Skypack India Pvt. Ltd., Ballabgarh v. ITO , Faridabad

A.N.Pahuja:- This appeal filed on 25.04.2011 by the assessee against an order dated 24.01.2011 of the learned CIT(A), Faridabad, raises the following grounds:- On the facts and circumstances of the case, the learned CIT(A) is unjustified, arbitrary and has erred under the law by not deleting the following additions made by the assessing authority.

1. By unjustified penalty of ``30,000/- imposed on the appellant u/s 272B of the Income-tax Act, 1961 and it is therefore, prayed that the unjustified and arbitrary additions to income be deleted and relief accordingly be granted to the assessee.

2. That the appellant craves for the permission to add delete or amend the grounds of appeal before or at the time of hearing.

2. Facts, in brief, as per relevant orders are that a perusal of the e- TDS quarterly statement of deduction of tax in form no.24Q for the financial year 2008-09 revealed that the assessee furnished incorrect Permanent Account Number[ PAN] for as many as 5 tax-deductees. Accordingly, the Assessing Officer i.e ITO(TDS)(A.O. in short) issued a show cause notice u/s 272B of the

I.T.A. no.2028/Del./2011 2 Income-tax Act, 1961 (hereinafter referred to as the Act). In response, the assessee did not file any reply nor any reasons for not quoting correct PAN in the quarterly statement in respect of five deductees. In response to another notice dated 7th June, 2010, the assessee replied that their counsel being out of town, the matter may be adjourned. Despite granting adjournment to 29.06.2010, the tax-deductor neither attended nor submitted any reply leading to the conclusion that it has nothing to say in the matter. Accordingly, the AO imposed a penalty of ``50,000/- @ ``10,000/- per default for the failure on the part of the assessee to quote correct PAN in terms of provisions of section 139a of the Act.

3. On appeal, the learned CIT(A) upheld the findings of the AO in the following terms:-

6. I have considered the submissions of learned counsel for the appellant and gone through the relevant documents and evidences placed on record. The provisions of section 272B of the Act read as under:- Penalty for failure to comply with the provisions of section 139a. 272b. (1) If a person fails to comply with the provisions of section 139a, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten thousand rupees. (2) If a person who is required to quote his permanent account number in any document referred to in clause (c) of sub-section (5) of section 139A, or to intimate such number as required by sub- section (5a) or sub-section (5c) of that section, quotes or intimates a number which is false, and which he either knows or believes to be false or does not believe to be true, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten thousand rupees. (3) No order under sub-section (1) or sub-section (2) shall be passed unless the person, on whom the penalty is proposed to be imposed, is given an opportunity of being heard in the matter. However, the imposition of penalty under the provisions of

I.T.A. no.2028/Del./2011 3 section 272B of the Act is again subject to the provisions of section 273B of the Act, which read as under: Penalty not to be imposed in certain cases. 273B. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of ..... or section 272B or .... , no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. The provisions of section 139a(5b) read as under: (5B) Where any sum or income or amount has been paid after deducting tax under Chapter XVIIB, every person deducting tax under that Chapter shall quote the permanent account number of the person to whom such sum or income or amount has been paid by him-

(i) in the statement furnished in accordance with the provisions of sub- section (2C) of section 192;

(il) in all certificates furnished in accordance with the provisions of section 203;

(iii) in all returns prepared and delivered or caused to be delivered in accordance with the provisions of section 206 to any income-tax authority; [(iv) in all statements prepared and delivered or caused to be delivered in accordance with the provisions of sub- section (3) of section 200: It is abundantly clear from the above provisions that a legal obligation has been cast upon every person (deductor) to quote PAN where:-

i) any sum or income or amount has been paid after deducting tax under Chapter XVIIB;

(ii) every person deducting tax under that Chapter shall quote the permanent account number of the. person to whom such sum or income or amount has been paid. Thus, the legal obligation to quote the PAN is on the person who

I.T.A. no.2028/Del./2011 4 has deducted the tax at source and has paid any amount after such deduction to the deductee. The learned counsel has contended that section 272B of the Act nowhere specifically relates to default under section 139A(5B) which casts an obligation on the deductor to quote the PAN of deductees. The AO has misunderstood the provisions of section and erred in imposing penalty under section 272B of the Act. The reliance has also been placed on the order dated 07.10.2009 passed by my Ld. predecessor in appeal No. 136/2008-

