2015 (9) TMI 179 - AT - Income Tax

Penalty levied u/s 271C - non deduction of TDS from the payments made to creditors for expenses, unpaid labour charges, job work charges, transport charges, labour charges and royalty payments - Held that - Assessee in the present case has given explanation before the authorities below that the due to circumstances prevailing and under bonafide belief that tax was not required to be deducted at source U/S.194C on the payments in question. Moreover, no such issue was made out by Revenue in A.Y. 2002-03, in which year assessee has paid an amount of ₹ 1060.04 lakhs as against ₹ 948.09 lakhs during this year. Thus the non-deduction of tax at source on such payments cannot be said to be without a reasonable cause within the meaning of Section 273C. Therefore, the penalty levied u/s.271C in the instant case is not justified. As for as the short deduction is concerned, the assessee itself did not pursue the matter and conceded the lapses, which is evident from the order of the Tribunal in quantum appeal. Therefore, there was lapse on the part of the assessee by short deducting tax at source from payments made to Job work charges and Transportation charges u/s 194A and 194C for the A.Y. 2003-04 and u/s 194C for the A.Y. 2004-05, which was accepted by the authorized representative before the Bench. Thus short deduction of TDS u/s 194A amounting to ₹ 38,268/- and Job work charges and transportation charges u/s 194C amounting to ₹ 65,555/- for the A.Y. 2003-04 and short deduction of TDS u/s 194C for labour charges and transportation charges amounting to ₹ 40,900/- for the A.Y. 2004-05 is confirmed. - Decided in favour of assessee in part.

Summary

Issues:
1. Challenge against penalty levied under section 271C by the Addl. Commissioner of Income Tax.
2. Reasonable cause for non-deduction of tax at source on payments made to various expenses.
3. Justification for penalty imposition under section 271C.

Detailed Analysis:
1. The appeals were filed by the assessee against the penalty levied under section 271C by the Addl. Commissioner of Income Tax for the assessment years 2003-04 and 2004-05. The issue was common for both appeals, challenging the orders of the learned Commissioner of Income Tax (Appeals)-II, Hyderabad, confirming the penalty. The Tribunal heard both appeals together for convenience.

2. The main contention of the assessee was the reasonable cause for not deducting tax at source from payments made to creditors for various expenses like unpaid labor charges, job work charges, transport charges, and royalty payments. The authorized representative argued that the company itself arranged laborers and did not engage maistries for labor supply. The absence of a written agreement between the company and maistries was emphasized to argue against the applicability of tax deduction provisions.

3. The Tribunal analyzed the case thoroughly, considering the nature of the company's business, the circumstances under which payments were made, and the arguments presented by both parties. It was observed that the assessee had a bonafide belief that no tax was required to be deducted at source for payments made to its own laborers without assigning contract work to labor contractors. The Tribunal referred to legal precedents to establish that the levy of penalty under section 271C is not automatic and must be based on the presence or absence of a reasonable cause for non-compliance with tax deduction provisions.

4. Ultimately, the Tribunal found that the non-deduction of tax at source on labor charges for the assessment years 2003-04 and 2004-05 was not without a reasonable cause. The penalty imposed under section 271C for labor charges was deemed unjustified and deleted. However, the short deduction of tax at source on job work charges and transportation charges was acknowledged, and the penalty for those instances was confirmed. The Tribunal directed the Assessing Officer to modify the order accordingly, partly allowing the appeals of the assessee.

This detailed analysis showcases the Tribunal's thorough examination of the issues involved, the legal arguments presented by both parties, and the application of legal principles to arrive at a reasoned decision regarding the penalty levied under section 271C.