2014 (12) TMI 20 - HC - Income Tax

Penalty u/s 271C - Whether the Tribunal has substantially erred in upholding the order of the CIT(A) to delete the penalty u/s 271C Held that - TDS not deducted on reimbursement of food expenses paid to its employees u/s 192 Held that - CIT(A) and Tribunal was rightly of the view that there was bona fide mistake on the part of the assessee in not deducting the tax at source and that there was no deliberate intention or negligence on the part of the assessee in not deducting the tax at source - the assessee had made out a reasonable cause for failure in deducting tax at source relying upon Commissioner of Income-tax, New Delhi Versus Eli Lilly & Company (India) Pvt. Ltd. 2009 (3) TMI 33 - SUPREME COURT it cannot be held that the provision to be mandatory or compensatory or automatic because u/s 273B Parliament has enacted that penalty shall not be imposed in cases falling - section 271C falls in the category of such cases - the liability to levy of penalty can be fastened only on persons who do not have good and sufficient reason for not deducting tax at source - the assessee has proved that there was reasonable cause for failure to deduct tax at source thus, the order of the Tribunal in upholding the deletion of penalty u/s 271C is upheld Decided against revenue.

Summary

Issues:
Appeal against order upholding deletion of penalty under section 271C of the Income Tax Act, 1961.

Analysis:
1. The appeals arose from a common order by the Income Tax Appellate Tribunal regarding the deletion of penalty under section 271C of the Act. The appellant-revenue questioned the Tribunal's decision on the grounds of substantial error in law and facts.

2. The case involved assessment years 2007-08, 2008-09, and 2009-10 concerning a company engaged in power generation. The Assessing Officer found non-deduction of tax on reimbursement of food expenses paid to employees. The penalty under section 271C was imposed, but the Commissioner (Appeals) canceled it citing reasonable cause for non-deduction. The Tribunal upheld this decision.

3. The appellant contended that the assessee had deducted tax until the survey, and the non-deduction was not a bona fide mistake. The Tribunal and Commissioner (Appeals) found a reasonable cause for non-deduction, emphasizing the absence of deliberate defiance of the law.

4. The Commissioner (Appeals) held that penalty under section 271C is not automatic and requires proof of failure without a reasonable cause. The Tribunal agreed, stating that no penalty is leviable for a bona fide omission in tax deduction.

5. Referring to a Supreme Court decision, it was established that penalty under section 271C can only be imposed if there is no reasonable cause for non-deduction. In this case, the assessee demonstrated a reasonable cause, absolving them from penalty.

6. The Tribunal's decision to uphold the deletion of penalty under section 271C was found to be in line with the provisions of section 273B of the Act. The absence of a substantial question of law warranted the dismissal of the appeals.

In conclusion, the judgment affirmed the deletion of the penalty under section 271C, emphasizing the presence of a reasonable cause for the non-deduction of tax at source. The decision was based on the principles outlined in relevant legal provisions and previous judicial interpretations, leading to the dismissal of the appeals.