Court upholds cancellation of penalty under Income-tax Act due to assessee's reasonable cause for failure to deduct tax.

The High Court upheld the Tribunal's decision to cancel the penalty imposed under section 271C of the Income-tax Act, 1961. The assessee's explanation for failure to deduct tax at source was accepted as bona fide, citing lack of advice from the chartered accountant. The Court found the assessee cooperative and reasoned that the incorrect advice constituted a reasonable cause for the lapse. Consequently, the appeal under section 260A was dismissed, affirming the cancellation of the penalty.

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Issues involved: Appeal u/s 260A of the Income-tax Act, 1961 against penalty u/s 271C for failure to deduct tax at source.

Issue 1: Levy of penalty u/s 271C

The assessee made payments for fabrication charges without deducting tax at source, claiming lack of advice from its chartered accountant regarding the liability u/s 194C of the Act. The Tribunal accepted the explanation as bona fide, cancelling the penalty imposed by the Assessing Officer and upheld by the Commissioner of Income-tax (Appeals).

Issue 2: Reasonable cause for failure to deduct tax

Despite not depositing the tax due immediately upon realizing the mistake, the assessee deposited substantial amounts during survey proceedings. The Tribunal found the assessee cooperative and not avoiding liability, considering the incorrect advice from the chartered accountant. Section 273B of the Act allows for no penalty if a reasonable cause for failure to deduct tax is proven, which the assessee successfully demonstrated in this case.

The High Court upheld the Tribunal's decision, deeming it a possible and non-perverse view that did not warrant interference or raise a substantial question of law. The appeal was dismissed, affirming the cancellation of the penalty under section 271C of the Income-tax Act, 1961.

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