2014 (6) TMI 1 - AT - Income Tax

Penalty u/s 271C of the Act Failure to deduct TDS u/s 194C of the Act Payment made to broadcasters of different TV channels on account of air time charges Held that - Following ORTEL COMMUNICATIONS LTD Versus ASSTT COMMISSIONER OF INCOME TAX (TDS) 2013 (6) TMI 373 - ITAT CUTTACK - levy of penalty u/s 271C is not automatic - Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision the same was without a reasonable cause - The initial burden is on the assessee to show that there existed reasonable cause which was the reason Tor the failure referred to in the concerned provision - Thereafter the officer dealing with the matter has to consider the explanation offered by the assessee or the person, as the case may be. An honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do - The assessee has given explanation before the authorities that the due to circumstances prevailing and under bonafide belief that tax was not required to be deducted at source U/S.194C on the payments - the non-deduction of tax at source on such payments cannot be said to be without a reasonable cause within the meaning of Section 273C - the penalty levied u/s 271C is not justified and is liable to be set aside Decided in favour of Assessee.

Summary

Issues:
Appeal against penalty under section 271C of the Income Tax Act, 1961 for assessment years 2006-07 and 2007-08.

Analysis:
The case involves appeals against penalty orders under section 271C of the Income Tax Act, 1961 for the assessment years 2006-07 and 2007-08. The appellant, a cable network operator, failed to deduct tax under section 194C from payments made to TV channel owners for air time charges. The penalty proceedings were initiated as the appellant did not appear, leading the JCIT (TDS) to presume no reasonable cause for the failure. The appellant contended that the payments were for content purchase and not subject to TDS under section 194C. The appellant argued a reasonable cause for non-deduction based on the belief that TDS was not required, supported by the payment of due tax before the filing deadline and compliance with PAN and account details. Reference was made to legal precedents and the ITAT Cuttack Bench's decision in a similar case for the assessment year 2008-09 where the penalty was deleted.

The ITAT reviewed the appellant's contentions and considered the previous decision in the appellant's favor for the assessment year 2008-09. The Tribunal emphasized the need for a reasonable cause for failure to deduct tax at source, as per the provisions of the law. It was highlighted that the appellant's belief, supported by legal opinions and compliance, constituted a reasonable cause. The Tribunal noted that the issue was debatable and new at the time, and the appellant's actions were in line with legal interpretations. The Tribunal concluded that the non-deduction of tax at source was not without a reasonable cause, as the appellant's belief was founded on reasonable grounds. Therefore, the penalty under section 271C was deemed unjustified and canceled, aligning with the decision in the appellant's previous case for the assessment year 2008-09.

In conclusion, the ITAT upheld the appellant's appeal, deleting the penalty imposed by the AO under section 271C for both the assessment years 2006-07 and 2007-08. The decision was based on the presence of a reasonable cause for the failure to deduct tax at source, as supported by legal interpretations and compliance with tax obligations.