09 in the case of Packraft Container India Pvt. Ltd. for A.Y.2008-09 in which penalty imposed in the identical facts has been deleted. It has also been contended that due to loss of original return data, the revised return now prepared and uploaded in the system is rejected by the TIN facilitation centre. As a result, it has not been possible to file even the correction return so as to rectify the mistake in the PAN of three deductees. 6.1. On examination of the documents filed by the appellant, it is observed from the receipt of correction return dated 14.06.2010 that the same is rejected by TIN whereas the original statement filed on 02.06.2009 was' accepted. As per the status viewed on the website of NSDL, the system is showing the error in as much as. the PAN data of two deductees is not available in the system and PAN quoted by the appellant in respect of one deductee is invalid. Thus, the appellant has wrongly quoted the PAN of three deductees (pertaining to 5 records) as per the following details: Name of the deductee Correct PAN PAN quoted

1. Shashi Talwar ABLPT8888K ABCPT8888K*

2 Shikha Talwar AFTPK5700M AATPK5700M

3. Naresh Kumar AEXPK3285J AEXPK3585J (* wrong marked bold and underlined.} Thus, the admitted fact remains that the PANs of three deductees were wrongly quoted by the appellant in the quarterly returns as is evident from the above stated facts in which the alphabets and number were wrongly entered in the system. The errors in multiple cases

I.T.A. no.2028/Del./2011 5 cannot be considered to be in the nature of inadvertent mistake but a case of negligence. The subsequent filing of correction statement on 14.06.2010 can only set right the defects in the original quarterly return but not the default committed in terms of the provisions of section 139a(5b) which mandates quoting of PAN in respect of all the deductees to whom sums have been paid after deduction of tax at source. The contentions of the appellant that the AO has misunderstood the provisions of law and the penalty u/s 272B is not leviable for any default committed under section 139A(5B) of the Act are devoid of any merit and bereft of any rationality. sub section (1) of section 272b empowers the AO to levy penalty. 0n both the 'deductor' and 'deductee' if there is contravention 139A of the Act. Sub section (2) of section. 272B provides for Imposition of penalty only on the deductees PAN required to be quoted in any document referred to in (c) of sub-section (5) of section 139A, or to be intimated as required by sub-section (5A) or sub-section (5C) of section 139A of the Act is found to be false. Therefore, the penal provisions under sub section (2) of section 272b are attracted in the cases of deductees only for false quoting or false initiation of PAN. The non compliance to other provisions of section 139a would attract penalty under sub section (1) of section 272b of the Act which may be imposed. on both the 'deductors' or the 'deductees', as the case may be. To elaborate further, a penalty may be imposed under sub section (1) of section 2728 on a deductee for failure to comply with the provisions of section 139a(1) of the Act whereas a penalty under the same provisions may be imposed on a deductor for non compliance to the provisions of section 139a(5b) of the Act. Therefore, the learned counsel does not appear to have understood the provisions of law correctly. I have gone through the order of my learned predecessor passed in the case of Packraft Container India Pvt. Ltd. for A.Y.200B-09, the operative part of which reads as under: "It is found that the bare reading of the contents of section 272B would reveal that it does nowhere specifically relate to the default u/s 139A(5B) which in fact casts an obligation on the "deductor" to quote the PAN of the deductees under his command. Therefore, the A.O. was not justified to proceed against the PR i.e. the deductor assessee in the

I.T.A. no.2028/Del./2011 6 instant case. In this context, recently in the case of Financial Co- operative Bank Ltd. vs. ITO (2008) 117 TT] (Ahmedabad 'D'-Bench) 782, it has been held that section 272B does not prescribe imposition of any penalty for such failure on the part of the deductor u/s 139A(5B) of the Income Tax Act, 1961. Therefore, keeping in view this legal position as to the default in clause (iv) of section 139a(5b) vide which the A.O. has penalized the appellant, the impugned penalty order being illegal is unsustainable and hence it is quashed." The legislative intention behind insertion of provisions of section 139a(5b) more particularly clause (iv) of section 139a(5b) has to be understood in the context of emerging E-environment in the Income Tax department and proper implementation of Income Tax Act. Under the scheme of compulsory E-filing of returns by certain classes of persons and filing of income tax returns without any enclosures, the credit for TDS and other taxes paid by the assessees can be availed only when correct PAN is quoted in the tax payment challans, E-payments, TDS certificates and the returns and statements required to be filed as mentioned in sub section (5B) of section 139A of the Act. If the PAN of deductees is not quoted or wrongly quoted in the TDS returns required to be filed under section 200(3) of the Act, than the deductees shall not able to get the credit for tax deducted on their behalf by the deductor while processing of their returns of income. Therefore, the penal provisions of section 272B are brought on statute to ensure compliance of provisions of section 139a so that the whole scheme of the Government is not put to jeopardy. The CBDT in the circular No.9/200B in para 4.10 has emphasized as under: "4.10 Quarterly Statement of TDS - The person deducting the tax (employer in case of salary income), is required to file Quarterly Statements of TDS for the periods ending on 30th June, 30th September, 31st December and 31st March of each financial year, duly verified, to the Director General of Income-tax (Systems) or M/s. National Securities Depository Ltd. (NSDL). These statements are required to be filed on or before the 15th July, the 15th October, the 15th January in respect of the first three quarters of the financial year and on or before the 15th June following the last quarter of the financial year. The requirement of filing an annual return of TDS has been done away with effect from 1-4-2006. The quarterly statement for the last quarter filed in Form 24Q (as amended by Notification No. S.O. 704(E), dated 12-5-

