2011 (1) TMI 1366 - AT - Income Tax

Summary

Issues involved: Challenge against the levy of penalty u/s 271C of the Income Tax Act, 1961 for non-deduction of tax at source.

Summary:

Issue 1: Assessment of Penalty under Section 271C

The appellant, a trust, paid godown rent without deducting tax at source to a family trust. The appellant believed that as the property was jointly held by co-owners, the share of payment to each beneficiary did not exceed the maximum amount under Section 194(I) of the IT Act, hence no TDS was deducted. The AO imposed penalty for non-deduction of TDS, which was upheld by the CIT(A). The appellant contended that there was no conscious disregard for the law and that taxes were already paid by the payee. The ITAT considered the provisions of Section 273B, emphasizing the requirement of "reasonable cause" for failure to deduct TDS. Citing relevant case laws, the ITAT held that the appellant had a reasonable cause for non-compliance as the taxes were paid by the payee and interest under Section 201(1A) was also paid. The ITAT concluded that there was no loss to the Revenue and canceled the penalty, ruling in favor of the appellant.

Decision:
The ITAT set aside the orders of the authorities below and canceled the penalty u/s 271C, as the appellant had a reasonable cause for failure to comply with the TDS provisions. The appeal of the assessee was allowed.

This summary provides a detailed overview of the legal judgment, highlighting the key issues, arguments, and the final decision made by the ITAT.