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2023 (1) TMI 865 - AT - Income TaxPenalty levied u/s. 271C - order passed u/s. 201(1)/201(1A) for default for short/non-deduction - HELD THAT - On careful and logical analysis of the basis taken by the AO for imposing penalty u/s. 271C and findings recorded by the CIT(A) for deleting said penalty. First of all we are in agreement with the CIT(A) that the AO himself was not sure at all as to with regard to what payments the assessee failed to deduct TDS at source. When the AO himself was not sure about the omission or non-compliance of TDS provision by the assessee then the penalty u/s. 271C of the Act cannot be held as sustainable. In the case of CIT vs. Bank of Nova Scotia 2016 (1) TMI 583 - SUPREME COURT held that when the appellant s conduct is not contumacious then the penalty cannot be levied. This preposition has been consistently followed by lower authorities and in the case of CIT vs. ITOCHU Corp 2004 (5) TMI 53 - DELHI HIGH COURT and CIT vs. Mistui Co. Ltd 2004 (5) TMI 17 - DELHI HIGH COURT . Therefore we are unable to see any valid reason to interfere with the findings arrived by the Ld. CIT(A) and thus uphold the same resultantly appeal of revenue.
Issues:
1. Penalty under section 271C for non-deduction of TDS. 2. Direction to ascertain TDS deduction requirement under sections 194C and 194J. 3. Relief to assessee regarding default under section 201(1) of the Act. Issue 1: Penalty under section 271C for non-deduction of TDS: The appeal by the Revenue challenged the deletion of penalty under section 271C by the Ld. CIT(A). The Revenue argued that the AO was justified in imposing the penalty as the deductor failed to deduct TDS as required by law. However, the Assessee's representative contended that the penalty was imposed without considering all facts and circumstances, leading to its deletion by the Ld. CIT(A). The Ld. CIT(A) observed that penalty proceedings must be strictly construed, citing relevant legal precedents. It was noted that the AO was unsure about the specific payments where TDS was not deducted, and the appellant's conduct was not contumacious, as per Supreme Court judgments. The Ld. CIT(A) found that the penalty was not sustainable due to lack of clarity and reasonable opportunity granted. Consequently, the penalty was deleted, and the appeal was decided in favor of the appellant. Issue 2: Direction to ascertain TDS deduction requirement under sections 194C and 194J: In another appeal, the Revenue contested the Ld. CIT(A)'s directions to the AO to verify the requirement of TDS deduction under sections 194C and 194J. The Revenue argued that the AO correctly deemed the assessee in default for non-deduction of TDS, supported by the lack of evidence provided by the assessee. The Ld. CIT(A) was criticized for taking a hyper-technical approach without a reasonable basis. The Assessee's representative, however, defended the Ld. CIT(A)'s decision, highlighting that the AO's assessment was hasty and lacked proper consideration of submissions. The Ld. CIT(A) remitted the matter to the AO for verification, which the Revenue objected to, stating that the Ld. CIT(A) had no authority to remand the case. The Tribunal noted that the Ld. CIT(A) should adjudicate the appeal himself and not remand it to the AO. However, considering the peculiar circumstances of the case and to avoid multiplicity of proceedings, the Tribunal refrained from interfering with the ongoing proceedings before the AO. The appeal was disposed of with directions to expedite the proceedings as per the Ld. CIT(A)'s order. Issue 3: Relief to assessee regarding default under section 201(1) of the Act: The Ld. CIT(A) granted relief to the assessee regarding default under section 201(1) of the Act, stating that the default could not be attributed to the deductor if the recipient had included the amount in income and paid tax on it. However, interest under section 201(1A) for short/non-deduction remained due. The Revenue raised objections to this relief, emphasizing the liability of the assessee to pay interest. The Tribunal acknowledged the Ld. CIT(A)'s decision and directed the AO to expedite proceedings in accordance with the Ld. CIT(A)'s directions. In conclusion, the Tribunal upheld the Ld. CIT(A)'s decisions in both appeals, emphasizing the need for strict interpretation of penalty provisions, proper adjudication of appeals by the CIT(A), and adherence to legal precedents in tax matters.
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