Court Upholds Penalties for Late TDS Returns, Rejects "No Revenue Loss" Argument

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Case Name:

Central Scientific Instruments Organisation Vs Commissioner of Income Tax (TDS) and Another (High Court of Punjab & Haryana)

ITA No. 421 of 2015 (O&M)

Date: 8th February 2016

Key Takeaways:

1. Timely filing of TDS returns is mandatory, regardless of revenue loss.

2. Penalties under Section 272A(2)(k) (of Income Tax Act, 1961) are enforceable for late TDS return filing.

3. The "no loss of revenue" argument doesn't exempt from penalties for non-compliance.

4. Courts emphasize the importance of timely information for tax assessment purposes.

Issue:

Was the imposition of penalties under Section 272A(2)(k) (of Income Tax Act, 1961) for late filing of TDS returns justified, even when there was no direct loss of revenue to the government?

Facts:

- The assessee filed TDS returns for quarters ending June 30, 2008, September 30, 2008, and December 31, 2008 on May 10, 2013.

- The return for the quarter ending March 31, 2009 was filed on May 13, 2013.

- TDS amounts were deducted and deposited with the government on time.

- The Joint Commissioner of Income Tax (TDS) issued a show cause notice for penalty on September 24, 2013.

- Penalties totaling ₹4,84,945 were imposed for late filing across three financial years.

- The assessee appealed to the CIT(A) and then to the Income Tax Appellate Tribunal, both of which were dismissed.

Arguments:

Assessee's Arguments:

1. There was reasonable cause for delay under Section 273B (of Income Tax Act, 1961).

2. TDS was deposited on time, resulting in no loss of revenue.

3. Cited previous judgments where penalties were found inappropriate in similar situations.

Department's Arguments:

1. Timely filing of TDS returns is mandatory under Section 200(3) (of Income Tax Act, 1961) and Rule 31A(2) (of Income Tax Rules, 1962).

2. Penalties under Section 272A(2)(k) (of Income Tax Act, 1961) are for non-compliance, not revenue loss.

3. Timely information is crucial for proper tax assessment of deductees.

Key Legal Precedents:

1. Commissioner of Income Tax (TDS) v. Executive Engineer, (2010) 320 ITR 494 (P&H) 

2. HMT Ltd., Tractors Division v. Commissioner of Income Tax (2005) 274 ITR 544 (P&H) 

3. Commissioner of Income-Tax v. Deputy Housing Commissioner, Rajasthan Housing Board (2004) 265 ITR 686 (Raj.) 

4. Commissioner of Income Tax v. Accounts Officer, Telecom (2006) 281 ITR 302 (All) 

The court noted that these cases were decided based on individual facts and were not applicable to the current case.

Judgement:

1. The court dismissed the appeals, finding no error in the approach of the CIT(A) or the Tribunal.

2. It upheld the penalties imposed under Section 272A(2)(k) (of Income Tax Act, 1961).

3. The court rejected the "no loss of revenue" argument, stating that the provision is meant to ensure compliance and timely information for tax assessment.

4. It was noted that the assessee failed to provide a plausible explanation for the nearly five-year delay in filing TDS returns.

FAQs:

1. Q: Does timely deposit of TDS exempt from penalties for late filing of returns?

  A: No, timely deposit doesn't exempt from penalties for late filing of TDS returns.

2. Q: What is the purpose of Section 272A(2)(k) (of Income Tax Act, 1961)?

  A: It's to ensure compliance with timely filing of TDS returns, providing crucial information for tax assessment of deductees.

3. Q: Can the "no loss of revenue" argument be used to avoid penalties?

  A: No, the court rejected this argument, stating that the provision is about compliance, not just revenue loss.

4. Q: What are the time limits for filing TDS returns?

  A: As per Rule 31A(2) (of Income Tax Rules, 1962), TDS returns should be filed quarterly by the 15th of the month following the quarter end, with the last quarter due by May 15th of the next financial year.

