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2019 (7) TMI 601 - AT - Income TaxLevying penalty u/s 271C - failure to deduct tax at source u/s 194H - reasonable cause for non deduction of TDS - HELD THAT - The issue on which the penalty u/s 271C is imposed is debatable as different courts have taken diverse views. Therefore, the fact remains that the assessee has reasonable cause for non deduction of tax at source on the discount allowed to the prepaid distributor as there are decisions of the Hon ble High Courts and Tribunal taking diverse views. Thus, it is contesting issue and the assessee has reasonable cause not to deduct the tax at source. Therefore, the action of non deduction of tax in the present case will not attract the penalty u/s 271C. Since this issue is decided in case of assessee s own case for earlier assessment years the same will be followed. - Appeals of the assessee are allowed.
Issues Involved:
1. Barred by limitation u/s 275 of the Act. 2. Levying of penalty u/s 271C for failure to deduct tax at source u/s 194H. 3. Reasonable cause for non-deduction of TDS under section 273B. Issue-wise Detailed Analysis: 1. Barred by limitation u/s 275 of the Act: The appellant contended that the penalty orders passed u/s 271C were barred by limitation under section 275 of the Income Tax Act, 1961. The Commissioner of Income-tax (Appeals) [CIT(A)] did not annul the penalty orders despite the appellant's claim that they were time-barred. However, during the hearing, the appellant did not press this ground for the assessment years 2003-04 and 2004-05, leading to the dismissal of this ground for those years. 2. Levying of penalty u/s 271C for failure to deduct tax at source u/s 194H: The appellant argued that the CIT(A) erred in upholding the penalty levied by the TDS Officer under section 271C for failure to deduct tax at source under section 194H on the "discount" given to distributors, which the department alleged as "commission." The appellant maintained that they acted under an honest and bona fide belief that tax was not deductible under section 194H. This belief was initially upheld by the Tribunal before being reversed by the High Court. The appellant cited section 273B, which provides that no penalty shall be imposed if there is a "reasonable cause" for the failure. The appellant also pointed out that the mechanism to deduct TDS fails in the absence of 'payment' or 'credit,' thereby providing a reasonable cause for non-deduction of TDS under section 194H. 3. Reasonable cause for non-deduction of TDS under section 273B: The appellant argued that the relationship between the assessee and the distributor was on a principal-to-principal basis, and not principal-agent, thus section 194H would not apply. This view was initially affirmed by the Tribunal and later reversed by the High Court. The appellant also contended that in the absence of payment or credit by the appellant, section 194H does not apply as the mechanism to deduct TDS fails. The appellant relied on several case laws to support their argument, including: - M. S. Hameed Vs. Director of State Lotteries (249 ITR 186) (Ker.) - CIT Vs. Qatar Airways (332 ITR 253) (Bom.) - Piramal Healthcare Ltd. Vs. ACIT (21 taxmann.com 225) (Trib-Mumbai) - SRL Ranbaxy Ltd. Vs. ACIT (2011) (50 SOT 173) (TDel) The Tribunal noted that the issue of penalty u/s 271C is debatable as different courts have taken diverse views. The Tribunal concluded that the appellant had a reasonable cause for non-deduction of tax at source on the discount allowed to the prepaid distributor, given the conflicting judicial opinions. Consequently, the Tribunal held that the action of non-deduction of tax would not attract penalty u/s 271C, following the precedent set in the appellant's own case for earlier assessment years. Conclusion: The appeals of the assessee were allowed, and the penalty levied under section 271C was deleted. The Tribunal emphasized that the issue was debatable and the appellant had a reasonable cause for non-deduction of tax at source, thereby not attracting the penalty provisions of section 271C. The order was pronounced in the Open Court on 10th July 2019.
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