2018 (4) TMI 308 - AT - Income Tax

Penalty u/s 271C - default on the part of assessee in complying with provisions of section 201 (1) and 201 (1A) - non deduction of tds by assessee as an employee of Post and Telegraph Department government statutory organisation - Held that - Non-deduction of TDS was not deliberate but merely a technical default. We observe that there was a reasonable cause for not deducting TDS. Assessee was ignorant of the TDS provisions under Income Tax Act and it was intimated to him in the subsequent assessment years. Under such circumstances as per 273 B, penalty provisions cannot be considered to be automatic if the assessee has been able to establish a reasonable cause for the said failure. See Commr. Of Income Tax-XVIII, Delhi Versus Bank Of Nova Scotia 2016 (1) TMI 583 - SUPREME COURT - Decided in favour of assessee

Summary

Issues:
Appeal against penalty under section 271C of the Income Tax Act for non-deduction of TDS.

Analysis:
The appeals were filed by the revenue against the order passed by the Ld. CIT(A) for various assessment years, levying penalty under section 271C of the Income Tax Act due to the assessee's default in complying with provisions of section 201(1) and 201(1A) of the Act. The main contention was that the assessee, an employee of a government statutory organization, had a reasonable cause for not deducting the requisite tax as they were unaware of the TDS provisions. The assessee argued that they did not receive any intimation regarding the applicable provisions for deducting tax and only became aware after the relevant assessment years. The Ld. CIT(A) upheld the penalty, stating that the default was substantial and no reasonable cause was proved by the appellant.

On appeal before the ITAT Delhi, the assessee reiterated that there was a reasonable cause for non-deduction of TDS as they were not aware of the provisions during the relevant assessment years. The assessee relied on the decision of the Hon'ble Supreme Court in Hindustan Steel Ltd vs. State of Orissa, emphasizing that penalty should not be imposed for a technical breach if there was a bona fide belief that the offender was not liable to act as prescribed by the statute. The ITAT considered the relevant provisions of section 271C and 273B, noting that the non-deduction of TDS was not deliberate but a technical default. The ITAT observed that there was a reasonable cause for the failure to deduct TDS, as the assessee was ignorant of the provisions and only received intimation in subsequent years.

The ITAT referred to a similar case before the Delhi High Court and the decision of the Hon'ble Supreme Court in CIT vs. Bank of Nova Scotia, where penalties were deleted for non-deduction of TDS in cases where there was a reasonable cause. Applying the same reasoning, the ITAT decided to delete the penalty levied by the Ld. AO under section 271C for all the assessment years under consideration. Consequently, the appeals filed by the assessee were allowed for all the assessment years.

This detailed analysis highlights the key arguments, legal provisions, and precedents considered by the ITAT Delhi in deciding the appeal against the penalty imposed for non-deduction of TDS under section 271C of the Income Tax Act.