2009 (6) TMI 966 - HC - Income Tax

Levy of penalty u/s 271C - delay in deposit of Tax deducted at source (TDS) - belated remittance of the TDS - Quantum of penalty which in this case is above Rs. 1.1 crore - Counsel for the appellant has drawn a distinction between clauses (a) and (b) of Section 271C (1). According to him penalty under clause (a) is only for failure to deduct tax as required under any of the provisions of Chapter XVIIB. HELD THAT - We are unable to accept the contention because the first part of clause (b) of Section 271C(1) i.e. failure to pay whole or any part of tax as required takes in the tax deducted under clause (a) under any of the provisions of Chapter XVIIB. In our view failure to deduct or failure to remit recovered tax both will attract penalty u/s 271C. the contention of the appellant fails and we uphold the finding of the Tribunal dismissing the challenge against levy of penalty. Quantum of penalty - The Tribunal has not considered challenge against quantum of penalty in so much details probably because in the penalty order it is stated that only minimum penalty is levied. So far as failure on the part of the assessee to remit the tax recovered at source is concerned we do not think there can be any justifying circumstance for delay in remittance because assessee cannot divert tax recovered for the Government towards working capital or any other purpose. Defence available u/s 273B does not cover failure in payment of recovered tax. However if there is failure to remit on account of failure to recover for any reason whatsoever then the case calls for reduction of penalty if not waiver. Similarly we feel recovery and remittance of tax though with delay but with interest before detection is certainly a mitigating circumstance for waiver or reduction of penalty. Further if full amount of tax with interest was paid before levy of penalty we feel quantum reduction is called for by the AO. Therefore we direct AO to reconsider the quantum of penalty. The appeal is accordingly disposed of upholding the order of the Tribunal on the levy of penalty but with direction to the AO to grant further reduction in penalty if any new fact or circumstance is brought to the notice

Summary

Issues involved:
1. Jurisdiction of Additional Commissioner for penalty under Section 271C
2. Whether penalty can be levied under Section 271C for failure to pay deducted tax
3. Whether the assessee has reasonable cause for non-payment or belated payment of tax deducted at source

Analysis:

Issue 1: Jurisdiction of Additional Commissioner for penalty under Section 271C
The case involved an appeal against the order of the Income Tax Appellate Tribunal, which rejected the appeal filed by the assessee against the penalty levied under Section 271C of the Income Tax Act. The Additional Commissioner proposed the penalty due to the non-payment of recovered tax by the assessee. The assessee objected to the penalty, arguing that Section 271C only authorizes penalty for failure to deduct tax, not for non-payment. However, both the Assessing Officer and the C.I.T. (Appeals) upheld the penalty, stating that Section 271C covers non-payment as well. The High Court analyzed the provisions of Section 271C and concluded that the penalty could indeed be levied for failure to pay deducted tax, in addition to failure to deduct tax, as per the Act.

Issue 2: Penalty under Section 271C for failure to pay deducted tax
The High Court examined the distinction between clauses (a) and (b) of Section 271C(1) of the Act. The appellant contended that since there is no specific provision for penalty for non-remittance of tax deducted at source under Chapter XVIIB, the penalty was unauthorized. However, the Court disagreed, stating that the failure to deduct or remit recovered tax both attract penalty under Section 271C. Therefore, the challenge against the levy of penalty for failure to pay deducted tax was dismissed by the Court.

Issue 3: Reasonable cause for non-payment or belated payment of tax deducted at source
Regarding the quantum of penalty, which exceeded Rs. 1.1 crore, the appellant cited Section 273B of the Act, which allows for the waiver or reduction of penalty if the defaulted assessee proves a reasonable cause for the failure. The Standing Counsel argued that there was no justifiable reason for the delay in remittance based on the cash flow and fund allocation by the assessee. The Court noted that the Tribunal had not extensively considered the challenge against the quantum of penalty. The Court opined that while there may not be a justifiable reason for the delay in remittance, circumstances like remitting the tax with interest before detection could be mitigating factors for reducing the penalty amount. The Court directed the Assessing Officer to reconsider the quantum of penalty and grant further reduction if new facts or circumstances were presented by the assessee.

In conclusion, the High Court upheld the Tribunal's decision on the levy of penalty under Section 271C but directed a reassessment of the penalty amount based on the observations and provisions discussed in the judgment.