2022 (2) TMI 238 - HC - Income Tax

Default u/s 201 (1) - short deduction of TDS - penalty u/s 271C - whether ITAT was justified in penalizing the appellant in default U/s 271C of the IT Act in absence of contravention of Section 192 ? - As concluded by the CIT(A) that the penalty demand treating the Appellant as Assessee in default under Section 201 (1) to the extent of short deduction of TDS is deleted as employees had paid their taxes directly through self assessment and had filed details of their income, therefore, no further tax was payable - HELD THAT - Once it has been categorically held by the CIT (A) that there is no short deduction of TDS, the question of categorising the Appellant as Assessee-in-default for the purposes of Section 201 (1) of the IT Act did not arise. There was, therefore, no occasion for imposition of the penalty under Section 271C Department has been unable to point out how the above orders of ITAT upholding the penalty levied by the AO on the Appellant are sustainable in law. Consequently the questions framed by this Court are all answered in favour of the Appellant Assessee and against the Department - The appeal is allowed in the above terms.

Summary

Issues:
Appeal against ITAT order dismissing appeal against penalty for non-deduction of TDS under Section 192 of IT Act.

Analysis:
The petitioner, the Managing Director of a company, appealed against an order by the ITAT upholding a penalty for non-deduction of tax deducted at source (TDS) under Section 192 of the Income Tax Act, 1961. The CIT (A) had earlier ruled that the petitioner was not deemed an Assessee in default as employees had paid their taxes directly. The CIT (A) deleted the penalty demand, stating that no further tax was payable as the employees had fulfilled their tax liabilities. Consequently, the High Court held that since there was no short deduction of TDS, there was no basis for categorizing the petitioner as an Assessee-in-default under Section 201(1) of the IT Act. Therefore, the imposition of the penalty under Section 271C was unwarranted. The Court found in favor of the petitioner, setting aside the orders of the AO, CIT (A), and ITAT, and allowing the appeal.

The substantial questions of law framed by the Court included whether the ITAT was justified in dismissing the appeal without considering the facts, figures, and specific grounds raised by the appellant. The Court also questioned the justification of penalizing the appellant under Section 271C of the IT Act in the absence of contravention of Section 192. Additionally, the Court examined whether there was a reasonable cause under Section 273B when the authorities failed to correctly ascertain the offense under Section 192 and imposed the penalty in a mechanical manner. The Court noted that the CIT (A) had acknowledged that the appellant was not an Assessee in default, as employees had paid their tax liabilities directly, leading to the deletion of the penalty demand. The Court concluded that the CIT (A) and ITAT were unjustified in dismissing the appellant's appeal and upholding the penalty, as there was no short deduction of TDS.

In conclusion, the High Court ruled in favor of the appellant, setting aside the penalty and orders of the lower authorities. The Court emphasized that since there was no short deduction of TDS and the employees had fulfilled their tax liabilities directly, there was no basis for penalizing the appellant under Section 271C of the IT Act. The Court allowed the appeal and directed that there shall be no order as to costs.