2016 (3) TMI 818 - AT - Income Tax

Penalty under section 271 C - failure to deduct tax on payment made on account of salary - Held that - In FY 2008-09 the assessee was found to have failed to deduct tax on payment made on account of salary amounting to ₹ 1,54,072/-. Subsequently an order under section 154/201(1)/201(1A) was passed stating that since the entire amount had either been paid by the deductees or was not required to be paid by the deductees after claiming relief under section 89 of the Act, the entire demand raised on the assessee was deleted and only interest on account of delay in payment of TDS was levied under section 201(1A) amounting to ₹ 499/-. We find that the assessee had given an explanation for non deduction of TDS as stated above by the Ld. AR which has not been found to be false by the authorities below. The same we find is a good and sufficient reason for not deducting tax. No contumacious conduct can therefore be attributed to the assessee and therefore applying the ratio laid down by the Hon ble Apex Court in the case of CIT Vs. Bank of Nova Scotia 2016(1) TMI 583 (SC) we hold that no penalty under section 271 C is leviable for nondeduction of TDS on salary. In FY 2008-09 we find that the assessee has also failed to deduct TDS on AMC charges amounting to ₹ 288/- for which no explanation has been offered. In the absence of any explanation we uphold the levy of penalty on the same. - Decided partly in favour of assessee

Summary

Issues Involved:
Penalty under section 271C for failure to deduct tax at source in the Assessment Years 2008-09, 2009-10, and 2010-11.

Detailed Analysis:

1. Grounds of Appeal - AY 2008-09:
The appellant contested the penalty imposed under section 271C, arguing that there was a reasonable cause for not deducting tax at source. The appellant also challenged the reliance on a previous court decision. The appellant's main argument was the lack of appreciation of the reasonable cause for the default.

2. Factual Background and Penalty Imposition:
A survey revealed the appellant's default in TDS provisions, leading to penalty proceedings under section 271C. The AO relied on a court decision stating failure to deduct tax attracts penalty. The CIT(A) upheld the penalty, leading to the appeal.

3. Appellant's Arguments:
The appellant claimed reasonable cause for the defaults, citing ignorance and software issues for TDS deductions on advertisement, salary, and AMC charges. The appellant promptly rectified the defaults upon discovery and argued that penalty imposition was unwarranted.

4. Revenue's Position:
The Revenue supported the CIT(A)'s decision, stating the appellant failed to provide a reasonable cause for the TDS defaults, justifying the penalty under section 271C.

5. Tribunal's Analysis and Decision:
The Tribunal considered the appellant's explanations for the TDS defaults. Regarding the advertisement payments, the Tribunal found the appellant's belief reasonable and not frivolous. The subsequent corrective actions taken by the appellant further supported the absence of contumacious conduct, warranting no penalty under section 271C. The Tribunal also ruled in favor of the appellant for the salary TDS default due to valid reasons provided. However, the penalty on AMC charges stood as no explanation was offered.

6. Final Verdict:
The Tribunal allowed the appeals for the Assessment Years 2008-09 and 2010-11 while partially allowing the appeal for the Assessment Year 2009-10. The penalty was deleted for the TDS defaults on advertisement and salary, with the penalty upheld for the AMC charges default.

In conclusion, the Tribunal's decision was based on the presence of reasonable cause for the TDS defaults, emphasizing the importance of valid explanations and prompt corrective actions in determining the applicability of penalties under section 271C of the Income Tax Act, 1961.