5. Q: How is the penalty under Section 272A(2)(k) (of Income Tax Act, 1961) calculated?

  A: The penalty is ₹100 per day of default, limited to the amount of tax deductible or collectable.

1. This order shall dispose of a bunch of three appeals bearing ITA Nos. 421, 423 and 424 of 2015 as according to learned counsel for the appellant, the issue involved is identical. For brevity, the facts are being extracted from ITA No. 421 of 2015.

2. ITA No. 421 of 2015 has been preferred by the assessee under Section 260A (of Income Tax Act, 1961) (in short “the Act”) against the order dated 30.4.2015 (Annexure A-3) passed by the Income Tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as “the Tribunal”) in ITA No. 54/Chandi/2015, for the assessment year 2009-10, claiming the following substantial questions of law:-

i) Whether in the facts and in the circumstances of the case, the orders (Annexure A-1), (Annexure A-2) and (Annexure A-3) are legally sustainable?

ii) Whether on the facts and in the circumstances of the case the ITAT is legally justified in law in upholding the order imposing penalty of 4,84,945/- u/s 272A(2)(k) (of Income Tax Act, 1961) for the assessment year 2009-10 for technical default in filing returns late on the part of the appellant more so when the tax has been deducted, after deduction has been deposited in Government account in time and the requisite forms have been issued to the deductee as per the provisions of the Act?

3. Briefly stated, the facts necessary for adjudication of the instant appeal as narrated therein may be noticed. The assessee filed its return of Tax Deducted at Source (TDS) on 10.5.2013 in Form No. 26Q for the quarters ending on 30.6.2008, 30.9.2008 and 31.12.2008. The return for the 4th quarter ended on 31.3.2009 was filed on 13.5.2013.

It had deducted TDS from the payments made under Section 194C (of Income Tax Act, 1961) amounting to 1,46,068/-, 35,377/- 1,90,192/- and 1,89,251/- in the 1st, 2nd, 3rd and 4th quarter respectively. The amount so deducted was deposited by the appellant with the Government well in time and there was no default either under Section 201 (of Income Tax Act, 1961) or Section 201(1A) (of Income Tax Act, 1961). The Joint Commissioner of Income Tax (TDS) issued a show cause notice dated 24.9.2013 to the appellant for levy of penalty under Section 272A(2)(k) (of Income Tax Act, 1961) read with Section 274 (of Income Tax Act, 1961). The appellant filed reply dated 7.10.2013 to the said show cause notice. Respondent No.2 vide order dated 21.10.2013 (Annexure A-1) levied penalty of 4,84,945/-. Feeling aggrieved, the appellant filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity “the CIT(A)”] who vide order dated 31.10.2014 (Annexure A-2) affirmed the penalty order and dismissed the appeal. Being dissatisfied, the appellant filed an appeal before the Tribunal. The Tribunal vide order dated 30.4.2015 (Annexure A-4) upheld the order of the CIT(A) and dismissed the appeal. Hence, the instant appeals.

4. Learned counsel for the appellant submitted that the penalty of 4,84,945/- levied under Section 272A(2)(k) (of Income Tax Act, 1961) was unwarranted. Section 200(3) (of Income Tax Act, 1961) and Rule 31A (of Income Tax Rules, 1962) (in short “the Rules”) were referred to by the learned counsel. It was also urged that there was reasonable cause within the meaning of Section 273B (of Income Tax Act, 1961) on the basis of which there was justification for delay in filing the TDS returns. Moreover, the TDS was deposited within time and, therefore, there was no loss of revenue. Relying upon the judgments of this Court in Commissioner of Income Tax (TDS) v. Executive Engineer, (2010) 320 ITR 494 (P&H); HMT Ltd., Tractors Division v. Commissioner of Income Tax (2005) 274 ITR 544 (P&H); Rajasthan High Court in Commissioner of Income-Tax v. Deputy Housing Commissioner, Rajasthan Housing Board (2004) 265 ITR 686 (Raj.) and Allahabad High Court in Commissioner of Income Tax v. Accounts Officer, Telecom (2006) 281 ITR 302 (All), it was urged that no penalty under Section 272A(k) (of Income Tax Act, 1961) was exigible.

