Saturday, June 1, 2013

No concealment penalty if exp. claimed in current year and withholding taxes deposited in subsequent year

Provision of sec. 40(a)(i) would be deemed to have been substantially complied with if taxes withheld from payment made to non-resident were deposited subsequent to the previous year in which expenditure was claimed by assessee. Hence, concealment penalty would not be leviable.

In the instant case, assessee had paid fee for technical service (‘FTS’) to non-resident and TDS thereon was deducted and deposited after the end of previous year, but before the due date of filing of income-Tax Return. However, disallowance not made by assessee of the FTS amount in return though non-deduction of TDS was reported by tax auditor in Form 3CD accompanying the return. AO imposed penalty under section 271(1)(c) in respect of FTS ‘falsely claimed. Penalty was upheld by the CIT(A). Hence the instant appeal filed by assessee against CIT(A)’s decision.

The Tribunal held as under:

1) The relevant provisions of section 40(a)(i) provides for the disallowance of specific sums payable to non-residents, where tax deducible at source, has not been deducted and deposited to the credit of the Central Government within the time prescribed under section 200(1);

2) This section is not absolute in its terms, and provides for the allowance thereof in the year of payment, i.e., where the tax stands deducted and paid after expiry of the time prescribed under section 200(1). There is, as such, no reference or correlation with the due date of the filing of the return by the assessee-deductor under section 139(1);

3) The deposit of TDS subsequently would operate as a mitigating factor. The provision itself providing for the contingency and consequence of delayed payment, deferring the claim to the year of actual payment;

4) The assessee would be entitled to claim the deduction for the immediately succeeding year, and which it has ostensibly not. In terms of the provision itself, therefore, it has become clear that it has been substantially complied with as the payment of TDS was made, though subsequently.

5) It would decidedly be a different matter if the provision made no such exception, as in that case there would be no question of the principal condition of the payment having been met and, thus, of the assessee being substantially compliant. This, therefore, served as a valid explanation under Explanation (1B) to section 271(1)(c) Thus, assessee's appeal was allowed and penalty was deleted. - Dynatron (P.) Ltd. v. Dy. CIT [2013] 33 603 (Mumbai - Trib.)