2016 (6) TMI 485 - AT - Income Tax

Penalty levied u/s. 271C - short delay in remitting the TDS to the credit of Central Government - Held that - We find that there is a reasonable cause established by the assessee for remitting the TDS belatedly to the credit of the Central Government account and therefore, we direct the Assessing Officer to cancel the penalty levied u/s. 271C of the Act.- Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of sustaining the penalty levied by the assessing authority.
2. Denial of facts and circumstances by the authorities.
3. Overlooking of genuine reasons for delayed TDS payment.
4. Lack of deliberate intent to evade TDS payment.
5. Incorrect observation regarding the use of TDS for business purposes.
6. Non-consideration of various court decisions by authorities.
7. Error in sustaining the penalty levied.

Detailed Analysis:

1. Justification of sustaining the penalty levied by the assessing authority:
The assessee argued that the penalty levied under Section 271C was not justified due to severe financial crises caused by the global financial meltdown, which led to delayed TDS payments. The tribunal noted that the assessee faced continuous losses and acute financial crises, which resulted in the resignation of key staff responsible for maintaining accounts and filing tax returns. The tribunal found these circumstances constituted a reasonable cause for the delay.

2. Denial of facts and circumstances by the authorities:
The assessee contended that the authorities did not consider the severe financial difficulties and other genuine reasons for the delay in TDS payment. The tribunal reviewed the facts and found that the financial crisis and staff resignations were significant factors that impacted the timely remittance of TDS.

3. Overlooking of genuine reasons for delayed TDS payment:
The tribunal acknowledged that the assessee's financial difficulties were genuine and that the delay in TDS payment was due to circumstances beyond the assessee's control. The tribunal emphasized that the delay was nominal and that the TDS was eventually paid with interest before any penalty was levied.

4. Lack of deliberate intent to evade TDS payment:
The tribunal accepted the assessee's argument that there was no deliberate intent to evade TDS payment. The delay was due to financial constraints and not an attempt to misuse the TDS funds for business purposes. The tribunal noted that the TDS was paid voluntarily with interest, indicating the assessee's intention to comply with the tax obligations.

5. Incorrect observation regarding the use of TDS for business purposes:
The tribunal found that the assessee did not utilize the TDS funds for business purposes. Instead, the assessee had to borrow funds to pay salaries and meet other expenses. The tribunal concluded that the assessee's liabilities exceeded its assets, and there was no evidence of misuse of TDS funds.

6. Non-consideration of various court decisions by authorities:
The tribunal referred to several court decisions, including those of the Hon'ble Kerala High Court, Delhi High Court, and ITAT Bangalore Bench, which supported the assessee's position. These decisions highlighted that the existence of reasonable cause and the payment of TDS with interest before detection could mitigate or waive penalties under Section 271C.

7. Error in sustaining the penalty levied:
The tribunal concluded that the authorities erred in sustaining the penalty levied under Section 271C. The tribunal directed the Assessing Officer to cancel the penalty, citing the reasonable cause established by the assessee and the supportive judicial precedents.

Conclusion:
The tribunal allowed the appeal, directing the cancellation of the penalty levied under Section 271C. The decision was based on the assessee's genuine financial difficulties, lack of deliberate intent to evade TDS, and compliance with tax obligations by paying TDS with interest before any penalty was imposed. The tribunal's decision was supported by various judicial precedents that emphasized the importance of reasonable cause and mitigating circumstances in penalty cases.