAL BEFORE US AND THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS. 5. WE FIND THAT THE HONBLE ITAT A BENCH IN ITA NOS. 6349 TO 6351/M/09 FOR A.YRS 1997-98 TO 1999-2000 HAS HELD AS FOLLOWS: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL ON RECORD. SHORN OF UNNECESSARY DETAILS I T IS SEEN THAT SEC. 271C PROVIDES FOR IMPOSITION OF PENALTY FOR FAILURE TO D EDUCT TAX AT SOURCE. SUB- SEC. (1) OF THE SECTION PROVIDES THAT IF ANY PERSON FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX AS REQUIRED BY OR UNDER THE PROVISIONS OF CHAPTER XVII-B OR FAILS TO PAY THE TAX AS REQUIRED BY OR U/ S. 115-O(2) OR SECOND PROVISO TO SEC. 194B THEN SUCH PERSON SHALL BE LIA BLE TO PAY BY WAY OF PENALTY A SUM EQUAL TO THE AMOUNT OF TAX WHICH SUC H PERSON FAILED TO DEDUCT OR PAY AS AFORESAID. A BARE PERUSAL OF THIS PROVISION INDICATES THAT PENALTY U/S.271C CAN BE IMPOSED ONLY WHEN THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT OR PAY THE WHOLE OR ANY P ART OF TAX AND THEN THE QUANTUM OF PENALTY IS EQUAL TO THE AMOUNT OF TA X WHICH SUCH PERSON FAILED TO DEDUCT OR PAY. FROM HERE IT EMERGES THAT THERE MUST BE SOME SUM WHICH SUCH PERSON FAILED TO DEDUCT OR PAY. SUC H AMOUNT CONSTITUTES THE BASIS FOR IMPOSITION OF PENALTY U/S.271C. IN O THER WORDS THE LIABILITY OF THE ASSESSEE U/S.201(1) IS A PRE-CONDITION FOR IMPOSITION OF PENALTY U/S.271C. IF THE VERY ORDER PASSED U/S.201(1) CREAT ING LIABILITY HAS BEEN SET ASIDE ON ACCOUNT OF LIMITATION AND THERE IS NO POSSIBILITY OF ANY FRESH ORDER BEING LIKELY TO BE PASSED U/S.201(1) THERE REMAINS NO QUESTION OF THE ASSESSEE BEING DEEMED TO BE AN ASSESSEE IN DEFA ULT IN RESPECT OF SUCH TAX. THE NATURAL COROLLARY WHICH THEREFORE FOLL OWS IS THAT IF THE ORDER U/S.201(1) CEASES TO BE OPERATIVE IT WILL HAVE THE EFFECT OF THE ASSESSEE ITA NOS.6349 TO 6351/M/09 & CO NOS. 141 TO 143/M/10. 4 BEING NOT IN DEFAULT. ONCE THE ASSESSEE IS NOT IN D EFAULT FOR FAILURE TO DEDUCT OR PAY TAX AT SOURCE NATURALLY THERE CANNO T ANY QUESTION OF IMPOSING PENALTY U/S.271C FOR THE REASON THAT THE V ERY BASIS OF SUCH PENALTY IS THE AMOUNT OF TAX WHICH SUCH PERSON FAIL ED TO DEDUCT OR PAY AS PER LAW AND WHEN THERE IS NO SUCH AMOUNT IN EXISTEN CE THE POSSIBILITY OF IMPOSING PENALTY WILL AUTOMATICALLY BE RULED OUT. ADVERTING TO THE FACTS OF THE INSTANT CASE IT IS N OTICED THAT THE TRIBUNAL IN THE AFORENOTED ORDER HAS SET ASIDE T HE ORDER U/S.201(1) AND 201(1A) ON ACCOUNT OF LIMITATION. THE EFFECT OF TH E TRIBUNAL ORDER IS THAT THE ASSESSEE IS NOT DEEMED TO BE IN DEFAULT IN RESP ECT OF ANY FAILURE TO DEDUCT OR PAY TAX AT SOURCE. IN SUCH CIRCUMSTANCES THE QUESTION OF PENALTY U/S.271C CANNOT ARISE. AS THE LD. CIT(A) HAS ALSO ORDERED FOR THE CANCELLA TION OF PENALTY U/S.271C ON THE BASIS OF THE TRIBUNAL ORDER WITHOU T GOING INTO THE MERITS WE ARE REFRAINING OURSELVES FROM CONSIDERING THE SU BMISSIONS BY BOTH THE SIDES ON MERITS. RESULTANTLY THE IMPUGNED ORDER IS UPHELD. THE CROSS OBJECTIONS FILED BY THE ASSESSEE IN RESPE CT OF THESE YEARS HAVE BECOME ACADEMIC IN VIEW OF OUR DECISION ON THE APPE ALS BY THE REVENUE. IN THE RESULT THE APPEALS BY THE REVENUE ARE DISMI SSED AND THE CROSS OBJECTIONS BY THE ASSESSEE ARE DISMISSED HAVING BE COME INFRUCTUOUS. RESPECTFULLY FOLLOWING THE DECISION IN ASSESSEES OWN CASE WE DISMISS THE APPEALS FILED BY THE REVENUE AND THE CROSS OBJECTIO NS FILED BY THE ASSESSEE BECOME INFRUCTUOUS. 6. IN THE RESULT THE APPEALS FILED BY THE REVENUE ARE DISMISSED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE BECOME I NFRUCTUOUS. ORDER PRONOUNCED ON THE 4 TH DAY OF FEBRUARY 2011. SD/- SD/- (R.S. SYAL) (SMT. ASHA VIJAY ARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI:4 TH FEBRUARY 2011. RJ ITA NOS.6349 TO 6351/M/09 & CO NOS. 141 TO 143/M/10. 5 COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-14 MUMBAI. 4 CIT (TDS) MUMBAI. 5.DR A BENCH MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER ASST.REGISTRAR ITAT MUMBAI. ITA NOS.6349 TO 6351/M/09 & CO NOS. 141 TO 143/M/10. 6 DETAILS DATE INITIALS DESIGN ATION 1. DRAFT DICTATED ON 2.2.11 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 2-02-11 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10 . DATE OF DISPATCH OF ORDER *