INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ‘A’, HYDERABAD

ITA No. 658/Hyd/2015 : Assessment Years 2005-06 ITA No. 659/Hyd/2015 Assessment Years 2013-14
Asstt. Commissioner of Incometax (TDS) (Appellant) vs M/s. Image Health Care Ltd (Respondent)
Date of Order: 01-12-2015

ORDER

Per D. Manmohan, Vice President :
These two appeals, filed at the instance of the Revenue, are directed against the common order passed by the Commissioner of Income-tax(Appeals) 8, Hyderabad and they pertain to assessment years 2012-13 and 2013-14. Since the issue involved in both the appeals is identical, we proceed to dispose of these appeals by a combined order for the sake of convenience.

2. In respect of financial year 2011-12, Assessing Officer noticed during the course of survey operations that the assessee has been postponing the remittance of TDS; though tax to the tune of Rs.1.15 crores was deducted during the financial year 2011-12, assessee did not remit the same into the Government of India account. Since there was delay in the remittance of TDS to the Government (TDS) Account, assessee was deemed to be in default in respect of such tax and simple interest was levied on the defaulted amount. Thereafter, penalty proceedings were initiated under S. 221 of the Act, by stating that the amount, which was not remitted to the Government Account was Rs.1.15 crores and interest thereon under S. 201(1A) worked out to Rs.14,23,879, and since the assessee has not paid interest till date, it is liable to the consequences under S. 221 of the Act. In response thereto, assessee submitted that assessee could not make the payment on account of ‘cash crunch’ and thus, it is supported by a ‘reasonable cause’. The Assessing Officer observed that the TDS amount of the financial year 2011-12, was remitted by the assessee, belatedly in June, 2012 and interest under S. 201(1A) was not remitted even till date and hence, it is a fit case for imposition of penalty, and accordingly levied a penalty of Rs.10 lakhs. In this regard, he relied upon the decision of ITAT (Amritsar Bench) in the case of Kapsons Industries Ltd. V/s. ITO, wherein the Bench held that tax deposited belatedly after the due date will not absolve the default for which penalty is imposed.

3. Similarly, in the financial year 2012-13, the amount which was not remitted to the Government Account, though tax was deducted, was quantified at Rs.62,61,048 and interest under S. 201(1A) to the tune of Rs.4,15,180, having not been paid till the date of initiation of penalty proceedings, the Assessing Officer rejected the explanation of the assessee and imposed penalty of Rs.10 lakhs under S. 221 of the Act.

4. Aggrieved, assessee contended before the CIT(A) that 98% of its Revenue is derived from the patients who are covered by insurance policies and patients referred by Government agencies like CGHS, ESIC, Arogya Sree, APSRTC, Singareni Collieries, South Central Railway etc.; while normal credit period for collection from insurance companies, is around three months, from government entities it is four to six months; delay in realisation of the revenue is further aggravated by the pressure from the creditors for drugs and disposables for which the assessee was granted a credit period of only two months (In fact, most of the suppliers were not interested in offering credit); assessee suffered from severe cash flow problem and had to struggle to make funds available even to meet its regular operating expenditure, which resulted in delayed remittance of TDS. It was also contended that Department collected the TDS dues by making attachment of assessee’s bank accounts under S.226(3) and even on the date of attachment, the company was reeling under severe cash crunch and cash in all the three bank accounts (SBH, Indian Bank and PNKB) together was below Rs. 6 lakhs. Reliance was placed upon the following decisions in support of its contention that where the assessee has reasonable cause or excuse for the delay in remittance of TDS, penalty could not be levied under S. 221 of the Act.

(a) CIT V/s. Smt. Vijayanthimala (108 ITD 882)-Mad.

(b) CIT V/s. Dadu Vala & Co. (170 ITR 491)-Raj.

