2015 (2) TMI 1296 - AT - Income Tax

Penalty u/s 271C - non deduction of tds u/s 194J by assessee bank on payments made to State Bank of India Surat in connection with clearance of MICR cheques - reasonable cause - penalty levied on the successors for an alleged infringement by the predecessor bank - bonafide belief that there was no tax deductible on such charges - Held that - The expression reasonable gives an impression that prima facie if a person of average intelligence has acted and under those circumstances the said action was at that point of time not infringed the settled law then it can be reasonably held that assessee was prevented by a reasonable cause under those circumstances not to act as prescribed or determined by a case law. We are aware that ignorance of law is not an excuse but at the same time it is not practical that every tax payer should be aware about the latest development of tax law; which are otherwise fast changing. We find that issue at hand was debatable at relevant point of time and assessee was prevented by a reasonable cause not to deduct TDS under the relevant provisions of Income Tax Act. In view of this assessee is entitled for relief from penalty levied under the provision of 271C - Decided in favour of assessee

Summary

Issues:
Appeal against penalty u/s. 271C for A.Ys. 2003-04 to 06-07 arising from orders of CIT(A)-I, Surat.

Analysis:
- In A.Y. 2003-04, the appellant contested the penalty imposed for failure to deduct tax at source on payments made to State Bank of India for MICR cheques clearance. The appellant argued that the charges were recovered from the participating bank and not considered as 'payment' under Section 194J. However, the Assessing Officer insisted on TDS deduction, leading to the penalty. CIT(A) upheld the penalty.
- The appellant referred to a similar case in Amritsar Bench where relief was granted under comparable circumstances. The appellant highlighted the mechanized nature of MICR cheque clearing and cited relevant case laws to support the argument that the issue was debatable, justifying relief from penalty.
- The tribunal acknowledged that the issue was debatable at the relevant time and that the appellant acted in good faith. Considering the concept of 'reasonable cause,' the tribunal concluded that the penalty was unwarranted and directed its deletion for A.Y. 2003-04.
- The same reasoning was applied to A.Ys. 2004-05 to 2006-07, leading to the deletion of penalties for these years as well.
- Ultimately, the tribunal allowed the appeals filed by the assessee, granting relief from penalties in all years under consideration. The judgment was pronounced on February 26, 2015.