2013 (4) TMI 450 - HC - Income Tax

Panelty U/s 271C - Short deduction of tax at source under the Act - Held that - Looking to the fact that the petitioner is a part of State Government, we find that there was sufficient cause for short deduction of tax at source. The impugned orders have not taken into consideration Section 273-B of the Act, while upholding the penalty. The section provides that no penalty shall be impossable on the person or the assessee, as the case may be, for any failure referred to Section 271-C if he proves that there was reasonable cause for the said failure. Authorities were under legal obligation to consider the explanation given by the petitioner. We are of the opinion that no case for levying the penalty under Section 271-C of the Act has been made out as cause shown by the petitioner is sufficient - The impugned orders cannot be allowed to stand and are hereby quashed - The impugned penalty is set aside - the writ petition succeeds and is allowed.

Summary

Issues:
Challenging order under Section 271-C of the Income Tax Act for penalty on short deduction of tax at source.

Detailed Analysis:
The petitioner, a State Government Department, awarded work contracts to registered contractors for construction and maintenance work. The Income Tax Department initiated proceedings for short deduction of tax at source for financial years 1989-90, 1990-91 & 1991-92. The petitioner explained that tax was deducted on payments up to Rs. 5000, and due to lack of awareness, tax was not deducted on other amounts, leading to the mistake. However, the Assessing Officer, First Appellate Authority, and Revisional Authority upheld the penalty, prompting the writ petition.

The petitioner argued that as a State Government Department, it was not included in the definition of a person under Section 2(31) of the Act. The petitioner claimed no personal interest of the Officer led to the mistake, as the relevant provisions were not well-known. Upon discovering the error, the petitioner promptly paid the interest and tax amount. The department's counsel contended that compliance with statutory provisions was mandatory regardless of the petitioner's status, emphasizing ignorance of the law is no excuse.

The Court noted the petitioner had already deposited the short deduction amount along with interest. Despite granting ample time, the respondents did not file a counter affidavit to challenge this fact. The Court considered the petitioner's status as a part of the State Government and found a reasonable cause for the short deduction of tax at source. The impugned orders failed to consider Section 273-B of the Act, which exempts penalty if a reasonable cause is proven for the failure. The authorities did not assess the explanation provided by the petitioner, leading to the quashing of the penalty orders for the financial years in question.

In conclusion, the Court held that no grounds existed for levying the penalty under Section 271-C as the petitioner's explanation was deemed sufficient. The impugned penalty orders were quashed, and the writ petition was allowed with no costs imposed.