2015 (11) TMI 116 - AT - Income Tax

Penalty u/s. 271C - failure to deduct tax and deposit to Govt. account - short deduction of TDS u/s. 194D of the Act treating the payments as contractual receipts u/s. 194C - CIT(A) deleted penalty - Held that - The assessee has made payments treating the same as contractual payments in lieu of the agreement after obtaining opinion from the advocate. There is no dispute that the assessee has deducted tax u/s. 194C of the Act for contractual payment on the basis of the opinion of advocate and this is also not under dispute that the deductions were required to be made by the assessee u/s. 194D of the Act from the payments being made by the assessee either reimbursement of expenses or payments being contractual or commission income. Once there is advice from an expert, assessee has to rely on it and this constitutes a reasonable cause. See Woodward Governors India (P) Ltd. Versus Commissioner Of Income Tax And Others. 2001 (4) TMI 34 - DELHI High Court . In case the assessee is in a genuine and bona fide belief that it was not under obligation to deduct tax penalty u/s. 271C of the Act cannot levied. See CIT Versus Eli Lilly & Company (India) Pvt. Ltd. 2009 (3) TMI 33 - SUPREME COURT - Income Tax The advice of the expert i.e. advocate after going through the clauses of the agreement holding the same as contractual obligation may be ill conceived advice but assessee has no option except to believe the same. Accordingly, in view of facts and circumstances of the case, we are of the view that the CIT(A) has rightly deleted the penalty and we confirm the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty imposed under Section 271C of the Income-tax Act, 1961 for failure/short deduction of TDS under Section 194D instead of Section 194C.
2. Reasonable cause for non-deduction of TDS under Section 194D.
3. Applicability of expert opinion as a defense for reasonable cause.
4. Interpretation of contractual payments versus insurance commission.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed under Section 271C:
The primary issue in this appeal is the deletion of the penalty of Rs. 8,80,89,883/- imposed under Section 271C for short deduction of TDS under Section 194D of the Income-tax Act, 1961. The assessee deducted TDS at 2% under Section 194C, considering the payments as contractual, while the Assessing Officer (AO) contended that the payments were insurance commissions, requiring TDS at 20% under Section 194D. The CIT(A) deleted the penalty, treating the payments as contractual receipts and acknowledging the assessee's bona fide belief.

2. Reasonable Cause for Non-deduction of TDS under Section 194D:
The CIT(A) concluded that the assessee had a reasonable cause for not deducting TDS under Section 194D due to the nature of the payments being considered as contractual. The Tribunal upheld this view, emphasizing the agreement between the assessee and GTFS, which outlined the roles and obligations, indicating the payments were for services and not insurance commissions.

3. Applicability of Expert Opinion as a Defense for Reasonable Cause:
The assessee obtained an expert opinion from Advocate Shri Chandan Dutta, who opined that the payments fell under contractual obligations and thus TDS should be deducted under Section 194C. The Tribunal considered this expert opinion as a reasonable cause, referencing the Hon'ble Supreme Court's decision in CIT Vs. Eli Lilly & Co. (India) P. Ltd., which held that penalty under Section 271C is not automatic and reasonable cause can waive the penalty if proven.

4. Interpretation of Contractual Payments versus Insurance Commission:
The Tribunal analyzed the agreement between the assessee and GTFS, which indicated that GTFS was appointed to provide various services and infrastructure to the assessee. The payments were for these services, not insurance commissions. The Tribunal supported the CIT(A)'s decision, stating that the payments were contractual, and the assessee acted in a bona fide belief based on the expert opinion, which constituted a reasonable cause under Section 273B.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s order to delete the penalty. The Tribunal emphasized that the assessee had a reasonable cause for deducting TDS under Section 194C based on the expert opinion and the nature of the agreement with GTFS. The decision was pronounced in the open court on 05.10.2015.