2002 (11) TMI 264 - AT - Income Tax

Summary

Issues:
Levy of penalty under section 271C for financial years 1994-95 to 1998-99.

Analysis:
The judgment dealt with the issue of penalty under section 271C for the financial years 1994-95 to 1998-99. The case involved a joint venture company that had not deducted tax at the source on the salary paid to an employee, Mr. Garnett, during the mentioned years. The Assessing Officer initiated proceedings under section 201(1), leading to a demand for tax and interest. The CIT(A) confirmed the action, directing the credit of tax paid by Mr. Garnett. Subsequently, penalty proceedings under section 271C were initiated, and the JCIT levied penalties for all years. The assessee contended that heavy losses prevented salary payments to Mr. Garnett, and taxes were paid by him directly. However, the penalty was upheld by the CIT(A) based on failure to deduct tax at source under section 192. The assessee appealed to the Tribunal challenging the penalty.

The assessee argued that section 192 requires tax deduction only when salary is actually paid, not at the time of credit. They presented evidence showing no salary was paid to Mr. Garnett, and funds credited to his account were an advance from a Canadian company for tax payment in India. The Tribunal agreed with the assessee, noting the strict interpretation of penal provisions and the revenue's burden to prove actual salary payment. As the revenue failed to provide evidence of salary payment, the penalty under section 271C was deemed unjustified. The Tribunal also considered the bona fide belief of the assessee, supported by legal interpretations, as constituting a reasonable cause under section 273B. Consequently, the order of the CIT(A) was overturned, and the penalties were canceled, allowing the appeals of the assessee.

Overall, the judgment emphasized the importance of strict interpretation of penal provisions, the burden of proof on the revenue, and the requirement for actual salary payment to invoke tax deduction obligations. It highlighted the significance of legal interpretations and bona fide beliefs in determining reasonable cause for penalty imposition under tax laws.