2017 (6) TMI 540 - AT - Income Tax

Penalty u/s. 271C - short deduction of TDS - Held that - Assessee has made deduction in the light of the provisions of section 194C. The revenue authorities were of the opinion that Section 194I/194J was applicable on the impugned payments. In our considered opinion, the A.O. should not have levied the penalty mechanically without going into the merits of the case. On the given facts, it cannot be said that the assessee has willfully defaulted in deducting tax at source. From the above chart, we find that only demurrage charges of ₹ 2,96,820/- were paid without any deduction of tax. We further find that the said payment was made for delay in lifting the goods and the same was of penal in nature which can be safely accepted as a reasonable case for non-deduction of tax at source. As prior to the passing of the order u/s. 200(1) of the Act, the assessee has paid the differential amount of tax in the case of Padhiyar Hi-tech Engineering. This itself shows that there was no mala fide on the part of the assessee to willfully evade the provisions of the law. Section 273B of the Act provides that no penalty shall be imposable on the assessee for any failure referred to in the said provisions if he proves that there was a reasonable cause for the said failure. - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of penalty under section 271C for alleged default in deducting tax at source.

Analysis:
The appeal was filed by the revenue against the order of the Ld. CIT(A)-I, Rajkot pertaining to A.Y. 2011-12, challenging the deletion of penalty of ?17.40 lacs levied under section 271C of the Act. The case revolved around a survey operation conducted under section 133A of the Act, revealing short deduction of TDS by the assessee on various payments. The revenue contended that the assessee defaulted in deducting tax at source and thus, was liable for the penalty.

During the penalty proceedings, the assessee argued that it believed in good faith that section 194C applied to the payments in question and had deducted tax accordingly. The assessee maintained that the alleged default was not willful and should not attract penalty. However, the Assessing Officer (A.O.) proceeded to levy a penalty of ?17.40 lacs, disregarding the assessee's contentions.

Upon appeal, the Ld. CIT(A) found that the penalty was unjustified as the assessee had a reasonable cause for believing that section 194C applied to the payments. The Ld. CIT(A) observed that the A.O. mechanically imposed the penalty without considering the merits of the case. It was concluded that the assessee had demonstrated a reasonable cause, warranting the cancellation of the penalty under section 271C.

The Tribunal analyzed the case and noted that the assessee had deducted TDS under section 194C based on a bona fide belief, while the revenue authorities insisted on the applicability of section 194I/194J to the payments. The Tribunal held that the penalty should not have been levied mechanically and that the assessee did not willfully default in deducting tax at source. Notably, the Tribunal found that the demurrage charges paid without deduction of tax were justified due to the penal nature of the payment.

Moreover, the Tribunal highlighted that the assessee had deposited the differential TDS amount before the order under section 201(1)/(1A) in a specific case, indicating no mala fide intention to evade the law. Citing section 273B of the Act, which exempts penalties if a reasonable cause is proven, the Tribunal concluded that there was a reasonable cause for the failure in this case. Consequently, the Tribunal upheld the Ld. CIT(A)'s decision to cancel the penalty under section 271C, dismissing the appeal filed by the revenue.