I.T.A. no.2028/Del./2011 7 2006) shall be treated as the annual return of TDS. It is now mandatory for all offices of the Government and all companies to file quarterly statements of TDS on computer media only in accordance with the "Electronic Filing of Returns of Tax Deducted at Source Scheme, 2003" notified vide Notification No. S.O. 974(E), dated 26-8-2003. (Annexure-V), The quarterly statements are to be filed by such deductors in electronic format with the e- TDS Intermediary at any of the TIN Facilitation Centres, particulars of which are available at www.incometaxindia.gov.in and at http://tin.nsdl.com. If a person fails to furnish the quarterly statements in due time, he shall be liable to pay by way of penalty under section 272A(2)(k), a sum which shall be Rs.100 for every day during which the failure continues. However, this sum shall not exceed the amount of tax which was deductible at source. The Quarterly Statements are to be filed on computer media only in accordance with rule 31A of the Income-tax Rules, 1962. These Quarterly Statements compulsorily require quoting of the Tax Deduction Account Number (TAN) of the tax-deductor and the Permanent Account Number (PAN) of the employees whose tax has been deducted. Therefore, all Drawing and Disbursing Officers of the Central and State Governments/ Departments, who have not yet obtained TAN, must immediately apply for and obtain TAN. Similarly, all employees (including non-resident employees) from whose income, tax is to be deducted may be advised to obtain PAN, if not already obtained, and quote the same correctly, as otherwise the credit for the tax deducted cannot be given. A penalty under section 272B of Rs.10,000 has been prescribed for willfully intimating a false PAN. For and from the quarter ending 30-9-2007, filing of TDS returns in electronic form is also mandatory for deductors required to get their accounts audited under section 44AB of the Income-tax Act in the immediately preceding financial year or where the number of deductees' records in a quarterly statement for any quarter of the immediately preceding financial year is equal to or more than fifty. TDS returns in paper form will no longer be accepted from such tax deductors." Considering the above position and with due respect, it appears to me that my learned predecessor has not appreciated the position of law correctly in holding that the provisions of section 272B are not applicable to the default committed under section 139A(5B) of the Act. Sub section (5B) is an integral part of the provisions of section 139a of the Act and non compliance to the same is covered by the penal

I.T.A. no.2028/Del./2011 8 provisions of section 272B(1) of the Act as far as a tax deductor is concerned. 6.2. The relied upon case of Packraft Container India Pvt. Ltd. was also represented by the counsel for the present appeal in which reliance was placed on certain decisions in the cases of Mahavir Agency vs. ITA (58 ITD 386) [Ahd.] (tax deducted at source was duly paid in time but return in Form 26A was filed late), Mahendra Prakash Saraf vs. DCIT (64 ITD 382) (Del) (penalty was levied for delay in filing return in Form 26A) and Bansal Bros. vs. DCIT (64 ITD 129) (Del) where a penalty was levied under section 272A(g} on the ground of delay in issue of consolidated certificate at the end of the accounting period. Hence, the decisions in these cases are not applicable to the facts of present case as the penalty in those cases was levied for the defaults of altogether different nature. In the case of Packraft Container India Pvt. Ltd., my learned predecessor placed reliance on the, decision of Hon'ble Ahmedabad 'D' Bench in the case of Financial Co-operative Bank Ltd. vs. ITA (117 TTJ 782). The head note of the decision in this case is reproduced below: "Section 272B, read with section 139A of the Income-tax Act, 1961 and rules 114B to 1140 of the Income-tax Rules, 1962 - Penalty - For failure to comply with provisions of section 139a - Assessment year 2006-07 Assessee, engaged in business of banking, was to get either Permanent Account Numbers (PANs) of depositors or Form No. 60 duly filled in by them as specified in section 139 a and rules 114b to 114D - Assessee obtained Form No. 60 from depositors who did not have PANs but in some cases either said form had not been completely filled up or supporting evidence with respect to addresses of depositors was not available - Assessing Officer imposed. penalty under section 272B for said failure of assessee - Whether assessee-bank' could be penalized for its failure to obtain completely. filled in Form No. 60 and/or supporting evidence with respect to addresses of the depositors - Held, no" The above decision was delivered in the context of provisions of section 139A(5) and (6) and rules 114B(c), 114B(f), 114C(2)(c) and 114D of the Income-tax Rules, 1962, wherein it was held that an obligation to quote PAN or GIR Number in the documents for entering into the transactions of the type mentioned in above provisions is of the customers and not of the bank: and the cumulative

