2017 (5) TMI 710 - AT - Income Tax

Levy of penalty under section 271C - violation of the provisions of section 194H - non deduction of tds on sale of SIM cards/recharge coupons at discounted rates to the distributors - Held that - The appeal of the assessee for the assessment year 2007-08 was allowed, as the order passed by the Assessing Officer under section 201(1) and 201(1A) of the Act was barred by limitation. In respect of the other assessment years i.e. the assessment years 2008-09 to 2012-13, the Tribunal held that sale of SIM cards/recharge coupons at discounted rate to the distributors is not commission and therefore, not liable to the TDS provisions under section 194H of the Act. Although the Tribunal has remitted the matter back to the file of the Assessing Officer to verify the manner in which the books of account are maintained and whether the sale discount is reflected in the books. However, in principle the Tribunal has deleted the addition holding that there is no payment of commission, hence, the provisions of section 194H are not attracted. Various Benches of the Tribunal in the assessee s own case have taken a consistent view holding that the TDS provisions under section 194H are not applicable in respect of sale of SIM cards/recharge coupons at discounted rates to the distributors. Once, the substratum for the levy of penalty has eroded there is no question for sustaining the penalty. Since the co-ordinate Bench of the Tribunal has deleted the quantum addition in all the assessment years under appeal, under such circumstances there is no question of levy of penalty. Accordingly, the impugned orders are set aside and all the appeals of the assessee are allowed.

Summary

Issues:
Appeals against penalty under section 271C of the Income-tax Act, 1961 for assessment years 2007-08 to 2012-13.

Analysis:
1. The appeals were filed against the penalty orders confirming the levy under section 271C of the Income-tax Act, 1961. The appellant, a subsidiary of a telecom company, was engaged in providing cellular mobile telephone services. A survey revealed non-deduction of tax at source on trade discounts given to distributors. The Assessing Officer initiated penalty proceedings under section 271C for all the assessment years.

2. The appellant contended that a co-ordinate Bench had deleted the quantum addition under sections 201(1) and 201(1A) for the same assessment years, stating that the sale of SIM cards/recharge coupons at discounted rates to distributors did not attract TDS provisions under section 194H. The appellant argued that various Tribunal Benches had consistently held that section 194H was not applicable in such cases.

3. The appellant raised the plea of "reasonable cause," citing a Supreme Court decision and contended that when there is a divergence in views between the assessee and the Assessing Officer, penal provisions should not apply. They also relied on a Pune Tribunal decision to support this argument.

4. The Department supported the penalty levy but acknowledged that the co-ordinate Bench had deleted the quantum addition for the same assessment years.

5. The Tribunal noted that the penalty was imposed for violating section 194H due to alleged non-deduction of tax at source. However, since the co-ordinate Bench had deleted the quantum addition for all the assessment years, including the finding that the sale of SIM cards/recharge coupons was not commission, the penalty was not sustainable. Therefore, the penalty orders were set aside, and all appeals of the assessee were allowed.

6. The judgment highlighted the importance of the quantum addition being the basis for the penalty, and once that basis was removed, there was no justification for sustaining the penalty. As a result, the penalty orders were overturned, and the appeals were allowed.