5. After hearing learned counsel for the appellant, we find no merit in the appeals.

6. It would be expedient to refer to Section 200(3) (of Income Tax Act, 1961) which read thus:-

“Section 200(3) (of Income Tax Act, 1961) Any person deducting any sum on or after the 1st day of April, 2005 in accordance with the forgoing provisions of this Chapter or, as the case may be, any person being an employer referred to in sub-section (1A) of Section 192 (of Income Tax Act, 1961) shall, after paying the tax deducted to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income tax authority or the person authorized by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.”

Section 200 (of Income Tax Act, 1961) incorporated in Chapter XVII of the Act deals with collection and recovery of tax and provides for various cases relating to deduction of tax at source. Sub-section (3) of Section 200 (of Income Tax Act, 1961) was inserted by Finance (No.2) Act, 2004 with effect from 1.4.2005. It provides for filing of the statements as prescribed thereunder after deduction of the TDS.

7. Rule 31(2) (of Income Tax Rules, 1962), which is relevant for the decision of the controversy raised in the appeal, is in the following terms:-

“Rule 31A(2) (of Income Tax Rules, 1962)

Statements referred to in sub-rule (1) for the quarter of the financial year ending with the date specified in column (2) of the Table below shall be furnished by the due date specified in the corresponding entry in column (3) of the said Table:-

1. Date of ending of the quarter - 30th June – Due date of the financial year - 15th July of the financial year.

2. Date of ending of the quarter - 30th September – Due date of the financial year - 15th October of the financial year.

3. Date of ending of the quarter - 31st December – Due date of the financial year - 15th January of the financial year.

4. Date of ending of the quarter - 31st March – Due date of the financial year - 15th May of the financial year immediately following the financial year in which deduction is made.”

Thus, TDS returns have to be filed in Form No.26Q by the due dates mentioned in the aforesaid rule.

8. The controversy herein relates to levy of penalty under Section 272A(2)(k) (of Income Tax Act, 1961). According to the aforesaid provision, penalty is imposable if any person fails to deliver or cause to be delivered a copy of the statement under sub-section (3) of Section 200 (of Income Tax Act, 1961) within the specified time. The quantum of penalty thereunder is a sum of one hundred rupees for every day default till the date of filing the TDS return but the same would be limited to the amount of tax deductible or collectable as the case may be. It is in following terms:-

“272A(2). If any persons fails-

(k) to deliver or cause to be delivered a copy of the statement within the time specified in sub-section (3) of Section 200 (of Income Tax Act, 1961) or the proviso to sub-section (3) of Section 206C (of Income Tax Act, 1961);

9. Having noticed the relevant statutory provisions, we proceed to examine the contention relating to concept of 'no loss of revenue' for exigibility of penalty, as urged by the learned counsel for the appellant.

Section 200(3) (of Income Tax Act, 1961) read with Rule 31A(2) (of Income Tax Rules, 1962) enjoins upon any person deducting tax at source to file statements of deduction of tax at source within the prescribed period specified thereunder. In our opinion, the penal provisions contained in Section 272A(2)(k) (of Income Tax Act, 1961) has been inserted for the purpose of compliance of filing of TDS returns in time in Form No. 26Q by due dates mentioned in Rule 31A(2) (of Income Tax Rules, 1962) so that the information is available with the department for utilizing by way of cross checking for proper assessment of tax in the case of the persons from whom income tax has been deducted at source and it has nothing to do with the loss of revenue. In case it is interpreted in any other manner, it would render the provision redundant. Similar contention of theory of 'no loss of revenue' raised before the CIT(A) was repelled with the following observations:-

