2018 (8) TMI 840 - AT - Income Tax

Levy of penalty u/s 271C - reasonable cause for not deducting TDS on interest paid to Agra Development Authority - Held that - the Department has not been able to show that the bonafide belief entertained by the assessee bank, as above, does not constitute a reasonable cause within the meaning of section 273B of the Act. - AO, on verifying the documents filed by the bank, found that the Agra Development Authority had paid the requisite taxes for F.Ys. 2010-11 and 2011-12, relevant to A.Y. 2011-12 and 2012- 13. Apropos A.Y. 2012-13, the assessee made TDS immediately on coming to note that the provisions of section 194A of the IT Act are applicable to payment of interest on the FDRs of the Agra Development Authority. - No penalty - Decided in favor of assessee.

Summary

Issues:
Department's appeal against deletion of penalty under section 271C of the IT Act for non TDS on interest income accrued on FDRs.

Analysis:
The judgment involves the Department's appeals for Assessment Years 2012-13 and 2013-14 against the cancellation of penalty under section 271C of the IT Act for non TDS on interest income accrued on FDRs. The ld. CIT(A) cancelled the penalty, citing the existence of a reasonable cause for not deducting TDS on interest payments to a specific entity. The appellant bank had received a registration certificate under section 12A from the entity, requesting no TDS on interest payments. The CIT(A) found the bank had a bonafide belief not to deduct TDS due to the entity's association with the state government and key decision-makers being government officials. The CIT(A) concluded that the penalty was not justified based on the facts and precedents, leading to the penalty cancellation.

Challenging the impugned orders, the Department argued that the CIT(A) erred in law by deleting the penalty without considering the Supreme Court's interpretation and the CBDT circular. The Department contended that the bank did not have a reasonable cause under section 273B for not deducting TDS unless a required certificate was obtained. However, the bank rectified the mistake and started deducting TDS once it realized the error. The CIT(A) relied on the bank's belief and the provided registration certificate as constituting a reasonable cause under section 273B, leading to the penalty cancellation.

The Tribunal noted that the bank rectified the non-deduction of TDS once it became aware of the error and started deducting TDS accordingly. The CIT(A) found that the bank's belief not to deduct TDS was reasonable based on the provided registration certificate and the entity's association with the state government. The Tribunal upheld the CIT(A)'s decision, confirming the penalty cancellation and rejecting the Department's arguments as lacking merit. The appeals were allowed in favor of the assessee, and the impugned orders were confirmed.

In conclusion, the judgment highlights the importance of a reasonable cause for non-deduction of TDS, supported by relevant documentation and circumstances. The Tribunal upheld the penalty cancellation based on the bank's bonafide belief and rectification of the error once identified, emphasizing compliance with TDS provisions and the significance of provided registration certificates in such cases.