2018 (12) TMI 45 - AT - Income Tax

Penalty u/s 271C - non-deduction of TDS u/s 194J - Held that - Assessee has debited preoperative expenses of ₹ 2.25 lakhs on which tax was not deducted under section 194J of the income tax act. The assessee stated that it was covered by the exemption certificate under section 197 (1) of the income tax act dated 16th/1/2015. AO noted that the about tax deduction at source certificate has been given for the period from 10/12/2000 08/02/1931/3/2009 only. There was admittedly a failure on the part of the assessee to deduct tax at source on these above two expenses. However merely failure to deduct tax does not result into penalty under section 271C unless the adjudicating authority shows that there is a contumacious conduct of the assessee in failure to deduct tax at source. The issue is now squarely covered in favour of the assessee by the decision of the honourable Supreme Court of India 2016 (1) TMI 583 - SUPREME COURT wherein it has been held that for levy of the penalty under section 271C of the income tax act the learned adjudicating authority has to show contumacious conduct on the part of the assessee. There is no such finding that assessee has deliberately avoided the tax deduction at source provisions by not deducting the tax at source and therefore has failed to prove the contumacious conduct on part of the assessee for failure to deduct tax at source. In view of this we reverse the finding of the lower authorities and direct the learned adjudicating officer to delete the penalty under section 271C - Decided in favour of assessee.

Issues:
Appeal against penalty order under Section 271C for non-deduction of TDS; Failure to provide opportunity of being heard; Compliance with natural justice principles; Jurisdiction of the penalty order; Applicability of penalty provisions under Section 271C; Consideration of exemption certificates under Section 197(1); Failure to deduct tax at source on sharing expenses and preoperative expenses; Reasonable cause for non-deduction of tax at source; Contumacious conduct for levy of penalty under Section 271C.

Detailed Analysis:

1. Failure to Provide Opportunity of Being Heard:
The appellant contended that the penalty imposed was in violation of the principles of natural justice as there was a lack of opportunity to be heard, as required by Section 274 of the Income Tax Act, 1961. The appellant highlighted instances where the hearing dates were not conducive for proper representation, and the appellant's requests for rescheduling were denied. The argument emphasized the importance of procedural fairness in penalty proceedings.

2. Jurisdiction and Compliance Issues:
The appellant challenged the jurisdiction of the penalty order, arguing that no proceedings under Section 201 of the Act had been initiated against them. Additionally, it was contended that the penalty order was based on the assessment order under Section 143(3) of the Act, without proper consideration of independent factual and legal conclusions required for penalty imposition. The appellant stressed the need for a separate assessment of penalty issues.

3. Applicability of Penalty Provisions:
The appellant disputed the imposition of penalty under Section 271C, citing reasons such as the absence of tax liability under Section 194J on certain expenses and the lack of deliberate, willful failure on their part in non-deduction of tax at source. The argument centered on the necessity to establish contumacious conduct for penalty imposition.

4. Exemption Certificates and Compliance:
The appellant raised the issue of exemption certificates under Section 197(1), highlighting instances where no tax deduction was required based on the certificates provided. The appellant emphasized the immateriality of invoice dates and the absence of tax liability due to the deductee's tax assessment status.

5. Reasonable Cause and Contumacious Conduct:
The appellant presented reasons for the failure to deduct tax at source, including uncertainties in provisions and subsequent compliance upon crystallization of liabilities. The appellant stressed the absence of contumacious conduct and the presence of reasonable cause for non-deduction, as required for penalty imposition under Section 271C.

6. Decision and Ruling:
The appellate tribunal, after considering the arguments and reviewing the lower authorities' orders, found no evidence of deliberate avoidance of tax deduction or contumacious conduct by the appellant. Consequently, the tribunal reversed the penalty imposition under Section 271C and directed the deletion of the penalty amount. The ruling emphasized the necessity of proving contumacious conduct for penalty imposition.

In conclusion, the appellate tribunal allowed the appellant's appeal, highlighting the importance of procedural fairness, jurisdictional compliance, reasonable cause for non-deduction, and the absence of contumacious conduct in penalty proceedings under Section 271C of the Income Tax Act, 1961.

← Previous Next →