I.T.A. no.2028/Del./2011 9 analysis of aforesaid Rules. leads one to believe that the only obligation of the bank manager is as per rule 114C(2)(c) and the same is only to ensure that a person entering into transaction of the nature specified under rule 114B has quoted his PAN duly and correctly. In other words. none of those rules casts an obligation on the manager of a bank to ensure that Form No. 60 filed by the customer has been duly filled up or not. Similarly. none of the provisions of sub-section (5) or (6) of section 139A casts such an obligation on the bank: manager or the bank. Thus, this decision was in the different context of the provisions of sub section (5) and (6) of section 139A and not on the provisions of section 139a(5b}. Hence, the reliance on the same by my learned predecessor does not appear to be correct. The Hon'ble Rajasthan High Court in the case of Chhogmal Chiranji La1 vs. CIT (257 ITR 51) has held that if law provides for doing a thing in an particular manner, then it has to be done in that manner alone. In the case of Escorts Employees Ancillaries Ltd. vs. CIT, the Hon'ble ITAT, Delhi Bench 'B' (Third Member) (74 ITD1), in a judgment delivered in the context of provisions of section 272A(2) read with section 197 A(2), has held that that the penalty is to be levied with reference to the default or delay in submitting copy of each declaration in Form No 15H, separately. On the same analogy and interpretation, the penalty of Rs.10,000/- under section 272B is required to be levied for not quoting or wrong quoting of each PAN. It is evident from the submissions of appellant that wrong PAN has been quoted in respect of three deductees but in five records. It may be reiterated that wrong quoting of PAN cannot be inferred to be a compliance as per the provisions of section 139a (5B) of the Act and consequently, the penal provisions of section 272B(1) would be attracted. In respect of two deductees, wrong PANs have been quoted twice. The appellant has not submitted as to what was the reasonable cause for not quoting the PAN correctly. Hence, I hold that the appellant was in default in view of the provisions of section 272B r.w.s 139A(5B) of the Act in not quoting the correct PANs of three deductees despite having their correct PANs. The copies of their PAN cards have been filed by the appellant with the submissions before me. However, since in two records of two deductees, the mistake was repeated on account

I.T.A. no.2028/Del./2011 10 of their being quoted wrongly in the first place, the same may be considered as a reasonable cause. Accordingly, it would be fair and reasonable to impose penalty in respect of three defaults of quoting the PAN wrongly in the case of three deductees and to restrict the penalty to Rs.30,000/- Hence, the order passed by the AO imposing penalty to the extent of Rs.30,000/- is confirmed. The balance' penalty of Rs.20000/ - is deleted.

4. The assessee is now in appeal before us against the aforesaid findings of ld. CIT(A), upholding the levy of penalty of ``3 0,000/-. The ld. AR on behalf of the assessee while inviting our attention to the impugned order contended that only because of typographical error in mentioning the PAN in the case of Shashi Talwar, Shikha Talwar & Naresh Kumar, penalty of ``30,000/- has been upheld by the ld. CIT(A). He added that on identical facts, the ld. CIT(A) vide his order dated 07.10.2001 in Appeal No.136/2008-09 in the case of M/s Packcraft Container India Pvt. Ltd., cancelled the penalty in view of the decision of Ahmedabad D Bench in the case of Financial Co-operative Bank Ltd. Vs.

I.T.O. ,117 TTJ 782. On the other hand, learned DR supported the findings of ld. CIT(A).

