2019 (2) TMI 629 - AT - Income Tax

Penalty u/s 271C - failure to deduct TDS during the year under appeal - reasonable ground to hold that provisions of Sections 194J and 194C may not apply in the case of the assessee - Held that - In the present case, the A.O. passed the Order on account of default on the part of the assessee for non-deduction of the TDS under section 201(1)/201(1A) of the Income Tax Act. Copies of the Orders are available on record. CIT(A) considered the issue of payment made to EMRI and held that assessee was required to deduct tax at source on payments made to a EMRI. Similar view have been taken by the Ld. CIT(A) with regard to the payments made to other NGOs/Charitable Institutions and business entities. The action of the A.O. was thus confirmed in principle. Alternative argument of the assessee that the payees concerned had duly accounted for the impugned receipts in their return of income and paid the taxes as per Law - alternative contention of assessee was accepted and assessee was directed to furnish documentary evidences in support of its contention before A.O. with a direction to A.O. to satisfy himself about the correctness of the claim of assessee and modify the tax demand accordingly. Interest was however chargeable for the default and it should be reviewed as per verification of the taxes paid by the recipients. The appeal of assessee was thus partly allowed. D.R, therefore, rightly contended that there were no justification for the Ld. CIT(A) in the penalty matter to hold that assessee is not in default of deduction of tax. Since the matter of quantum is restored to the A.O. for verifying the above claim of assessee, therefore, it would be reasonable and proper to restore the penalty matter also to the file of A.O. to pass the fresh Order in accordance with Law, after passing the Order under sections 201(1)/201(1A) of the Income Tax Act, 1961, as per the directions of the Ld. CIT(A). Whether assessee would have a reasonable cause shall be re-determined by the A.O, after giving reasonable, sufficient opportunity of being heard to the assessee. Appeal of the Department is allowed for statistical purposes.

Summary

Issues:
1. Challenge against cancellation of penalty under section 271C of the I.T. Act, 1961 for A.Y. 2011-2012.

Analysis:
The case involved a challenge by the Revenue against the cancellation of penalty under section 271C of the Income Tax Act, 1961 for the assessment year 2011-2012. The assessee, a society formed by the Uttarakhand Government, received funds from the Government of India for health-related schemes. The assessee made payments to NGOs for scheme implementation, claiming exemption under sections 12A/80G of the Income Tax Act. The dispute arose as the Revenue contended that TDS should have been deducted on these payments, while the assessee argued that no TDS was required due to the nature of the payments being on a no profit no loss basis.

The JCIT did not accept the assessee's arguments, stating that TDS provisions applied to the payments made to entities, even if they were tax-exempt. Consequently, the penalty under section 271C was imposed by the Assessing Officer. The penalty order was challenged before the Ld. CIT(A), who considered the explanation provided by the assessee and concluded that there was a reasonable ground to believe that TDS provisions might not apply in this case. Therefore, the penalty was cancelled by the Ld. CIT(A).

During the appeal hearing, the Ld. D.R. argued that the Ld. CIT(A) had erred in canceling the penalty as the violation was due to non-deduction of TDS on the payments. Despite the service of notice, no one appeared on behalf of the assessee. The Tribunal noted that in a previous case for the A.Y. 2010-2011, the A.O. had confirmed the requirement to deduct TDS on payments made to certain entities, including NGOs. The Tribunal directed the A.O. to re-decide the penalty matter after verifying the tax payments by the recipients, as the quantum matter was also being reviewed. The Tribunal set aside the impugned orders and restored the penalty matter to the A.O. for fresh consideration, emphasizing the need for a reasonable cause determination with sufficient opportunity for the assessee to be heard.

In conclusion, the appeal of the Department was allowed for statistical purposes, and the matter was remanded to the A.O. for re-decision in accordance with the directions provided by the Ld. CIT(A) in a previous order related to TDS obligations on payments made by the assessee.