2014 (5) TMI 810 - AT - Income Tax

Cancellation of penalty u/s 271C of the Act Payment made for services rendered - Liability to deduct TDS u/s 194J of the Act on rent paid for hiring crane Held that - Following M/s Oil India Limited Versus Dy. CIT. (TDS), Jodhpur 2013 (11) TMI 1237 - ITAT JODHPUR - the very basis for levying the tax liability does not exist anymore and as such the penalty imposed by the AO itself becomes infructuous the penalty u/s 271C of the Act was not leviable and the CIT(A) was fully justified in setting aside - there was no reason to interfere in the order of the CIT(A) Decided against Revenue.

Summary

Issues:
- Appeal against penalty u/s 271C based on non-deduction of TDS under sections 194J and 194I.

Analysis:
1. Background: The department filed appeals against orders cancelling penalties u/s 271C for A.Y. 2008-09 & 2009-10. The issue was common, so the appeals were heard together.

2. Facts and Assessing Officer's Action: The Assessing Officer levied penalties based on the assessee being held a defaulter u/s 201/201(1A) of the Act, which was upheld by the CIT(A). The assessee's appeal was pending before ITAT, requesting to keep penalty proceedings in abeyance, but the penalty was still imposed.

3. Assessee's Submissions: The assessee contended that the ITAT had allowed the quantum appeal, confirming correct TDS deduction, making penalty imposition invalid. The CIT(A) deleted the penalties after considering the submissions.

4. CIT(A)'s Findings: The CIT(A) noted that the tax liabilities were deleted by the ITAT, reversing the CIT(A)'s decisions on non-deduction of TDS under sections 194J and 194I. Therefore, the penalties were annulled as they became infructuous.

5. Appellate Tribunal's Decision: The department appealed the deletion of penalties. The counsel for the assessee argued that the penalties were no longer valid due to ITAT's decision in favor of the assessee. The ITAT upheld the CIT(A)'s decision, emphasizing that the tax liabilities no longer existed, rendering the penalties unjustifiable.

6. Legal Precedent and Conclusion: Citing K.C. Builders case, the ITAT emphasized that if the basis for levying penalties no longer exists, penalties cannot stand. As the tax liabilities were deleted, the penalties were not sustainable. The ITAT dismissed the department's appeals, upholding the CIT(A)'s decision to delete the penalties.

This detailed analysis covers the background, facts, submissions, CIT(A)'s findings, ITAT's decision, legal precedent, and the ultimate conclusion of the Appellate Tribunal's judgment regarding the appeal against penalties imposed under sections 194J and 194I of the Income Tax Act.