2015 (10) TMI 1744 - AT - Income Tax

Penalty u/s. 271C - Non deduction of TDS u/s. 194J on payment of MICR charges as towards fees for technical charges - Held that - In the present case, Revenue has not brought any material on record to demonstrate that the reasons given by Assessee for non deduction of tax was not bona fide or to be false. We further find that CIT(A) by a very cryptic order has upheld the action of A.O. Considering the totality of the facts we are of the view that in the present case the reasons given by Assessee for non deduction of TDS appears to be bona fide and therefore the provisions for penalty u/s. 271C of the Act are not attracted. We accordingly direct its deletion. - Decided in favour of assessee.

Summary

Issues involved:
Appeal against penalty imposed under section 271C of the Income Tax Act for failure to deduct TDS on MICR charges paid to State Bank of India.

Detailed Analysis:

1. Background and Facts:
The Assessee, a Co-op. Society engaged in banking business, failed to deduct tax under section 194J of the Act on payments made to State Bank of India for MICR charges. The Assessing Officer (AO) initiated penalty proceedings under section 271C, which was upheld by the CIT(A) based on the decision of the ITAT Ahmedabad in a similar case involving Canara Bank.

2. Grounds of Appeal by Assessee:
The Assessee contended that the failure to deduct tax was not intentional and was based on a bona fide belief that tax deduction was not required. It argued that since SBI had shown the MICR charges as income and paid taxes on it, there was no loss to the government. The Assessee cited various case laws to support its argument that penalty under section 271C should not be imposed if there is a reasonable cause for the failure to deduct tax.

3. Judgment and Analysis:
The ITAT Ahmedabad considered the submissions of both parties. It noted that the Assessee had paid the MICR charges to SBI, which had treated it as income and paid taxes. The Tribunal referred to the Woodward Governor India Pvt. Ltd. case, emphasizing the need for a reasonable cause for failure to deduct tax. It also cited the Muthoot Bankers case, highlighting that if payments are disclosed in returns and taxes are paid by recipients, penalty cannot be imposed. Additionally, the Dishergarh Power Supply Company Ltd. case was referenced to establish that penalty under section 271C is not automatic and requires a reasonable cause for failure to deduct tax.

4. Decision and Conclusion:
The ITAT found that the Assessee's reasons for not deducting TDS appeared to be bona fide, supported by the fact that SBI had accounted for the MICR charges as income and paid taxes. The Tribunal held that the penalty under section 271C was not justified in this case and directed its deletion. Consequently, the appeal of the Assessee was allowed for all assessment years in question, leading to the deletion of the penalty imposed.

5. Final Verdict:
The ITAT Ahmedabad allowed all the appeals of the Assessee, directing the deletion of the penalty imposed under section 271C for failure to deduct TDS on MICR charges paid to State Bank of India across multiple assessment years. The judgment emphasized the importance of a reasonable cause for such failures and the need to consider the circumstances surrounding the non-deduction of tax before imposing penalties under the Income Tax Act.