2017 (5) TMI 772 - AT - Income Tax

Levy of penalty under section 271C - short/non-deduction of tax at source - Held that - In case of payments on which the assessee had deducted the tax at source under section194C of the Act and merely because the debate was whether the provisions of section 194J are attracted or not and even if the stand of the Assessing Officer was such, does not make the assessee exigible to levy of penalty under section 271C of the Act and hence the same is deleted. See CIT Vs. Cadbury India Ltd. 2011 (3) TMI 239 - DELHI HIGH COURT The total amount of payments on which tax in default is ₹ 44,878/- and further short deduction was on amounts totaling ₹ 44,766/-. The assessee has failed to explain as to why the TDS was not applicable on the amounts payable at ₹ 44,878/-. Further the assessee has admitted that it has by oversight not deducted the tax at source on payments on which TDS of ₹ 44,766/- has been held to be in default. We find that where the assessee has short deducted the tax at source and has admitted to have done the same, then the assessee is liable to levy of penalty on such short deduction of tax at source amounting to ₹ 44,766/-. Similarly, the assessee having not established its case of TDS not applicable on which short deduction was to the extent of ₹ 44,878/- the assessee is exigible to levy of penalty under section 271C of the Act. Accordingly, we uphold levy of penalty under section 271C of the Act. TDS on such amounts which were paid in the succeeding year - The assessee claims that there was some reconciliation pending in the case of two transporters and on reconciliation of the amounts the TDS was paid in the succeeding year. In respect of such a claim of the assessee, we find merit in the bonafides of the same and we hold that the assessee had reasonable cause for non deduction of tax on such payments and after reconciliation the assessee admittedly has paid the TDS on a total sum of ₹ 70,387/- in the succeeding year. There is no merit in the levy of penalty under section 271C on such payments.- Decided partly in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under section 271C for short/non-deduction of tax at source.
2. Barred by limitation for levying penalty under section 271C.
3. Reasonable cause under section 273B for non-deduction of tax at source.
4. Applicability of section 194C vs. section 194J for TDS deduction.
5. Non-deduction of TDS on reimbursement of expenses or service tax element.
6. Short deduction due to oversight.
7. TDS paid in the succeeding year.

Detailed Analysis:

1. Levy of Penalty under Section 271C for Short/Non-deduction of Tax at Source:
The primary issue in all appeals was the levy of penalty under section 271C of the Income Tax Act, 1961 for short/non-deduction of tax at source. The assessee, a subsidiary of Volkswagen AG, Germany, engaged in manufacturing passenger vehicles, was found defaulting in TDS provisions during a survey under section 133A. The Assessing Officer noted defaults under sections 194H/194J, leading to a demand under section 201(1) and interest under section 201(1A). The Additional CIT, TDS, Pune, rejected the assessee's plea of bonafide error and levied penalty under section 271C, relying on the Supreme Court's decision in Union of India vs. Dharmendra Textile Processors.

2. Barred by Limitation for Levying Penalty under Section 271C:
The assessee argued before the CIT(A) that the penalty order dated 30-07-2013 was barred by limitation. However, the CIT(A) dismissed this plea, holding that the competent authority to initiate penalty proceedings was the Additional CIT, TDS, Pune, who had only been intimated by the DCIT, TDS-1, Pune.

3. Reasonable Cause under Section 273B for Non-deduction of Tax at Source:
The provisions of section 273B provide that no penalty shall be imposed if the assessee proves reasonable cause for the failure. The Tribunal examined whether the assessee had reasonable cause for non-deduction or short deduction of tax at source. The Tribunal found merit in the assessee's plea that accessing standard data server facilities located outside India did not involve technical services under section 194J. Similarly, reimbursement of expenses and service tax elements were not liable for TDS.

4. Applicability of Section 194C vs. Section 194J for TDS Deduction:
The Tribunal noted that the assessee had deducted TDS under section 194C instead of section 194J, leading to a debate on the applicable provisions. Citing the Delhi High Court's decision in CIT vs. Cadbury India Ltd., the Tribunal held that a bonafide belief in the applicability of a particular section constituted reasonable cause. Thus, penalty under section 271C was not applicable for this default.

5. Non-deduction of TDS on Reimbursement of Expenses or Service Tax Element:
The Tribunal accepted the assessee's plea that reimbursement of expenses or service tax elements were not liable for TDS. Consequently, no penalty under section 271C was warranted for these amounts.

6. Short Deduction Due to Oversight:
For short deduction due to oversight, the Tribunal upheld the penalty under section 271C. The assessee admitted the oversight, and the amounts involved were ?44,766 and ?44,878, respectively.

7. TDS Paid in the Succeeding Year:
The Tribunal acknowledged the assessee's claim that TDS was paid in the succeeding year due to pending reconciliation with transporters. It held that the assessee had reasonable cause for non-deduction in the relevant year and directed the Assessing Officer to recompute the penalty, excluding such amounts.

Conclusion:
The Tribunal partly allowed the appeals, directing the Assessing Officer to recompute the penalty under section 271C, considering the reasonable cause for certain defaults and excluding amounts where TDS was paid in the succeeding year. The decision applied mutatis mutandis to all related appeals.