2016 (4) TMI 1044 - AT - Income Tax

Penalty levied u/s 271C - non TDS u/s 194H on commission/discount/handling charges paid to sub agents - Held that - . CIT(A) considered the submissions, reasons and the explanation of the assessee and then noted that the sale in respect of which commission was payable did not materialize and the commissions was also written back. The ld. CIT(A) also observed this fact that the assessee has already paid the TDS and interest thereon and respective party accounts were debited by the said amounts as no commission was paid to them and the TDS refund received by them payee sub agents/brokers was undue benefit enjoyed by them. After noticing above mentioned facts, on careful consideration of submissions of the assessee the ld. CIT(A) rightly held that imposition of penalty u/s 271(C) of the Act is not justified. - Decided in favour of assessee

Summary

Issues:
- Penalty under section 271C of the Income Tax Act, 1961 for failure to deduct tax at source under section 194H
- Reasonable cause for failure to deduct tax at source
- Justification for imposition of penalty under section 271C

Analysis:
1. Penalty under section 271C of the Income Tax Act, 1961 for failure to deduct tax at source under section 194H:
The appeal was filed by the revenue against the order of the CIT(A)-XXX, Delhi, for the assessment year 2001-02. The Revenue contended that the penalty levied under section 271C of the IT Act, amounting to ?27,78,033, for not deducting tax on commission/handling charges paid to sub-agents under section 194H was justified. The Revenue argued that the fault was established and admitted by the assessee. However, the assessee argued that the penalty cannot be imposed merely on technical grounds and that the TDS shortfall was paid along with interest. The first appellate order noted that the assessee had paid the TDS and interest, and the commissions were written back as the sales did not materialize, leading to no tax liability. The CIT(A) concluded that the imposition of penalty under section 271C was not justified in this case.

2. Reasonable cause for failure to deduct tax at source:
The assessee argued that there were reasonable causes for the failure to deduct tax at source. The reasons provided included the confusion due to it being the first year of the enactment of the relevant provision, a past policy of deducting TDS at the time of payment to avoid undue benefits in case of bad debts, and subsequent events proving the prudence of the company's policy. The CIT(A) considered these reasons and found them to be valid, leading to the cancellation of the penalty under section 271C.

3. Justification for imposition of penalty under section 271C:
The appellate tribunal observed that ignorance of a statutory provision does not excuse willful default, but section 273B of the Act provides for no penalty if a reasonable cause is proven. In this case, the causes shown by the assessee were deemed sufficient to justify the alleged failure. The tribunal upheld the CIT(A)'s decision to delete the penalty, stating that there was no valid reason for imposing a penalty when the payments were received back due to non-materialization of sales, resulting in the assessee being in a loss. The tribunal found the CIT(A)'s decision to be correct and upheld the order, dismissing the appeal of the Revenue.

In conclusion, the tribunal dismissed the appeal of the Revenue, upholding the decision to cancel the penalty under section 271C based on the reasonable causes shown by the assessee and the lack of justification for imposing the penalty.