2017 (10) TMI 682 - AT - Income Tax

Penalty u/s 271(1)(c) - non-deducting and non-depositing the TDS - Held that - Omission for non-deduction of the TDS was not intentional rather due to bonafide mistake as immediately after pointing out by the tax auditors, TDS was deposited by the assessee company out of its own pocket without collecting it from the deductee. Assessee company has even deposited the TDS even before deduction made by the revenue authorities. So, we are of the considered view that it was a reasonable cause for the assessee company not to deposit the TDS within time. Furthermore, penalty order u/s 271(1)(c) of the Act has been passed without declaring the assessee in default by passing order u/s 201(1) of the Act. So, when AO has not recorded his satisfaction for initiation of the penalty u/s 271(1)(c) in the order required to be passed u/s 201(1) of the Act, the penalty order is not sustainable. - Decided in favour of assessee.

Summary

Issues Involved:
Penalty under section 271C of the Income Tax Act, 1961 for Assessment Years 2008-09 and 2009-10.

Analysis:

Assessment Year 2008-09:
The appellant, a pharmaceutical company, challenged the penalty order passed under section 271C of the Income Tax Act, 1961 by the Joint Commissioner of Income Tax. The Assessing Officer found that the company had not deducted TDS amounting to ?72,959 as required. The company argued that TDS was deducted and deposited immediately after objections raised by the tax auditor. The penalty was imposed despite the company's explanation. The Commissioner of Income-tax (Appeals) upheld the penalty, leading the company to appeal before the Tribunal.

Assessment Year 2009-10:
Similar to the previous year, the company contested the penalty order passed under section 271C of the Income Tax Act, 1961 for not deducting TDS amounting to ?49,996. The company maintained that TDS was deducted post the tax auditor's objections. The penalty was imposed by the Assessing Officer, and the Commissioner of Income-tax (Appeals) affirmed it, prompting the company to approach the Tribunal.

Factual Background:
The Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act for both assessment years. The company had failed to deduct and deposit TDS as required by law. The company claimed the omission was due to a clerical error, rectified promptly upon the tax auditor's advice. The company deposited the TDS before any default declaration by the Assessing Officer under section 201 of the Act.

Tribunal's Decision:
The Tribunal noted that the non-deduction of TDS was unintentional and due to a bona fide mistake, rectified promptly by the company. The Tribunal found no malafide intent or negligence on the company's part. Referring to precedent, the Tribunal held that voluntary payment of tax, even with delay, does not constitute malafide. Citing relevant case law, the Tribunal concluded that the penalty orders were unsustainable. Therefore, the penalties of ?72,959 and ?49,996 for the respective assessment years were deleted, and the appeals by the company were allowed.

In conclusion, the Tribunal's decision highlighted the importance of bona fide mistakes and voluntary compliance in tax matters, leading to the deletion of penalties imposed on the pharmaceutical company for non-deduction of TDS.