2020 (10) TMI 659 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - wrong deduction of TDS @1% instead of 20.6% - purchase of immoveable property - seller is a Non Resident Indian - short payment of tax and subsequently the assessee paid the remaining amount of short deducted tax and interest - HELD THAT - The assessee(s) prudently deducted tax @1% u/s 194 (1A) of the Act. Subsequently when it was brought to their notice that the seller is a Non Resident Indian they as law abiding citizens immediately deposited the correct amount of TDS @20.6% applicable on the said transaction u/s 195 along with interest in addition to 1% already deposited. Mens rea to evade tax is not appearing at any stage of the proceedings on the part of the assessee. No difference for them to deduct tax @1% or 20.6% since it was to be withheld from the purchase consideration. There cannot be any other mal intention for deduction of TDS at lower or wrong rate. Assessee(s) are duly eligible to get the benefit of the provisions of Section 273B of the Act as they have proved beyond doubt that in a bonafide belief they deposited tax @1% u/s 194IA of the Act considering the seller as Resident Indian and later on before conclusion of the proceedings before the Ld. A.O have deposited correct amount of tax @20.6% and applicable interest. Thus they had a reasonable cause for the said failure and in addition the decision in the case of SMS India Ltd 2005 (11) TMI 363 - ITAT MUMBAI also applies squarely on the case of the assessee. We thus set aside the finding of Ld. CIT(A) and direct the revenue authorities to delete the penalty levied u/s 271C - Decided in favour of assessee.

Summary

Issues Involved:
1. Ex-parte dismissal of the appeal by the CIT(A).
2. Confirmation of penalty under Section 271C of the Income Tax Act.
3. Consideration of bona fide and reasonable cause for the wrong deduction of tax at source.

Issue-wise Detailed Analysis:

1. Ex-parte Dismissal of the Appeal by the CIT(A):
The appellants contended that the CIT(A) erred in ex-parte dismissing their appeals for non-prosecution and confirming the additions made by the Assessing Officer. They argued that the notice of hearing was not served on them and their request for an early hearing was not responded to. They prayed for the ex-parte order to be set aside and the matter to be restored for fresh hearing with adequate opportunity of hearing. However, this ground was not pressed by the appellants during the proceedings before the Tribunal and was therefore dismissed as not pressed.

2. Confirmation of Penalty under Section 271C of the Income Tax Act:
The core issue was the confirmation of penalty under Section 271C amounting to ?5,15,000/- for each appellant due to the wrong deduction of tax at source. The appellants had deducted tax at 1% under Section 194IA instead of 20.6% under Section 195, as the seller was a Non-Resident Indian (NRI). The appellants argued that they were unaware of the seller's NRI status and acted in good faith by deducting tax under the commonly known Section 194IA. Upon realizing the mistake, they promptly deducted and deposited the correct amount of tax along with applicable interest. The Tribunal observed that the appellants had a reasonable cause for the mistake and had acted in bona fide belief. Citing the decision in the case of DCIT vs. SMS India Ltd., the Tribunal noted that bona fide belief and voluntary compliance constitute reasonable cause, and thus, the penalty under Section 271C was unwarranted. The Tribunal directed the revenue authorities to delete the penalty levied under Section 271C in all three cases.

3. Consideration of Bona Fide and Reasonable Cause for the Wrong Deduction of Tax at Source:
The appellants contended that they acted in bona fide belief and had reasonable cause for deducting tax at 1% under Section 194IA, as they were unaware of the seller's NRI status. They argued that the PAN card did not indicate the seller's residential status, and the transaction was conducted through a broker. Upon being informed of the correct provisions, they immediately complied by deducting and depositing the correct amount of tax along with interest. The Tribunal found that the appellants had a reasonable cause for the failure and acted without any malintent. It was noted that the provisions of Section 273B, which state that no penalty shall be imposed if there is reasonable cause, were applicable in this case. The Tribunal concluded that the appellants had proven their bona fide belief and reasonable cause, and thus, the penalty under Section 271C should be deleted.

Conclusion:
The Tribunal allowed the appeals in part, directing the deletion of the penalty under Section 271C while dismissing the ground related to the ex-parte dismissal of the appeal by the CIT(A) as not pressed. The order was pronounced in the open court on 14.10.2020.