2006 (1) TMI 541 - AT - Income Tax

Summary

Issues:
- Appeal against penalty under section 271C of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Appeal against penalty under section 271C
The appellant, engaged in software development, entered agreements for introducing franchisees. The Assessing Officer determined TDS liability on a commission payment to another company. The penalty proceedings under section 271C were initiated, and a penalty of Rs. 3,06,000 was imposed. The appellant contended that no TDS was deducted as section 194H was not applicable at that time. The CIT(A) upheld the penalty, citing manipulation of accounts to avoid section 194H. The appellant argued against intentional manipulation, stating payment made included TDS and interest. The Tribunal noted the appellant's compliance with TDS payment and lack of intentional default. Quoting legal precedents, the Tribunal emphasized the need for mens rea in concealment cases. It highlighted the requirement of a reasonable cause for penalty under section 271C, as per judicial decisions. The Tribunal found the appellant's belief in non-applicability of section 194H before its introduction as reasonable, leading to the penalty being unjustified. The Tribunal set aside the penalty, ruling in favor of the appellant.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of mens rea in concealment cases and the necessity of a reasonable cause for penalty under section 271C. The Tribunal found the appellant's belief in non-applicability of section 194H before its introduction as reasonable, leading to the penalty being unjustified and subsequently deleted.