2018 (1) TMI 589 - AT - Income Tax

Penalty u/s 271C - non deduction of tds u/s 194J on the amount paid by the assessee to HWML was for the managerial services rendered by the said party - Held that - Assessee is held to be not liable for deduction of tax at source under section 194J of the Act from the payments made to HWML by the Tribunal in assessee s own case 2018 (1) TMI 549 - ITAT KOLKATA . The Tribunal thus has upheld the appellate order passed by the Ld. CIT(A) cancelling the demand raised by the A.O. against the assessee under section 201(1)/201(1A) of the Act for all the three years under and consequently the penalties imposed for the said three years under section 271C are liable to be cancelled as agreed given by the learned DR at the time of hearing. We, therefore, uphold the impugned order of the Ld. CIT(A) cancelling the penalties imposed by the A.O. under section 271C of the Act for all the three years under consideration and dismiss these appeals of the revenue.

Summary

Issues:
Penalties imposed under section 271C for failure to deduct tax at source from payments made to a party providing services.

Analysis:
The appeals were filed by the revenue against the cancellation of penalties imposed by the Assessing Officer under section 271C of the Income Tax Act, 1961 for three consecutive assessment years. The penalties were imposed on the assessee, a development authority, for not deducting tax at source from payments made to a party for operating and maintaining a water treatment plant. The Assessing Officer contended that the payments were for managerial services and fell under the purview of section 194J, requiring tax deduction at source. The Ld. CIT(A) cancelled the penalties based on the argument that the payments were not for any service but for transferring rights to supply water, making the assessee not liable for tax deduction under section 194J.

The assessee challenged the penalties before the Ld. CIT(A) while simultaneously appealing against the orders passed by the Assessing Officer under section 201(1)/201(1A) of the Act. The Ld. CIT(A) disposed of the appeals related to tax deduction at source by ruling in favor of the assessee, leading to the cancellation of demands raised by the Assessing Officer. Consequently, the penalties under section 271C were also cancelled by the Ld. CIT(A) in line with the decision regarding tax deduction at source.

Upon hearing arguments from both sides and reviewing the relevant material, the Tribunal upheld the decision of the Ld. CIT(A) regarding the cancellation of demands raised by the Assessing Officer for tax deduction at source. The Tribunal determined that the payments made by the assessee were not for any service but for transferring rights, thereby negating the applicability of section 194J. As a result, the penalties imposed under section 271C were deemed unjustified and were consequently cancelled by the Tribunal. The appeals filed by the revenue were dismissed, affirming the decision of the Ld. CIT(A) and providing relief to the assessee.

In conclusion, the Tribunal upheld the cancellation of penalties imposed under section 271C for failure to deduct tax at source from payments made to a party providing services, based on the reasoning that the payments were not for services but for transferring rights, making the assessee not liable for tax deduction under section 194J.