2018 (3) TMI 1582 - AT - Income Tax

Penalty u/s 271C - payment of royalty to the payee u/s 194(J) - Held that - We observe that the assessee was liable for TDS under the provisions of the Income Tax Act on the payment of royalty to the payee u/s 194(J). Assessee has not deducted TDS. After perusing the documents it was found that the order was passed by the assessing officer u/s 201(1) / 201(1A) on 22.01.2010 and the assessee had paid the entire TDS and interest amount on 07.01.2010, i.e., before passing of the order with the Punjab National Bank Challen no. 00290 which is on paper book at page no. 4. The assessee has also filed TDS return with the National Security Deposits Ltd. on dated 13.01.2010 which too is before the passing of the order by the assessing officer. - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of penalty under section 271C of the Income Tax Act.
2. Comprehension and appreciation of facts by the Commissioner of Income Tax (Appeals).
3. Payment of amounts to end the dispute with Revenue.
4. Assumptions and application of law by the Commissioner of Income Tax (Appeals).

Issue-wise Detailed Analysis:

1. Validity of Penalty under Section 271C of the Income Tax Act:

The primary issue in the appeal was whether the penalty under section 271C of the Income Tax Act was valid. The assessee argued that the Commissioner of Income Tax (Appeals) erred in upholding the penalty. The facts revealed that a survey under section 133(A) was conducted, and it was observed that the assessee did not deduct TDS on payments made to Provogue India Limited on account of royalty from FY 2007-08 to FY 2009-10. The assessee paid the TDS amount along with interest before the assessment order was passed. The Tribunal noted that the assessee had deposited the TDS and filed the TDS return before the order under section 201(1) was passed, indicating no default of short deduction at the time of the order.

2. Comprehension and Appreciation of Facts by the Commissioner of Income Tax (Appeals):

The assessee contended that the Commissioner of Income Tax (Appeals) failed to comprehend and appreciate that there was no default of short deduction on the date of passing the order under section 201(1). The Tribunal observed that the assessee had indeed deposited the TDS amount along with interest before the order was passed, and the TDS return was also filed timely. This indicated that the Commissioner of Income Tax (Appeals) did not fully appreciate these facts.

3. Payment of Amounts to End Dispute with Revenue:

The assessee argued that the amounts had already been paid to end the dispute with the Revenue and that there was no contumacious conduct necessary for the levy of penalty under section 271C. The Tribunal referred to the Supreme Court judgment in CIT vs. Bank of Nova Scotia, which emphasized that for the levy of penalty under section 271C, it is necessary to establish contumacious conduct on the part of the assessee. The Tribunal found that the assessee had acted promptly to rectify the mistake by depositing the TDS and filing the return, demonstrating the absence of contumacious conduct.

4. Assumptions and Application of Law by the Commissioner of Income Tax (Appeals):

The assessee claimed that the order passed by the Commissioner of Income Tax (Appeals) was based on assumptions, presumptions, and incorrect application of law. The Tribunal agreed with the assessee, noting that the Commissioner of Income Tax (Appeals) did not consider the prompt payment of TDS and the timely filing of the return. The Tribunal emphasized that the penalty under section 271C could only be levied if there was a failure to deduct tax at source and contumacious conduct, which was not present in this case.

Conclusion:

The Tribunal concluded that the penalty imposed by the assessing officer was not justified and deleted the penalty. The appeal of the assessee was allowed, and the order was pronounced in the open court on 27.03.2018.