Penalty under section 271C not automatic; assessing officer must consider reasonable cause and assessee's honest belief

HC held that penalty under section 271C is not automatic and requires the assessing officer to first consider whether the failure to deduct TDS was without reasonable cause. The assessee bore initial burden to show reasonable cause, which must be an honest belief founded on reasonable grounds. Commissioner erred by not considering the plea of reasonable cause; that omission vitiated the order. The impugned order under review was set aside and the writ petition allowed; the question of liability under section 192 remains open.

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Issues Involved: Application u/s 226 and 227 of the Constitution of India questioning penalty imposed u/s 271C of the Income-tax Act, 1961.

Factual Aspect: Petitioner's TDS return found improper deduction for an expatriate employee leading to penalty u/s 271C. Petitioner argued against deeming provision in section 9(1)(ii) and non-resident company payment.

Legal Standpoints: Petitioner argued Commissioner failed to consider reasonable cause u/r 273B. Revenue contended penalty warranted if conditions not met, reasonable cause linked to liability to deduct tax at source.

Analysis of Legal Provisions: Sections 271C and 273B discussed. Section 273B provides for no penalty if reasonable cause proven, emphasizing the importance of reasonable cause in penalty imposition.

Judgment: Court found petitioner's stand on reasonable cause valid. Commissioner's failure to consider reasonable cause vitiated the order. Commissioner's conclusion on liability u/s 192 to deduct tax at source to be re-examined. Impugned order set aside, writ petition allowed without costs.

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