2016 (9) TMI 498 - AT - Income Tax

Penalty u/s. 271(1)(c) - order passed u/s. 201(1)/201(1A) or u/s. 143(3) - non deduction of tds - Held that - The assessee had offered the amounts to tax at the time of filing the Income Tax Return, and subsequently also paid the TDS too, and if the penalty is levied it would be result in double taxation. This view is fully supported by the jurisdictional High Court decision in the case of Woodward Governor India Ltd. Vs CIT (2001 (4) TMI 34 - DELHI High Court ) and Hindustan Steel Ltd. Vs State of Orissa (1969 (8) TMI 31 - SUPREME Court ). In my view, the ld. CIT(A) has rightly observed that the assessee was under a bonafide belief that since he has been hit under the provisions of section 40(a)(i), he need not deposit the tax so deducted. However as his financial position improved he did deposit the TDS alongwith the interest thereon and filed the copy of challan evidencing the payment of TDS. It was further noted that in the case of Indo Nissin Foods Ltd. v. CIT (2003 (9) TMI 294 - ITAT BANGALORE-B ) it is held that not passing order under section 201(1) before initiation of proceedings under section 271C make imposition of penalty invalid. - Decided in favour of assessee

Summary

Issues:
1. Interpretation of penalty provisions under sections 271(1)(c) and 271C of the Income Tax Act, 1961.
2. Application of penalty for failure to deduct TDS under Chapter XVII-B of the Act.

Analysis:
1. The appeal was filed by the Revenue against the Order of the Ld. CIT(A) relevant to assessment year 2009-10. The AO levied a penalty under section 271(1)(c) of the Act for the assessee's failure to deduct TDS amounting to ?24,16,490. The AO observed that as per Section 271C, failure to deduct tax as required by Chapter XVII-B makes the person liable for penalty equal to the amount of tax not deducted. The Ld. CIT(A) allowed the appeal of the assessee, leading to the Revenue's appeal before the Tribunal.

2. The Ld. CIT(A) elaborately discussed the issue and adjudicated that the penalty should be deleted. The assessee argued that due to liquidity issues, TDS was not deducted on royalty payments initially, but later deposited with interest. The assessee contended that the assessment was completed without initiating penalty proceedings. The company voluntarily offered the un-deducted TDS amount for taxation and paid the due TDS with interest. The delay in payment was due to financial constraints. The Ld. CIT(A) noted that imposing a penalty would result in double taxation as the amounts were already offered for tax and TDS paid. Precedents like Woodward Governor India Ltd. Vs CIT and Hindustan Steel Ltd. Vs State of Orissa supported this view. The failure to pass an order under section 201(1) before initiating penalty proceedings under section 271C was also highlighted.

3. The Tribunal upheld the Ld. CIT(A)'s order, stating that the penalty would lead to double taxation since the assessee had already offered the amounts for tax and paid the TDS. The Tribunal agreed that the assessee acted in good faith, believing that the provisions of section 40(a)(i) exempted them from depositing the TDS initially. The Tribunal cited the Indo Nissin Foods Ltd. case to emphasize the invalidity of imposing a penalty without passing an order under section 201(1) first. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty.

This detailed analysis highlights the interpretation of penalty provisions and the application of penalties for TDS deductions under the Income Tax Act, emphasizing the importance of good faith actions and compliance with legal procedures before imposing penalties.