2019 (11) TMI 325 - AT - Income Tax

Penalty u/s 271C - penalty barred by limitation u/s 275 - Challenging the levy of penalty u/s 271C for non failure to deduct tax u/s 194H - HELD THAT - The assessee has raised legal issue before the Ld. CIT(A) also. However CIT(A) dismissed the grounds of assessee merely by observing that no such objection was raised at the level of the AO. We are of the opinion that this being a legal ground should have been adjudicated by CIT(A) after examining the relevant records. Since this issue has not been dealt by CIT(A) by passing a speaking order, we are of the considered view that this legal ground needs to be set aside to the file of CIT(A) for afresh adjudication in accordance with law, after providing reasonable opportunity of being heard to the assessee to place relevant material on record in support of its submissions. In the result common ground no.1 raised in three appeals for assessment years 2008-09, 2009-10 2010-11 are allowed for statistical purposes. Ground No.1 for statistical purposes for examining the limitation issue of the order passed u/s 271C of the Act r.w. section 275 of the Act. Dealing with the issue on merit relating as to whether the lower authorities were justified in levying penalty u/s 271C of the Act we find it merely academic deal with this issue at this stage.

Summary

Issues Involved:
1. Whether the penalty orders passed under Section 271C of the Income Tax Act were barred by limitation under Section 275 of the Act.
2. Whether the levy of penalty under Section 271C for failure to deduct tax under Section 194H was justified.

Detailed Analysis:

Issue 1: Limitation of Penalty Orders under Section 275

The assessee contested the validity of the penalty orders passed under Section 271C, arguing they were barred by limitation as per Section 275 of the Income Tax Act. The relevant provision mandates that the penalty order should be passed within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Chief Commissioner or Commissioner, whichever is later.

The assessee highlighted that the CIT(A) passed the orders on February 22, 2010, for AY 2007-08 and AY 2008-09, and on December 2, 2011, for AY 2009-10. Consequently, the penalty orders should have been passed by March 31, 2011, for AY 2007-08 and AY 2008-09, and by March 31, 2013, for AY 2009-10. However, the penalty orders were issued on August 20, 2013, making them time-barred.

The Tribunal noted that the CIT(A) dismissed the assessee's objection on limitation without a detailed examination. Therefore, the Tribunal set aside the issue to the CIT(A) for fresh adjudication, emphasizing the need for a speaking order after examining relevant records and providing the assessee an opportunity to present their case.

Issue 2: Levy of Penalty under Section 271C for Non-Deduction of Tax under Section 194H

The assessee challenged the penalty imposed under Section 271C for failing to deduct tax under Section 194H on discounts allowed to prepaid distributors. The assessee argued that they acted under a bona fide belief that tax was not deductible on such discounts. They also contended that in the absence of payment or credit, the mechanism to deduct TDS failed, and there was a reasonable cause for non-deduction due to conflicting views by High Courts and ITAT.

Given that the Tribunal had already set aside the limitation issue to the CIT(A) for fresh adjudication, it found it academic to address the merits of the penalty at this stage. Consequently, the Tribunal also set aside the issue on the merits of the penalty to the CIT(A) for a fresh decision along with the limitation issue.

Conclusion:

The appeals for AYs 2008-09, 2009-10, and 2010-11 were allowed for statistical purposes. The Tribunal directed the CIT(A) to re-examine the limitation issue and subsequently the merits of the penalty under Section 271C, providing the assessee an opportunity to present relevant material. This comprehensive re-evaluation ensures adherence to legal provisions and fair adjudication.