It was an appeal of the revenue relating to the assessment order dated 5.1.2011 and 17.1.2011 and cancellation of the penalty under section 271 C of the Income Tax Act levied by the Assessing Officer for the assessment year 2005-06.
The brief facts of the case:
The Assessing officer during the assessment observed that the assessee had booked a sum of Rs. 122.65 lakh to Overseas Ship Building Corporation Centre for payment towards fees for consultation and supervision. The assessee was doing a project to establish a ship breaking yard at Pipavav Port Ltd. in Gujarat under the name and style “Pipavav Ship dismantling & engineering Co. Ltd.” The name was later changed to Pipavav Shipyard Ltd. The assessee took financial help from Japan Bank for International cooperation relating to the ship breaking project.
The assessee had booked an amount of Rs. 122.65 lakh towards the consultancy charges in the name of Overseas Shipbuilding corporation Centre. The Assessing officer further observed that the assessee had not deducted tax during credit or payment of the said amount. The Assessing officer considered the assessee to be a defaulter under section 201 and also levied interest under section 201 (1A).
The penalty levied by the Assessing officer was cancelled by CIT (A).
Arguments on behalf of the assessee:
The assessee challenged the decision of Assessing officer. The learned counsel for the assessee argued that assessee neither made the payment nor claimed the expenses; as such no income had accrued to Overseas Shipbuilding Corporation Centre. It was also stated that the company did not have permanent establishment in the country, nor had any business connection. Hence the income was not liable to be taxed in India. As such, no tax was needed to be deducted at source. It was argued that the order was also barred by the law of limitation.
Points of dispute:
The main point of dispute was treating the assessee as a defaulter under section 201 (1) and levy of interest under section 201 (1A) for not deducting TDS for the amounts payable to M/s Overseas Shipbuilding Corporation Centre towards consultancy fees.
Decision of the Income Tax appellate Tribunal:
The ITA held that based on entry in the books of accounts, an assessee cannot be held liable for deducting TDS when the amount was neither payable, nor was paid. No income had accrued to the Overseas Shipbuilding Cooperation Centre. The company did not have Permanent Establishment in India or any business connection in the country. There is no document placed to controvert the claim of the assessee regarding this. The assessee was held not liable to deduct TDS. Hence, the order of CIT (A) canceling the penalty was confirmed.
