2005 (10) TMI 224 - AT - Income Tax

Penalty levied u/s 271C - non-compliance of the provisions of the TDS - HELD THAT - Considering the facts of this case and the explanation given by the assessee, in our opinion, it cannot be said that the omission on the part of the assessee was deliberate in defiance of law. The assessee cannot be held to be guilty of conduct contumacious or dishonest, nor the assessee can be said to have acted in conscious disregard of its obligation. In this case, the Revenue has already recovered interest u/s 201(1A). Moreover, as per the facts available on record, in most of the cases refund was due and taxable income was also nil Another aspect to be considered here is that there are voluminous transactions involved in the business of the assessee and the assessee and the payees are having interlinking relationship as sister concerns. After examining the facts of the case in the backdrop of the legal principles laid down in the precedents relied on by the assessee, in our considered opinion, assessee's explanation cannot be brushed aside as not a reasonable cause. In our considered opinion, the CIT(A) has rightly held that there existed reasonable cause for the assessee for the non-compliance of the provisions of the TDS. Hence, the CIT(A) has rightly deleted the penalty levied by the Assessing Officer on the assessee u/s 271C. Thus, we find no infirmity in the order of the CIT (Appeals) and we confirm his order. The Revenue's appeal stand dismissed. Order accordingly.

Issues Involved:
1. Justification of penalty cancellation under section 271C.
2. Existence of reasonable cause for non-deduction/short deduction of tax.
3. Bona fide belief and its impact on penalty imposition.
4. Applicability of legal precedents and statutory interpretations.

Detailed Analysis:

1. Justification of Penalty Cancellation under Section 271C:
The primary issue addressed is whether the CIT (Appeals) was justified in cancelling the penalty levied by the Assessing Officer under section 271C. The CIT (Appeals) concluded that the omission to deduct tax was bona fide, as the omission was reported in the tax audit report, and there was no intention to avoid tax payment. The CIT (Appeals) referenced the Delhi High Court's decision in Woodward Governor India (P.) Ltd., which held that penalty for failure to deduct tax at source is not automatic and requires the absence of a reasonable cause for the levy. The CIT (Appeals) found that the assessee had not concealed the non-deduction of tax and had provided an explanation, which was not frivolous or without substance.

2. Existence of Reasonable Cause for Non-Deduction/Short Deduction of Tax:
The assessee argued that the short deduction/non-deduction of tax was due to a bona fide belief that the sister concerns would not have taxable income. The CIT (Appeals) accepted this explanation, noting that the omission was reported in the tax audit report and there was no loss to the revenue as the interest paid was included in the income of the sister concerns. The tribunal upheld this view, stating that the omission was not deliberate, contumacious, or dishonest, and that the assessee had acted in a bona fide manner.

3. Bona Fide Belief and Its Impact on Penalty Imposition:
The tribunal emphasized that the assessee's bona fide belief that the sister concerns would not have taxable income was a reasonable cause for the short deduction/non-deduction of tax. The tribunal referenced the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa, which held that penalty should not be imposed unless there is deliberate defiance of law or contumacious conduct. The tribunal concluded that the assessee's actions were not in conscious disregard of its obligations and that the explanation provided was reasonable.

4. Applicability of Legal Precedents and Statutory Interpretations:
The tribunal considered various legal precedents, including Woodward Governor India (P.) Ltd. v. CIT, which explained the meaning of "reasonable cause" and the conditions under which penalty under section 271C can be levied. The tribunal also referenced the case of Itochu Corpn., where the Delhi High Court upheld the deletion of penalty due to a bona fide belief and voluntary payment of tax with interest. The tribunal distinguished the case of Sree Krishna Trading Co., relied upon by the Revenue, noting that it dealt with penalty under section 271(1)(c) and not section 271C.

Conclusion:
The tribunal found no infirmity in the order of the CIT (Appeals) and upheld the cancellation of the penalty. The tribunal concluded that the assessee had a reasonable cause for the non-deduction/short deduction of tax and that the CIT (Appeals) had rightly deleted the penalty. The Revenue's appeal was dismissed.

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