2019 (2) TMI 117 - AT - Income Tax

Penalty imposed under section 271C - TDS u/s 195 - non deducted tax at source on the remittances to its AE - default under section 201(1)Held that - Demand raised in pursuance to the order passed under section 201(1) and 201(1A) of the Act, in the mean while, has been deleted / quashed by the Tribunal while deciding assessee s appeal 2017 (4) TMI 60 - ITAT MUMBAI . Since, the very basis on which proceedings for imposition of penalty under section 271C of the Act was initiated and ultimately penalty was imposed no longer exists by virtue of the order passed by the Tribunal quashing the demand raised under section 201(1) and 201(1A) of the Act, penalty imposed under section 271C of the Act cannot survive. No infirmity in the order of the learned Commissioner (Appeals) in deleting the penalty imposed under section 271C of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Dispute over deletion of penalty under section 271C of the Income Tax Act, 1961.

Analysis:
The appellate tribunal, ITAT Mumbai, heard the appeal filed by the Revenue challenging the order passed by the Commissioner (Appeals) for the assessment year 2007-08. The main contention was regarding the deletion of penalty under section 271C of the Income Tax Act, 1961. The case involved an Indian company engaged in marketing, promotion, and distribution of "Red Hat Subscriptions" in the Indian sub-continent. The Assessing Officer initiated proceedings under section 201 of the Act, alleging that payments made by the company to Red Hat Asia Pacific Pte. Ltd., Singapore, were in the nature of royalty or fees for technical services, requiring tax deduction at the source. The company contended that the payments were not for technical services, but the Assessing Officer disagreed and demanded tax and interest, treating the company as an assessee in default. The company appealed to the Commissioner (Appeals) and subsequently to the Tribunal.

During the pendency of the appeal before the Tribunal, the Assessing Officer imposed a penalty under section 271C of the Act for the company's failure to deduct tax at source. However, the Tribunal quashed the demand raised under section 201(1) and 201(1A) of the Act in a previous appeal. Consequently, the Commissioner (Appeals) deleted the penalty imposed under section 271C of the Act, considering that the basis for the penalty no longer existed. The Tribunal upheld the decision, noting that since the demand under section 201(1) and 201(1A) had been quashed, the penalty under section 271C could not be sustained. Therefore, the penalty was rightfully deleted by the Commissioner (Appeals), and the Revenue's appeal was dismissed.

In conclusion, the Tribunal affirmed the deletion of the penalty under section 271C of the Income Tax Act, 1961, as the basis for the penalty no longer existed following the quashing of the demand raised under section 201(1) and 201(1A) by the Tribunal in a previous appeal. The decision was based on the lack of merit in imposing the penalty due to the absence of the underlying demand.