2021 (5) TMI 379 - AT - Income Tax

Penalty levied u/s. 271C - amount of tax allegedly not deducted by assessee - proceedings under section 201(1) - assessee submitted that, as on 31/03/2011, assessee was not in a position to quantify the sums payable to the parties and hence no tax was deducted at source - assessee voluntarily disallowed the said sum u/s 40(a)(ia) of the Act, on account of non-deduction of TDS and that the provision created was not credited to any parties or individuals account, since quantum of payment to the parties was not determinable as on the year-end - HELD THAT - Liability to levy penalty can be fastened only where the person/assessee do not have good/ sufficient reason for not deducting tax at source. In the present facts of the case, the provision created at the end of the accounting year has not been credited to the relevant parties to whom the payments has to be made for the reason that it was unquantifiable. Further, assessee has suo moto disallowed the said sum under section 40(a)(ia) for non-deduction of TDS. Therefore there is a sufficient and reasonable cause for not deducting TDS on the year-end provision. It is also observed that assessee consistently follows this kind of accounting system for year-end provisions which is subsequently reversed in the subsequent year in the month of April, as and when the bills are received, and the payment is made to the payee by deducting TDS. Further, admittedly, assessee has paid interest under section 201(1A) which further demonstrates there was no malafide intention. We also note that under similar circumstances in assessee s own case reported in own case 2005 (1) TMI 609 - ITAT BANGALORE coordinate bench of this Tribunal on similar facts deleted penalty as it was unsustainable. Further the decisions relied by the Ld.Sr.DR are distinguishable on facts, and therefore not applicable to the present facts of the case. Based on the above observations we do not find any infirmity in the view taken by the Ld.CIT(A) to delete the penalty levied under section 271C read with 273B of the Act due to existence of reasonable cause for non-deduction of TDS, and therefore, assessee cannot be held to be assessee in default . - Decided against revenue.

Summary

Issues:
1. Whether the penalty levied under section 271C of the Income Tax Act, 1961 for non-deduction of tax at source is justified.
2. Whether the assessee had reasonable cause for not deducting tax at source on year-end provisions.

Analysis:

Issue 1: Penalty under section 271C
The Appellate Tribunal, ITAT Bangalore, heard the appeal filed by the revenue against the order of the Ld.CIT(A) for assessment year 2011-12. The revenue contended that the Ld.CIT(A) erred in law and facts in deleting the penalty levied under section 271C of the Income Tax Act, 1961. The revenue argued that the assessee's case did not align with precedents such as the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd, which held that failure to deduct tax at source would attract penalty. However, the Ld.CIT(A) considered various judicial decisions and found that the penalty imposed by the Assessing Officer was not sustainable and hence deleted the penalty under section 271C.

Issue 2: Reasonable Cause for Non-Deduction of Tax at Source
The main contention in this case was whether the assessee had a reasonable cause for not deducting tax at source on year-end provisions. The assessee argued that it had created provisions for expenses at year-end, which were subsequently reversed in the next financial year as the sums payable to parties were not quantifiable at the time. The assessee also voluntarily disallowed the sum under section 40(a)(ia) of the Act due to non-deduction of TDS. The Ld.CIT(A) considered the consistent approach followed by the assessee and various judicial decisions, including the decision of the Bangalore ITAT in the assessee's own case, and concluded that there was a reasonable cause for non-deduction of tax at source. The tribunal upheld the decision of the Ld.CIT(A), emphasizing that the provision created at year-end was unquantifiable and not credited to relevant parties, and the assessee had paid interest under section 201(1A), demonstrating no malafide intention.

In conclusion, the Appellate Tribunal upheld the decision of the Ld.CIT(A) to delete the penalty levied under section 271C due to the reasonable cause for non-deduction of tax at source on year-end provisions. The tribunal dismissed the appeal filed by the revenue, emphasizing the consistent approach of the assessee and the existence of a reasonable cause for the non-deduction of TDS.