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2017 (11) TMI 185 - AT - Income TaxPenalty u/s 271C - non deduction of tax/ short deduction of tax on account of bank guarantee commission to various banks u/s 194H - Held that - Hon Delhi High court in JDS apparel (P) ltd (2014 (11) TMI 732 - DELHI HIGH COURT ) has also held that bank is not acting as an agent of the assessee. The provision of section 273B of the Act provides that penalty u/s 271C of the Act cannot be levied if the assessee shows reasonable cause for the failure referred to in that provision. In the present case non-deduction tax at source on bank guarantee commission is supported by many decisions of the coordinate benches as well as the notification issued by the CBDT. Therefore, even if assuming that there is a default of non-deduction of tax at source it cannot be said that it is without a reasonable cause. As held in case of CIT Vs. Bank of Nova Scotia 2016 (1) TMI 583 - SUPREME COURT in confirming the decision of a coordinate bench, where Hon ble Delhi High Court rejected appeal of the revenue , that for the purpose of levy of penalty it is necessary to establish that there was contumacious conduct on the part of the assessee. The coordinate bench also followed several decisions of the Hon ble Delhi High Court for deleting the penalty u/s 271C of the Act. There was no such contumacious conduct shown by the revenue in the present appeals. Thus deleting the penalty levied u/s 271C confirmed - Decided in favour of assessee.
Issues Involved:
Appeal against order cancelling penalty u/s 271C for non-deduction of tax on bank guarantee commission. Analysis: 1. The appeals were filed by the Assessing Officer against the order cancelling the penalty u/s 271C for non-deduction of tax on bank guarantee commission. The ld CIT(A) deleted the penalty for the Assessment Years 2011-12, 2012-13, and 2013-14. 2. The Revenue contended that the ld CIT(A) erred in deleting the demand, citing Notification No. 56/2012, effective from 01.01.2013, exempting TDS on bank guarantee commission. However, payments were made before this date, justifying the penalty under section 271C. 3. The Assessing Officer held the assessee in default for not deducting tax on bank guarantee commission payments to Indian banks. The penalty u/s 271C was levied, which the ld CIT(A) later deleted based on a group company's case where section 194H provisions were held not applicable to such payments. 4. The ld DR supported the Assessing Officer's orders, while the ld AR relied on the ld CIT(A)'s decision. 5. The main issue was whether tax should be deducted on payments to Indian banks for bank guarantee commission. A CBDT notification clarified that no TDS was required on such payments, even retrospectively from 01.01.2013, as per judicial precedents. 6. The Coordinate Bench decisions established that the circular was clarificatory and retrospective, thus no TDS was necessary on bank guarantee commission payments. 7. Decisions like DCIT Vs. Laqshya Media Pvt. Ltd and Kotak Securities supported the non-requirement of TDS on bank guarantee commission, emphasizing the absence of a principal-agent relationship. 8. The Delhi High Court's ruling in JDS apparel (P) ltd further affirmed that banks were not acting as agents of the assessee in such transactions. 9. Section 273B of the Act states that penalty u/s 271C cannot be levied if there is a reasonable cause for the failure. The CBDT notification and judicial precedents supported the non-deduction of TDS, indicating a reasonable cause. 10. The Hon'ble Supreme Court's decision in CIT Vs. Bank of Nova Scotia highlighted the necessity of establishing contumacious conduct for penalty imposition, which was lacking in the present case. 11. Consequently, the ld CIT(A) did not err in deleting the penalty u/s 271C for all the relevant years, as there was no contumacious conduct or unreasonable cause for non-deduction of TDS. 12. The appeals of the Revenue for all years were dismissed based on the above analysis and legal precedents.
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