5. We have heard both the parties and gone through the facts of the case. Indisputably, the assessee mentioned incorrect PAN in the case of following three persons in form no. 24Q: Name of the deductee Correct PAN PAN quoted

1. Shashi Talwar ABLPT8888K ABCPT8888K 2ShikhaTalwar AFTPK5700M AATPK5700M 3.Naresh Kumar AEXPK3285J AEXPK3585J In response to a showcause notice before levy of penalty u/s 272B of the Act for not quoting correct PAN in terms of provisions of sec. 139(5B) of the Act, the assessee did not appear nor pleaded any reasonable cause for their failure to

I.T.A. no.2028/Del./2011 11 quote correct PAN. On appeal, the assessee contended that though they mentioned PAN of the aforesaid three persons as per details given by these persons in form no.24Q after deducting tax at source from salary paid to them, on processing form no. 24 Q by the AO, it transpired that PAN of the aforesaid three persons was incorrect in five records. Though they submitted correct PAN to the concerned AO, he did not accept their submissions on the ground that the assessee itself should revise & upload the same , the AO having no power to rectify the defect. It was further submitted that that though the assessee tried to upload revised form, they could not do so due to mismatch of data and accordingly, it was rejected by the facilitation centre.. The assessee also enclosed a copy of revised return filed by it and the processing details as also copies PAN cards of the aforesaid three persons. The AO failed to provide a proper solution and instead imposed a penalty of `50,000/-, the assessee submitted . On appeal, the ld. CIT(A) reduced the penalty to `30,000/-, there being repetition of PAN in the case of two deductees, observing, inter alia, that the assessee did not give any reasonable cause for quoting incorrect PAN. We find that though the assessee quoted PAN of the aforesaid three persons in form no. 24Q, one alphabet each in the PAN of Shashi Talwar & Shikha Talwar as also one numeric in the PAN of Shri Naresh Kumar was mentioned incorrectly. According to the assessee, they quoted PAN as per details given by these three persons and only after processing the form 24Q mistake was brought to their knowledge by the AO.. The ld. CIT(A), without even verifying this contention as to whether details of PAN quoted by the assessee in form 24Q, were given by the aforesaid three persons incorrectly or the assessee alone quoted incorrect PAN , upheld the levy of penalty. In these circumstances, especially when the assessee quoted incorrect PAN in form 24Q due to apparent inadvertence on the part of either the assessee itself or the aforesaid three persons, levy of penalty is unjustified. Whether or not there was reasonable cause within the meaning of provisions of sec. 273B of the Act is

I.T.A. no.2028/Del./2011 12 a question of fact . There is no dispute that the assessee quoted PAN of the aforesaid three persons. There is nothing to suggest that the incorrect PAN were mentioned willfully or PAN were false. According to the assessee, PAN details quoted by them were supplied by the aforesaid three persons. The only defect in PAN was due to incorrect mention of one alphabet in two cases and one numeric in the third. Even if, there is any default , which resulted in the infraction of law, the default is technical and venial which did not prejudice the interests of the Revenue as no tax avoidance or tax evasion was involved. Hon'ble Delhi High Court in the case of Woodward Governor India (P) Ltd. vs. CIT (2001) 168 CTR (Del) 394 : (2002) 253 ITR 745 (Del) held that the word "reasonable cause" as applied to human action, is that which would constrain a person of average intelligence and ordinary prudence. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead an ordinary, prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. In terms of law laid down by the Supreme Court, the penalty could not be levied for every venial and technical breach of procedural laws. In this connection, it may be apposite to draw attention to the decision of the Supreme Court in Hindustan Steel Ltd. v. State Of Orissa†. [1972] 83 ITR 26; [1970] 25 STC 211, where it was laid down that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. In the instant case, the assessee attempted to correct their mistake on being pointed out but were unable to do so. There is no material on record that the assessee intended to quote false PAN. Considering the totality of facts and circumstances of the case, in our opinion, the aforesaid ratio in Hindustan Steel Ltd.'s case [1972] 83 ITR 26 (SC) case fully governs the facts of the present case and, therefore, the assessee was entitled to absolution from the liability to penalty under section 272B for quoting incorrect PAN of the aforesaid three

I.T.A. no.2028/Del./2011 13 persons in form no. 24Q. In view thereof, we have no hesitation in vacating the findings of the ld. CIT(A) and accordingly, the penalty levied by the AO and upheld by the ld. CIT(A) to the extent of `` 30,000/- is cancelled. Therefore, ground no.1 in the appeal is allowed.

6. No additional ground having been raised before us in terms of the residuary ground no.2 in the appeal, accordingly, this ground is dismissed.

7. In the result, appeal is allowed. Order pronounced in Open Court Sd/- Sd/- (RAJPAL YADAV) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to:-

1. M/s Skypack India Pvt. Ltd., Plot No.190A, Sector-59, Mathura Road, Ballabgarh.

2. Income Tax Off icer (TDS), Faridabad.

3. CIT (Appeals), Faridabad.

4. The CIT concerned.

5. The DR, ITAT,G Bench, New Delhi

6. Guard File. By Order, Deputy/Asstt.Registrar ITAT, Delhi