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2012 (9) TMI 218 - AT - Income TaxLevying penalty u/s. 271C - Non deduction of TDS - an order u/s. 201 (1A) by AO raising a demand - TDS u/s. 194J as against sec. 194C - Held that - Considering submission of assessee that he was under bonafide impression that he was not required to deduct tax at source since the recipient company is filing its returns regularly and paying legitimate tax dues by way of advance tax and self assessment tax - When there is no loss of revenue to the department on account of failure on the part of the assessee to deduct tax at source, penalty should not have been imposed u/s 271C Levy of interest u/s 201(1A) is automatic, however it is not so in case of imposition of penalty u/s 271C. Section 273B provides a discretion to the AO towards imposition of penalty u/s 271C considering the reasonableness of the cause shown by the assessee for failure on its part to deduct tax at source. It is seen from the penalty order u/s 271C that the AO has accepted the fact that the recipient of the printing and processing charges i.e., M/s. Prasad Productions Pvt. Ltd., has declared income received in its return of income filed and has paid taxes. Therefore, no order u/s 201 was passed against the assessee treating it as an assessee in default - in favour of assessee.
Issues:
Assessment of penalty under section 271C for failure to deduct TDS under section 194J. Detailed Analysis: 1. The appeals were against orders passed by the CIT(A)-II, Hyderabad in relation to assessment years 1999-2000, 2001-02, and 2002-03. The appellant contested the penalty of Rs. 49,413 imposed under section 271C for failure to deduct TDS under section 194J. The appellant argued that the CIT(A) erred in confirming the penalty, stating there was a reasonable cause for not remitting TDS to Prasad Productions Pvt. Ltd. The appellant contended that the payments made were not for technical services but for processing of films, and the holding company was paying advance tax and filing tax returns, hence no TDS was deducted. 2. The facts revealed that the assessee had paid an amount to Prasad Productions Pvt. Ltd. without deducting TDS, leading to the penalty imposition. The appellant explained that the work executed through the holding company was not considered technical services, and since the recipient had paid taxes on the income, there was no loss of revenue to the department. The Assessing Officer imposed the penalty despite the appellant's explanations, leading to the appeal before the CIT(A). 3. During the CIT(A) proceedings, the appellant argued that the failure to deduct TDS was due to a bonafide belief that TDS was not required as the holding company was complying with tax obligations. However, the CIT(A) upheld the penalty, citing the mandatory requirement to deduct TDS and rejecting the appellant's reasoning. The CIT(A) referred to a Kerala High Court decision and emphasized the statutory obligation to deduct tax at source, dismissing the appellant's argument that the payment was not for technical services under section 194J. 4. The ITAT, after considering the arguments and precedents, held that the appellant had demonstrated that the recipient had paid taxes on the income, and there was no loss of revenue to the department. Citing the Supreme Court's decision in CIT vs. Bharti Cellular Limited and ITAT Cochin Bench's ruling, the ITAT concluded that there was a reasonable cause for the failure to deduct TDS. Therefore, the penalty under section 271C was deemed unjustified, and all appeals filed by the assessee were allowed, directing the deletion of the penalty. This detailed analysis of the judgment highlights the issues, arguments presented by the appellant, decisions of the CIT(A) and ITAT, and the final outcome of the appeals.
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