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2014 (1) TMI 1326 - AT - Income TaxLevy of penalty u/s 271C of the Act Non-deduction of TDS on rent payment u/s 194I of the Act Held that - The premises for which the rent payment was made by the assessee, was co-owned by five persons, thus, if the total amount of the rent payment is divided among these five co-owners, the amount of rent paid to each person is much below the threshold limit available to per person, and hence, it has to be accepted that there may be bona fide belief of the assessee that no TDS is deductible u/s.194I thus, the provision under section 271C is not applicable for this default u/s194I of the act and the penalty is not justified for the default Decided in favour of Assessee. Levy of penalty for default u/s 194A of the Act Held that - The default is in respect of about 35 persons, and the total default is of Rs.4,91,710/- being the amount of TDS which was required to be deducted by the assessee under section 194A, but it was not deducted - number of persons from whom TDS was not deducted is about 3.5% of total persons from whom TDS was to be deducted under section 194A thus, penalty under these facts, is not justified because there was substantial compliance of TDS provisions u/s.194A of the Act Decided in favour of Assessee.
Issues:
- Penalty under section 271C for violation under sections 194A and 194I - Justification for penalty imposition - Bona fide belief for non-deduction of TDS - Compliance with TDS provisions under sections 194A and 194I - Relevance of Tribunal decision in similar cases - Limitation period for penalty order Analysis: The appeal before the Appellate Tribunal ITAT Ahmedabad involved the imposition of penalties under section 271C for violations under sections 194A and 194I for the assessment year 2005-2006. The assessee contested the penalties imposed by the Assessing Officer (AO) for failure to deduct taxes under the specified sections. The AO noted that the assessee did not deduct tax at the prescribed rates under sections 194A and 194I, resulting in defaults amounting to Rs.4,91,710 and Rs.54,800, respectively. The AO issued a notice to the assessee, who failed to respond, leading to the imposition of penalties totaling Rs.5,46,510. The assessee challenged these penalties before the CIT(A) and subsequently before the ITAT. Regarding the penalty under section 271C for non-deduction of TDS under section 194I in rent payments, the ITAT considered the argument that the property was co-owned, and the rent payments were below the threshold limit for each co-owner. The ITAT accepted the assessee's bona fide belief that no TDS was required to be deducted under section 194I due to the division of rent among co-owners, leading to the deletion of the penalty of Rs.54,800 imposed by the AO. In analyzing the penalty for non-deduction of TDS under section 194A, the ITAT reviewed the number of default cases and the overall compliance with TDS provisions. The ITAT observed that the default was in respect of about 35 persons out of 975 from whom TDS was to be deducted under section 194A. Considering this substantial compliance, the ITAT concluded that the penalty was not justified, leading to the deletion of the penalty imposed by the AO. The ITAT also addressed the relevance of a Tribunal decision cited by the assessee in a similar case of non-deduction of TDS under section 194I, clarifying that the decision did not apply to the present case involving non-deduction of TDS under section 194A. Additionally, the ITAT dismissed the contention that the penalty order was barred by limitation, citing a Tribunal decision and a judgment of the Hon'ble Delhi High Court to support the timeliness of the penalty order. In conclusion, the ITAT allowed the appeal of the assessee, overturning the penalties imposed under sections 194A and 194I, based on the justifications and compliance factors presented during the proceedings.
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