2016 (6) TMI 739 - HC - Income Tax

Penalty under Section 271C - non deduction of tds as required by them under Section 194A - Held that - When there is a failure on the part of the assessee to deduct tax at source in violation of Section 194A, the penal provisions of Section 271C are attracted. In such a case, the only way out for the assessee is to take the benefit of Section 273B by establishing that there was reasonable cause justifying their failure to comply with Section 194A. Burden under Section 273B is entirely on with the assessee and that a case which is beyond the control of the assessee and which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides, alone make out a reasonable cause. In this case, Annexure A order of the Joint Commissioner shows that the assessee failed to produce any evidence to substantiate its claims. However, the Commissioner (Appeals) decided the issue by putting the burden on the revenue, which is evident from the extracted portion of the Annexure B order passed by the Commissioner. The order of the Tribunal shows that the Tribunal has given totally different reasons which are mere surmises and assumptions made by it and are not founded on any materials that were made available by the assessee. All this therefore show that the assessee had not established a reasonable cause, as contemplated in Section 273B to resist an order of penalty under Section 271C. Therefore, we find that the Commissioner (Appeals) and the Tribunal acted illegally in cancelling the penalty levied on the assessee. - Decided in favour of revenue

Summary

Issues:
1. Appeal against order cancelling penalty under Section 271C of the Income Tax Act for assessment year 1998-1999.
2. Burden of proof on the assessee for reasonable cause in failure to deduct tax at source under Section 194A.
3. Consideration of new reasons for reasonable cause under Section 273B by the Tribunal.
4. Conflicting reasons for 'reasonable cause' under Section 273B by the Commissioner (Appeals) and the Tribunal.
5. Compliance with Section 194A and applicability of penal provisions under Section 271C.

Analysis:

1. The appeal challenged the Tribunal's decision upholding the cancellation of penalty under Section 271C for the assessment year 1998-1999. The Tribunal had supported the cancellation of penalty as done by the Commissioner of Income Tax (Appeals). The questions of law raised by the Revenue focused on the correctness of the Tribunal's decision in cancelling the penalty order.

2. The case involved the assessee, a money lending firm, failing to deduct tax at source under Section 194A on interest payments to sister concerns. The Commissioner (Appeals) cancelled the penalty citing the absence of reasonable cause for the failure to deduct tax. The Tribunal confirmed this decision. The burden of proof for establishing reasonable cause under Section 273B lies with the assessee, requiring a valid justification for non-compliance with tax deduction provisions.

3. The Tribunal's consideration of new reasons for 'reasonable cause' under Section 273B was questioned, arguing that such reasons should have been presented before the assessing officer or Commissioner (Appeals). The legality of relying on new reasons without jurisdiction was contested, emphasizing the need for consistency in the cause presented throughout the proceedings.

4. The conflicting reasons provided by the Commissioner (Appeals) and the Tribunal regarding 'reasonable cause' under Section 273B raised doubts about the validity of the decision to cancel the penalty. The Tribunal's reliance on reasons not supported by evidence or materials from the assessee indicated a lack of established reasonable cause, leading to the conclusion that the penalty cancellation was unjustified.

5. The judgment emphasized the importance of compliance with tax deduction provisions like Section 194A to avoid penal consequences under Section 271C. Failure to deduct tax at source necessitates the assessee to prove a reasonable cause for non-compliance, failing which penalties may be imposed. In this case, the Tribunal's decision to cancel the penalty was deemed illegal, as the assessee failed to establish a valid reasonable cause as required by law.