“A plain reading of the provision clearly shows that the question of direct loss of revenue can never occur if the specified statement is not filed within the stipulated time. The legislature has to be attributed that much intelligence that the penalty for delay in submission of the statement was provided even when there could have been no loss of revenue under any circumstances. Therefore, in such a situation to plead that since there is no loss to revenue, no penalty should be imposed would go not only against the intention of the legislature but would render the clear provisions of law otiose. It has to be borne in mind that the State compels the subjects to obey its laws at the pain of penalty for its violation. Every violation of law does not necessarily entail loss to the exchequer but still there are penal provisions to enforce the legal obligations. If there are no penal consequences for default, the question arises as to how else the law is to be enforced. It may also be mentioned that the information contained in TDS statements is utilized by the department in ensuring proper assessment of tax in the case of the persons from whose income, tax has been deducted at source. Hence, while non-filling of statement by the deductor may not entail a loss to revenue in deductor's case, it may result in loss of revenue in the case of deductees and so the contention of the Ld. Counsel that in the absence of loss to revenue, the penalty imposed has to be cancelled is rejected.”

On appeal, the Tribunal had approved the said observations and the conclusion. Further, the Tribunal had recorded by way of example that grievance letter had also been received from one Shri Ashok Gulati by the department intimating that the assessee had deducted tax at source but it was not reflected in the 26AS statement. Thus, it shows that various persons would stand to suffer on whose behalf taxes have been deducted for not getting benefit of those taxes for no fault of their due to non-filing of statements on time.

Therefore,the law enunciated in Hindustan Steel Ltd. v. State of Orissa (1972)83 ITR 26 (SC) has no applicability to the present case.

10. The appellant had filed the TDS returns late as per the details given below:-

Quarter Due date of filing of TDS return

Date of filing of TDS return

Delays in filing TDS returns

Amount of TDS

Amount of Penalty

Penalty restricted to

1st 15.07.2008 10.05.2013 1760 1,46,068 1,76,000 1,46,068

2nd 15.10.2008 10.05.2013 1668 35,377 1,66,800 35,377

3rd 15.01.2009 10.05.2013 1576 1,90,192 1,57,600 1,57,600

4th 15.05.2009 13.05.2013 1459 1,8,2251 1,45,900 1,45,900

Total 6463 5,60,888 6,46,300 4,84,945

11. There was a delay of nearly five years in filing the TDS returns/statements as is discernible from the perusal of Form No. 26Q reproduced above for the financial year 2008-09 relating to the assessment year 2009-10. No plausible explanation had been tendered by the assessee for filing the TDS returns belatedly and, therefore, the benefit under Section 273B (of Income Tax Act, 1961) could not be given.

12. Moreover, the authorities below had noticed that the appellant was supposed to mandatorily file TDS returns within the prescribed time as provided under Rule 31A(2) (of Income Tax Rules, 1962). Since the appellant had failed to do so, it had rightly been treated to be in default for not filing the TDS returns within the prescribed period. Further, it had also been recorded that the penalties under Section 272A(2)(k) (of Income Tax Act, 1961) have rightly been imposed upon the appellant in all the three financial years. The assessee had failed to explain that there was any reasonable cause or failure to comply with the provisions of law and the authorities below had concurrently concluded that there was delay in filing the TDS returns without any justifiable reason or cause.

13. Adverting to the judgments in Executive Engineer and HMT Ltd.'s cases (supra), it may be noticed that these cases were decided on the basis of facts involved therein as they were relating to default in issuing certificates for deduction of tax at source and keeping in view the factual matrix, the levy of penalty under Section 272A(2)(g) (of Income Tax Act, 1961) was found to be inappropriate. The cases being based on individual facts involved therein, no advantage is available to the assessee-appellant therefrom. Similarly, the issue before the Rajasthan High Court and Allahabad High Court in Rajasthan Housing Board and Accounts Officer, Telecom's cases (supra), shows that the pronouncements were also based on individual facts of these cases and do not come to the rescue of the appellant.

14. In view of the above, there is no error or perversity in the approach of the CIT(A) or the Tribunal or in the findings recorded by them warranting interference by this Court. Accordingly, no substantial question of law arises in these appeals. Consequently, finding no merit in the appeals, the same are hereby dismissed.

(AJAY KUMAR MITTAL)

JUDGE

February 8, 2016 (RAJ RAHUL GARG)

gbs JUDGE