2015 (10) TMI 1745 - AT - Income Tax

Penalty u/s 271C - treating the assessee to be in default for not deducting tax at source u/s 194A(3) on interest paid / credited to Societies viz H.P. Society for Promotion of IT & E-Governance (SITEG) - CIT(A) deleted penalty levy - Held that - provisions of section 194A were not applicable to H.P. Society for Promotion of IT & E Governance (SITEG) from whom tax has not been deducted by the bank and, therefore, it is clear that assessee bank was not liable to deduct tax. In any case the Hon ble Supreme Court in the case of CIT Vs. Eli Lilly And Company (India) Private Limited 2009 (3) TMI 33 - SUPREME COURT has clearly held that if the assessee has a genuine belief that assessee was not required to deduct tax then penalty u/s 271C of the Act was not liable. Therefore, we find nothing wrong with the order of Ld. CIT(A) and we confirm the same. - Decided in favour of assessee.

Summary

Issues:
- Whether the penalty imposed under section 271C for non-deduction of tax at source is justified.
- Applicability of section 194A to the case of H.P. Society for Promotion of IT & E Governance (SITEG).

Analysis:

Issue 1: Penalty under section 271C
The Revenue appealed against the order of CIT (Appeals) deleting the demand of penalties imposed under section 271C for the financial years 2008-09, 2010-11, and 2011-12. The Assessing Officer levied penalties as the assessee bank had not deducted tax at source. The bank argued that the tax was later deducted and paid along with interest, and that the society in question was not covered under section 194A. The CIT(A) relied on precedents and deleted the penalties. The Tribunal upheld this decision, citing the Supreme Court's ruling that if the assessee genuinely believed tax deduction was not required, then penalty under section 271C was not applicable.

Issue 2: Applicability of section 194A
The Tribunal analyzed the applicability of section 194A to the case of H.P. Society for Promotion of IT & E Governance (SITEG). Referring to a previous decision, it was established that since the society in question was wholly financed by the government, it fell under the exemption provided in section 194A. The Tribunal noted that the Central Government had notified that societies wholly funded by the government were exempt from tax deduction. Therefore, it was concluded that the provisions of section 194A were not applicable to the society in question, and the bank was not liable to deduct tax.

In conclusion, the Tribunal dismissed the Revenue's appeals, confirming the CIT(A)'s order to delete the penalties imposed under section 271C, as the bank had a genuine belief in not deducting tax due to the society's exemption under section 194A. The judgment highlighted the importance of genuine belief and adherence to relevant legal provisions in tax deduction matters.