2021 (9) TMI 587 - AT - Income Tax

Penalty u/s 271C - default due to late deposit of TDS - bonafide belief or not - only explanation for non-deduction of tax by the assessee is that the amount paid to M/s. Haryana Ware Housing Corporation was booking advance for the space - HELD THAT - As stated that under the bonafide belief that no tax is liable to be deducted on such amount, the assessee did not deduct tax. When it came to the notice of the assessee, the entire amount alongwith interest thereon was duly deposited with the Government account. As argued that there is no loss of revenue hence, penalty u/s 271C ought not to have been imposed and sustained by the CIT(A). As argued that the assessee has demonstrated bonafide reason for non-deduction of tax, therefore, authorities below ought not to have imposed the penalty in terms of section 273B - assessee has also placed reliance on Hindustan Coca Cola Beverages Pvt.Ltd. 2007 (8) TMI 12 - SUPREME COURT to buttress the contention where the assessee has deposited tax and interest thereon and disclosed the income in the return of income, no disallowance is called for - as further stated that Haryana Ware Housing Corporation has also disclosed this income and due taxes have already been paid. As coupled with the fact that due taxes alongwith interest thereon, have been deposited in the Government account. This fact is not controverted by the Ld. Departmental Representative - the assessee has demonstrated the bonafide for non-deducting the tax. We, therefore, direct the Assessing Officer to delete the penalty imposed u/s 271C - Appeal decided in favour of assessee.

Summary

Issues:
1. Imposition of penalty under section 271C of the Income Tax Act, 1961 for non-deduction of tax at source on payment of rent.

Analysis:
The appeal pertained to the assessment year 2010-11 challenging the penalty imposed under section 271C of the Income Tax Act, 1961. The inspection revealed non-deduction of tax at source on rent payments, leading to the assessee being declared in default. The Assessing Officer initiated penalty proceedings, which were upheld by the Ld.CIT(A). The main contention was the bonafide belief of the assessee that tax deduction was not required. The assessee argued that upon realizing the mistake, the entire tax along with interest was deposited in the Government account. The authorities contended that the explanation provided was an afterthought to evade penalty. The assessee relied on the Hindustan Coca Cola Beverages Pvt.Ltd. case to support their stance.

The Tribunal considered the submissions and evidence. It noted that the payment to Haryana Warehousing Corporation was considered an advance for space booking, leading to the belief that no tax deduction was necessary. Upon realization, the entire amount with interest was promptly deposited. The Tribunal found that the assessee had demonstrated bonafide reasons for the non-deduction of tax. Noting that the revenue was not affected and taxes were duly paid, the Tribunal directed the Assessing Officer to delete the penalty imposed under section 271C. The peculiarity of the case, coupled with the timely tax deposit, supported the decision to allow the appeal and relieve the assessee from the penalty.

In conclusion, the Tribunal allowed the appeal, highlighting the bonafide nature of the assessee's actions in rectifying the tax deduction error promptly. The decision was made after a virtual hearing in August 2021, with both parties present.