2017 (9) TMI 297 - AT - Income Tax

Penalty u/s 271C - short deduction of tds - Whether TDS to be deducted @ 2% u/s 194C or 10% u/s 194J - bonafide belief - reasonable cause for deducting TDS at a lower rate - Held that - There was bonafide and reasonable cause on the part of the assessee for short deduction of TDS as the assessee was under a genuine and bonafide belief for not deducting the tax at source u/s 194J instead of 194C as stated by the company M/s NYSA Communications P Ltd on the basis of their previous invoices and as per the expert opinion of Chartered Accountant. Both confirmed that the TDS was deductible @2% and the same was accordingly deducted. Still being dissatisfied, the assessee asked the ITO TDS to advice on the said issue who advised to deduct tax @10%. Accordingly, the assessee deducted the tax @10% from next bill and paid the difference along with interest of first bill on the amount short deducted by it. The fact that the assessee itself obtained the opinion from department itself clearly shows that there was bonafide intention on the part of the assessee not to make any default and the correct TDS was deducted out of the next payment made to NYSA Communications (P) Ltd and paid accordingly. Hence it is not a fit case for levying penalty - Decided in favour of assessee.

Summary

Issues:
1. Short deduction of tax at source under Section 271C of the IT Act.
2. Confusion regarding the applicable section for tax deduction.
3. Bonafide belief and reasonable cause for short deduction of tax.

Issue 1: Short deduction of tax at source under Section 271C of the IT Act:
The case involved an appeal by the assessee against the order confirming a penalty for short deduction of tax at source. The penalty was imposed by the Assessing Officer under Section 271C of the Income Tax Act. The Appellate Tribunal considered the grounds raised by the assessee challenging the penalty.

Issue 2: Confusion regarding the applicable section for tax deduction:
The assessee, a Directorate of Distance Education, made payments to a company for various services related to computer hardware and software. However, there was confusion regarding the correct section under which tax was to be deducted at source, whether under Section 194C or Section 194J of the IT Act. The confusion arose due to differing opinions from the company, a CA firm, and the Income Tax Department.

Issue 3: Bonafide belief and reasonable cause for short deduction of tax:
The assessee, in good faith, sought clarification from the Income Tax Department regarding the applicable tax deduction section. Despite initially deducting tax at a lower rate based on advice and contractual terms, the assessee rectified the error and deducted tax at the correct rate as advised by the department. The Appellate Tribunal found that the assessee had a bonafide belief and reasonable cause for the short deduction of tax. Citing relevant legal provisions and judgments, the Tribunal concluded that no penalty should be levied in this case due to the genuine intention and actions of the assessee.

In conclusion, the Appellate Tribunal allowed the appeal of the assessee, canceling the penalty imposed for the short deduction of tax at source. The judgment highlighted the importance of bonafide belief, reasonable cause, and compliance with departmental advice in determining the applicability of penalties under the Income Tax Act.