2014 (2) TMI 1228 - AT - Income Tax

Tribunal upholds CIT(A) decision on penalty deletion under IT Act section 271C for tax deduction failure

The DCIT Versus Nuclear Power Corporation of India Ltd

The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s decision to delete penalties under section 271C of the IT Act for three assessment ... Penalty u/s.271C - non deduction of tds - Held that:- As per the provisions of Section 273B no penalty u/s.273C shall be imposable in case of failure referred in the said provisions if the assessee proves that there was reasonable cause for the said failure. In the present case, the employer company has relied upon the provisions of Section 17(2) r.w.s 192 of the IT Act for the purpose that food allowance per meal ₹ 15 per day is exempted from tax and that employees were placed on remote areas; hence, not chargeable to tax. The assessee has pleaded that under bona fide belief it was decided that reimbursement of “canteen subsidy scheme” was not subject to TDS. We have noted that in the case of Muthoot Bankers, [2011 (9) TMI 638 - ITAT COCHIN ], it was held that no penalty is leviable if there is a bona fide omission in not deducting the tax at source. We have also examined the case laws as indicated by learned Sr.D.R. but considering the facts and circumstances of the case, those case laws are distinguishable on fact and law; hence, not helpful to the Revenue Department. Resultantly, we hereby affirm the view taken by learned CIT(A) and dismiss the ground of the Revenue. - Decided in favour of assessee Issues:- Penalty under section 271C of the IT Act for three assessment years- Whether penalty was rightly deleted by the CIT(A)- Reasonable cause for failure to deduct tax at source on reimbursement of food expenses- Applicability of Section 273B in the penalty impositionAnalysis:1. Penalty under section 271C: The appeals were filed by the Revenue challenging the deletion of penalties under section 271C of the IT Act for three assessment years. The main ground was the failure to initiate penalty proceedings while passing the order under sections 201(1) and 201(1A) by the Assessing Officer (AO). The Revenue contended that the penalties were justified due to the failure of the assessee to deduct tax on reimbursement of food expenses paid to employees.2. Reasoning for penalty imposition: The AO imposed penalties based on the findings of short deduction of tax during a survey related to TDS provisions. The CIT(A) deleted the penalties citing a reasonable and sufficient cause for the failure to deduct tax. The CIT(A) highlighted that the appellant had a bona fide belief that tax was not deductible on the reimbursements, and the appellant rectified the error in subsequent years by deducting tax at source regularly. The CIT(A) emphasized that penalty imposition should be based on deliberate defiance of the law, which was not the case here.3. Applicability of Section 273B: The Tribunal considered the provisions of Section 273B, which state that no penalty shall be imposed if the assessee proves a reasonable cause for the failure. The Tribunal noted the appellant's reliance on specific sections of the IT Act regarding tax exemptions for certain allowances and the appellant's belief that TDS was not applicable to the reimbursements. Citing case law and the circumstances of the case, the Tribunal affirmed the CIT(A)'s decision to delete the penalties, emphasizing the absence of mala fide intention or deliberate defiance of the law.4. Judgment: After hearing both sides and examining the material, the Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision to delete the penalties under section 271C. The Tribunal found that the appellant had a reasonable cause for the failure to deduct tax at source on the reimbursement of food expenses, as there was a genuine belief regarding the applicability of tax provisions. The Tribunal's decision was based on the principles of bona fide belief and the absence of deliberate non-compliance with the law.In conclusion, the Tribunal affirmed the CIT(A)'s decision to delete the penalties under section 271C, emphasizing the importance of considering reasonable causes for non-compliance and the absence of deliberate defiance of tax provisions.