2021 (8) TMI 148 - AT - Income Tax

Penalty levied u/s 271C - Penalty for failure to deduct tax at source - assessee has claimed interest expenses only for the year under consideration after deducting the TDS u/s 194A but failed to deposit the same in the account of government exchequer - HELD THAT - There remains no ambiguity that the assessee has not failed to deduct the TDS on the expenses as discussed - DR at the time of hearing has also not brought anything on record against the arguments advanced by the assessee with respect to deduction of TDS on the expenses as discussed above. Accordingly we reached to the conclusion that the assessee has deducted the TDS on the expenses as discussed above but failed to deposit the same in the account of Government exchequer account within the specified time. Thus in such a situation, the penalty u/s 271C of the Act is not attracted. We also note that the judgments relied by the authorities below in reaching to the conclusion that the assessee is subject to the penalty under the provisions of section 271C of the Act have been reversed by the subsequent judgment in the case of Lakshadweep development Corporation Ltd 2019 (3) TMI 333 - KERALA HIGH COURT The assessee cannot be visited with the penalty under the provisions of section 271C of the Act on account of failure on his part to deposit the amount of TDS deducted on the expenses as discussed above within the time specified under the statute. Accordingly the assessee succeeds in its grounds of appeal - Appeal filed by the assessee is allowed.

Summary

Issues:
1. Penalty imposed under section 271C of the Income Tax Act, 1961.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the penalty imposed under section 271C of the Income Tax Act, 1961. The appellant contested that the penalty of ?22,23,512 was unjustly imposed and should be quashed. The primary issue raised was the correctness of the penalty levied by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)). The appellant argued that there was no default in deducting Tax Deducted at Source (TDS) under Chapter XVII-B of the Act, as the TDS was deducted but not deposited due to financial difficulties.

The facts revealed a survey action where the appellant claimed interest expenses of ?22,23,512 but failed to deposit the TDS in the government account. The appellant later deposited the TDS along with interest. Despite this, a penalty was levied under section 271C for failure to deposit the TDS. The AO and CIT(A) upheld the penalty citing previous judgments. However, the appellant cited a subsequent judgment that reversed the earlier decisions, indicating that failure to deposit TDS did not attract penalty under section 271C.

Upon review, the Tribunal found that the penalty under section 271C could only be imposed if TDS was not deducted. In this case, the TDS was deducted but not deposited in time, leading to the conclusion that the penalty was not applicable. The Tribunal also noted the reversal of previous judgments by the Kerala High Court, further supporting the appellant's position. Consequently, the Tribunal allowed the appeal, ruling in favor of the appellant and setting aside the penalty.

In conclusion, the Tribunal's decision emphasized the specific provisions of section 271C and the distinction between failure to deduct TDS and failure to deposit it. The judgment highlighted the importance of statutory compliance and clarified that penalties should be imposed in accordance with the law. The reversal of previous judgments by the Kerala High Court played a crucial role in determining the outcome of the case, ultimately leading to the allowance of the appeal and the setting aside of the penalty.