Detailed arguments were advanced before the CIT(A), explaining as to how the assessee company had to suffer on account of ‘cash crunch’ in the form of delay in payment of salaries, professional fee to doctors and staff by which assessee could not retain quality professional and staff and in turn, affecting the patient inflow etc. It was also contended that penalty cannot be levied for non-payment of interest, since ‘tax ‘ and ‘interest’ are different in character, whereas the definition of ‘tax’ under S.2(43) does not cover ‘interest’ and ‘penalty’, under S. 221 of the Act, and therefore, mere non-payment of interest, penalty is not leviable, and in this regard, reliance was placed upon the decision of the Hon'ble Calcutta High Court in the case of Shreeniwas & Sons V/s. ITO (96 ITR 562)-Cal.

5. The learned CIT(A) observed that second proviso to S. 221 provides for non-levy of penalty; if the assessee is able to give good and sufficient reason for non-remittance of tax and in the given circumstances, the assessee is prevented by good and sufficient cause in which event penalty should not be levied. In this regard, the learned CIT(A) relied upon the following decisions-

(1) CIT V/s. Bhikaji Ramchandra (183 ITR 478)-Bom (2) CIT V/s. Chembara Peak Estates Ltd. (183 ITR 471)-Ker (3) CIT V/s. Raunaq & Co. (P) Ltd. (140 ITR 407)-Del (4) Hindustan Steel Ltd. V/s. State of Orissa (83 ITRT 26)-SC (5) CIT V/s. Munnilal & Company (204 CTR (Raj) 529 (SC)

While summing up, the learned CIT(A) observed that there is good and sufficient cause for not paying the tax because there is a genuine financial crunch, which is evident from the total balance available in the three bank accounts. It as further observed that where the assessee had acted in a bona fide manner, penalty should not be levied, more particularly, when the amount remaining to be paid was only interest component. Thus, she deleted the penalty levied by the Assessing Officer for both the years.

6. Aggrieved, Revenue is in appeal before us.

7. Learned Departmental Representative submitted that mere ‘cash crunch’ cannot be considered as a reasonable cause and the Assessing Officer is justified in levying penalty under S. 221 of the Act, which is only in addition to the arrears of payment of tax deducted. Reliance was placed upon the decision of the Hon'ble Bombay High Court in the case of Reliance Industries Ltd. (377 ITR 774), wherein Court observed that penalty under S. 221 is imposable even if tax has been paid before the initiation of penalty proceedings. However, when pointed out that when there is good and sufficient reason, the same requires to be considered, Learned Departmental Representative submitted that mere non-availability of cash cannot be treated as a valid cause because assessee has deducted tax at source.

8. Learned counsel for the assessee, on the other hand, submitted hat it was only a notional deduction and the assessee has not received the amount, which is very much evident from the fact that it was dealing with various patients covered under schemes such as ESI, Arogya Sree, etc. and there was a genuine cash crunch, because of which assessee could not make the remittance on time, and the same having been considered by the learned CIT(A), in the absence of placing any evidence to the contrary, the Learned Departmental Representative was not justified in stating that the explanation of the assessee is not valid. He also submitted that he decision of Hon'ble Bombay High Court in the case of Reliance Industries Ltd. (supra) does not come in the way of assessee’s plea, since there was a valid explanation given by the assessee.

9. We have carefully considered the rival submissions and perused the record. In the instant case, in these appeals, the plea of the assessee all along was there was a genuine cash crunch because of the fact that most of the payments were received under several schemes after a gap of two to six months, whereas the assessee has to make some urgent payments for the purpose of running its day-to- day business on account of which the assessee could not have sufficient liquid cash to make the payment, which is evident from the fact that all the three bank accounts of the assessee together had a total cash balance of Rs.6 lakhs only. These facts were not disputed by the Learned Departmental Representative. In other words, the explanation of the assessee that on account of cash crunch, remittance of TDS into Government account could not be made has not been rebutted. Under these circumstances, we do not find any infirmity in the order passed by the learned CIT(A). We therefore, uphold the same and dismiss these appeals of the Revenue.

10. In the result, both the appeals of the Revenue are dismissed.

Pronounced in the Court at the conclusion of the hearing on 1.12.2015.

(B.Ramakotaiah)                       (D.Manmohan)
Accountant Member                 Vice President