Whether penalty u/s 272B is to be imposed on deductor even if fault of non-furnishing of PAN details lies with deductees - NO: Allahabad HC

THE issues before the Bench are - Whether penalty u/s 272B is discretionary; Whether penalty can be imposed merely because it is lawful to do so; Whether penalty u/s 272B is to be imposed on the deductor even if the fault of non-furnishing of PAN lies with the deductee and Whether when the deductee has furnished PAN details but the deductor has failed to mention the same in Form 16A, it warrants penalty u/s 272B. And the verdict goes against Revenue.

Facts of the case

The assessee is a public sector undertaking. It has been deducting income tax at source as per the provisions of Section 194-C and 194-J of the Act on all the payments made to contractors/professionals during the financial year 2002-03. The tax so deducted was also deposited by it in the government treasury in time. The annual return of TDS as per the provisions of Section 203 of the Act, was also filed in the prescribed 'Form-26-C' and TDS certificates were issued to contractors/professionals. However, penalty at the rate of Rs.10,000/- for each 350 defaults committed by the assessee amounting to Rs. 35 lacs was imposed by the Additional Commissioner of Income Tax Range-I, Agra on the ground that the assessee had not mentioned Permanent Account Number in Form-16-A issued to 350 contractors. The Additional Commissioner, rejected all the submissions of the assessee, namely, that non-mentioning of PAN in Form 16-A issued to certain contractors was neither intentional nor violative of the provisions, the contractor did not make it available at the time of issue of TDS certificates within the time prescribed, there was no legal obligation on the deductors to obtain PAN of the deductee either before or after deduction of tax at source and it was obligatory upon the deductee under section 139(5A) and if the payee has not informed their PAN to the deductor, the provisions of Section 139-A is not attracted and penalty under Section 272B cannot be imposed in view of the law laid down by Supreme Court in the case of 'Hindustan Steels Ltd. Vs.State of Orrissa (2002-TIOL-148-SC-CT)', the penalty will not ordinarily be imposed unless the parties obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation which circumstances did not exist in the present case and Section 272-B did not provide for penalty on default deductee-wise under the Act. However, the Additional Commissioner rejected the explanations submitted by the assessee and imposed penalty.

On appeal, the CIT(A) upheld the levy of penalty on the ground that there was no reasonable cause for failure to obtain and quote PAN of the deductees. However, the matter was remanded to the A.O. to identify the defaults committed prior to the introduction of section 272B w.e.f. 1.6.2002 and reduce the penalty imposed in respect of such default. On appeal, the Tribunal ruled against the Revenue.

On appeal, the HC held that,

++ a perusal of Section 139A(5A) shows that it puts an obligation on the person receiving any sum or income or amount from which tax has been deducted under the provisions of Chapter XVII( which include Section 194C and 194J) to intimate his permanent account number to the person responsible for deducting such tax under that Chapter. In the present case on facts presented before us it is clear that it was statutory obliteration of the contractors, who received certain amounts from the respondent assessee, from which tax was deducted under the provisions of Chapter XVII-B, to intimate their permanent account number to the assessee. It is the specific stand of the assessee that certain contractors have not intimated their permanent account number and for that reason it could not be mentioned in Form-16A issued to such contractors. Section 139A(5B) makes it obligatory for every person deducting tax under Chapter XVII-B to quote the permanent account number of the person to whom such sum or income or amount has been paid by him;

++ thus, reading both the provisions together, namely, Section 139A(5A) and Section 139A (5B) it appears to us that the deductor may be at fault under section 139A (5B) if he does not quote the permanent account number of the persons to whom the amount has been paid, despite the intimation of permanent account number by such person to the deductor under section 139A(5A) of the Act. There is nothing on record to show that the contractors to whom certain amounts were paid by the assessee, had intimated their permanent account number to the assessee as required under section 139A(5A) of the Act. We are of the opinion that in the circumstances the assessee successfully explained the reasonable cause to satisfy the provisions of Section 273B of the Act. Section 272-B has to be read along with Section 273-B of the Act. While Section 272-B(1) provides that if a person fails to comply with the provision of Section 139-B, the Assessing Officer may direct that such a person shall pay by way of penalty a sum of Rs.10,000/-, the provisions of Section 273-B provides that no penalty shall be imposable on the person or the assessee, as the case may be, for any failure under section 272-B, if such person or the assessee proves that there was reasonable cause for the said failure;

++ the use of word "may" in Section 272-B read with the words "there was reasonable cause for the failure", used under section 273-B, makes it clear that the penalty under section 272-B is not mandatory. It can be imposed only when the authorities do not accept the explanation given by the assessee for reasons to be recorded in writing. The use of the word 'may' in section 272-B, makes the levy of penalty discretionary, subject to the reasonable cause to be furnished by the assessee;

++ we have also perused the provisions of Rule 114B to 114D of the Income Tax Rule 1962 and do not find anything which may run contrary to the interpretation given by us to section 272B, 139A (5A) and 139B(5B) of the Act;

++ the contention of the counsel for the Revenue that the law laid down by the Supreme Court in the case of Hindustan Steels Ltd. Vs. State of Orissa ) is not applicable with regard to the levy of penalty under section 272B of the Act, is misconceived. We have already noted the provisions of Section 272B, 273-B and section 139A(5A) and 139A (5B) of the Act. A bare reading of the provision itself makes it clear that the penalty under section 272-B will not ordinarily be imposed unless the assessee has either acted deliberately in defiance of law or was guilty of conduct which is contumacious, dishonest or acted in conscious disregard to its obligation. The penalty under section 272B cannot be imposed merely because it is lawful to do so. It can be imposed for failure to perform statutory obligation. The imposition of penalty for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially, after considering the explanation of reasonable cause submitted by the assessee and on a consideration of all the relevant circumstances;

++ we find that the law laid down by the Supreme Court in the case of Hindustan Steels Ltd. Vs. State of Orissa is applicable looking to the provisions of Section 272-B read with Section 273B of the Act. Thus, the submission of the counsel for the Revenue that the law laid down by the Supreme Court in the case of Hindustan Steels Ltd. is not applicable, is liable to be rejected;

++ we further find that on the findings recorded by the ITAT regarding no revenue loss and mere technical breach, clearly satisfies the test of reasonable cause under section 273B of the Act. In the present case the levy of penalty under Section 272-B of the Act by the assessing authority was fully unjustified. We also find that the ITAT has elaborately dealt with the factual and legal aspect of the case and that the findings recorded by the ITAT on reasonable cause are findings of fact.