2011 (1) TMI 1545 - AT - Income Tax

Summary

Issues involved: Appeals by Revenue against deletion of penalty u/s.271C by CIT(A) for asstt. years 1997-98 to 1999-2000 based on limitation grounds.

Summary:

Issue 1: Penalty u/s.271C imposition based on failure to deduct tax at source

The Tribunal considered the appeals and cross objections arising from the CIT(A) orders deleting penalties u/s.271C for the years 1997-98 to 1999-2000. The penalties were imposed by the AO following a survey action u/s.133A and subsequent orders u/s. 201(1) and 201(1A). The assessee argued that the initiation of proceedings was beyond the 6-year limit. The Tribunal had previously observed the same in a related case. The CIT(A) deleted the penalties based on the Tribunal's decision to quash the orders u/s.201(1) and 201(1A) for those years, leading to the Revenue's appeals.

Issue 2: Legal interpretation of penalty u/s.271C

The Tribunal analyzed the provisions of sec. 271C, which penalizes failure to deduct tax at source. It noted that the penalty is imposed when there is a failure to deduct or pay tax, with the penalty amount equal to the tax not deducted or paid. The liability u/s.201(1) is a prerequisite for imposing the penalty u/s.271C. If the order creating the liability u/s.201(1) is set aside due to limitation, the assessee is not in default, and thus, no penalty u/s.271C can be imposed as there is no basis for it.

Issue 3: Effect of Tribunal's order on penalty imposition

The Tribunal observed that its order setting aside the u/s.201(1) and 201(1A) orders due to limitation meant the assessee was not in default regarding tax deduction or payment. Consequently, the imposition of penalty u/s.271C was unwarranted. The CIT(A) canceled the penalties based on this reasoning without delving into the merits of the case, leading to the upholding of the impugned order.

The cross objections by the assessee were deemed academic due to the decision on the Revenue's appeals. Ultimately, the appeals by the Revenue were dismissed, and the cross objections by the assessee were also dismissed as they had become infructuous.