2005 (5) TMI 22 - HC - Income Tax

TDS - Whether Tribunal is legally correct in reducing the penalty imposed u/s 272A for the assessment years 1989-90 and 1990-91 resorting to the proviso to section 272A(2) inserted by the Finance (No. 2) Act 1991 with effect from October 1 1991? - Admittedly the amounts deducted from the payment made to the contractors have been deposited within time and only Form No. 26C could not be filed within the time specified thus the default was only of a technical nature. The Commissioner of Income-tax (Appeals) has deleted the penalty treating the default as of technical nature. Since the Tribunal has set aside the order of the Commissioner of Income-tax (Appeals) deleting the penalty therefore this issue is not open for adjudication by us but on the facts and circumstances of the case we do not find any error in the order of the Tribunal restricting the amount of penalty to the extent of the amount deductible considering the intent of the Legislature by introducing the Finance (No. 2) Act 1991 by which the proviso has been added with effect from October 1 1991 restricting the amount of penalty to the amount of tax deductible only

Summary

Issues:
Reduction of penalty under section 272A of the Income-tax Act, 1961 for assessment years 1989-90 and 1990-91.

Analysis:
The case involved a question of law referred by the Income-tax Appellate Tribunal, Allahabad, regarding the reduction of penalty imposed under section 272A of the Income-tax Act, 1961, for the assessment years 1989-90 and 1990-91. The assessee had filed Form No. 26C after significant delays, resulting in penalties imposed by the assessing authority. However, the Commissioner of Income-tax (Appeals) canceled the penalties, citing genuine reasons for the delay due to ignorance of the law. The Tribunal partially allowed the appeal by the Revenue and levied penalties to the extent of the amount deductible, considering the legislative change introduced by the Finance (No. 2) Act, 1991. This Act restricted the penalty amount to not exceed the tax deductible or collectible, as applicable, for failures in relation to returns under sections 206 and 206C.

The Tribunal's decision was based on the proviso appended to sub-section (2) of section 272A by the Finance (No. 2) Act, 1991, which limited the penalty to the amount of tax deductible. The Tribunal emphasized that this legislative change aimed to address extreme cases and alleviate the hardships faced by assessees. The High Court, after hearing arguments from both parties, upheld the Tribunal's decision, noting that the default in filing Form No. 26C was technical in nature as the tax deductions were deposited on time. The Court agreed that the penalty should be restricted to the amount deductible, aligning with the intent of the Legislature in introducing the proviso under the Finance (No. 2) Act, 1991.

In conclusion, the High Court ruled in favor of the assessee, affirming the Tribunal's decision to restrict the penalty to the amount of tax deductible for the assessment years 1989-90 and 1990-91. The Court found no error in the Tribunal's order and emphasized that there was no revenue loss or mala fide intention on the part of the assessee. The judgment highlighted the importance of considering legislative changes and the circumstances of each case in determining the appropriate penalty under the Income-tax Act, 1961.