Is Financial Crisis a “Reasonable Cause” to grant immunity from levy of penalty?

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Is Financial Crisis a “Reasonable Cause” to grant immunity from levy of penalty?

The assessee deducted tax at source that was not paid by the assessee to the Central Government in the prescribed time. The department treated the assessee as the assessee in default on the ground that there was a delay of 543 days in depositing the TDS amount to the Government exchequer. The CIT (A) also noted that had the assessee committed the default of only late filing, it would have been held to be a technical breach. But in this case the tax was also not  deposited within time.

The honourable ITAT observed that the assessee was in severe Financial Crisis and therefore TDS could not be deposited.

The severe Financial Crisis is a reasonable cause for not depositing the TDS within the time period as held by the ITAT.

Have a look at the judgment.

M/S. Jcl Infra Ltd., Uttar Pradesh vs Addl. Cit (Tds), Ghaziabad on 28 June, 2018

Both these appeals have been filed by the assessee. ITA No. 784/Del/2015 is against order dated 10.12.2014 passed by the Ld. CIT(A)-Meerut for assessment year 2008-09 wherein, vide the impugned order, the Ld. CIT(A) has confirmed imposition of penalty of Rs. 32,900/- imposed u/s 272A(2)(k) of the Income Tax Act, 1961 2 ITA no.784-85/Del/2014 (JCL Infra Ltd.) (hereinafter called to ‘Act’). Similarly, ITA No. 785/Del/2015 is challenging the confirmation of penalty of Rs. 27,400/- imposed u/s 272A(2)(k) of the Act vide order dated 10.12.2014 passed by the Ld. CIT(A)-Meerut for assessment year 2009-10.

  1. None was present on behalf of the assessee when the appeals were called out for hearing nor was any application for adjournment received on behalf of the assessee/appellant. However, looking into the facts of the case, we are proceeding to decide the case ex parte qua the assessee/ appellant.
  2. The brief facts of the case are that the assessee is a company and the tax deducted at source by the assessee was not paid to the credit of the Central Government within the prescribed period. Further, the assessee did not file the quarterly statements in Form 26Q within the prescribed time. The AO (TDS) noted that the quarterly statements in assessment year 2008-09 were filed late by 228 days for the first quarter, 165 days for the second quarter and 150 days for the third quarter. Thus, the total number of days for late filing was counted to be 543 days. The AO further noted that the quarterly statements in Form 24Q were also delayed by 543 3 ITA no.784-85/Del/2014 (JCL Infra Ltd.) days. He, accordingly, imposed a penalty of Rs. 1,08,600/- for both the defaults.

3.1 Similarly, in assessment year 2009-10, the quarterly statements were filed belatedly. There was a delay of 376 days for the first quarter, 251 days for the second quarter and 161 days for the third quarter. Thus, the total delay in filing was counted at 788 days and, accordingly, a penalty of Rs. 78,800/- was imposed. 3.2 The assessee carried the matter before the Ld. CIT (A) and submitted that the period of default should be calculated in respect of period of delay after the payment of TDS to the Central Government. The assessee also submitted before the Ld. CIT (A) that the assessee was in severe financial crisis and, therefore, the TDS could not be deposited in time. The Ld. CIT (A) noted that the assessee had not only delayed the filing of the quarterly returns but also did not deposit the tax deducted by it. The Ld. CIT (A) noted that had the assessee committed the default of only late filing, it could have been held to be a mere technical breach but since the tax was not also deposited within the prescribed period, penalty was imposable. The Ld. CIT (A), however, held that as there were mistakes in counting the number of days of default and further that 4 ITA no.784-85/Del/2014 (JCL Infra Ltd.) in assessment year 2008-09 the delay in filing of Form 26Q was of only of 313 days while the delay in filing Form 24Q was of 16 days only, the quantum of penalty was to be fixed at Rs. 32,900/-. Similarly, in assessment year 2009-10, the Ld. CIT (A) noted that the delay in filing of Form 26Q was only 274 days and, therefore, the quantum of penalty was fixed at Rs. 27,400/-. 3.3 The assessee is in appeal before us against the penalties, as sustained by the Ld. CIT (A).

  1. The Ld. Sr. Departmental Representative placed reliance on the findings of the Ld. CIT (A) and argued that the penalties had been rightly sustained.
  2. We have heard the Ld. Sr. Departmental Representative and have also perused the impugned orders. The assessee has pleaded before the Ld. CIT (A) that the delay was due to severe financial crisis which the assessee was facing. However, it is seen that the Ld. CIT (A) has not considered this submission of the assessee nad has upheld the penalty on the ground that even the tax deducted at source was not deposited in time. However, it is our considered opinion severe financial crisis is a reasonable cause which would have prevented the asssessee from depositing the TDS within the 5 ITA no.784-85/Del/2014 (JCL Infra Ltd.) prescribed time period. In such a circumstance, we hold that the explanation offered by the assessee would constitute ‘reasonable cause’ within the meaning of section 273Bof the Act and hence the assessee would be entitled to immunity from the levy of penalty u/s 272A(2)(k). Accordingly, in view of the facts, we set aside the impugned orders and direct the AO to delete the penalty.
  3. In the final result, both the appeals of the assessee stand allowed.

(Order pronounced in the open court on 28th June, 2018).

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