2015 (12) TMI 1537 - AT - Income Tax

Tribunal rules penalty unjustified under Income Tax Act, citing Section 271C. Assessee not in default.

The Tribunal ruled in favor of the assessee, finding that the penalty under Section 271C of the Income Tax Act was unjustified. It held that since the ... Levy of penalty u/s 271C - non deducting the tax at source - assessee treated as 'assessee in default' - Held that:- We find that the assessee has not been treated as an “assessee in default” as per section 201 of the Act and is therefore neither liable to deduct nor pay any tax as per Chapter XVII B. In such circumstances, we find that the question of levy of penalty u/s 271C, does not arise. This view has been upheld in the case of ACIT Vs. M/s Good Health Plan Limited [2014 (1) TMI 1233 - ITAT HYDERABAD ] wherein penalty levied u/s 271 C was deleted since the assessee was not held to be an assessee in default. The tax on the impugned sums had been reimbursed to PGCIL has not been controverted by the Revenue. In such circumstances the belief harboured by the assessee that by deducting further TDS, it would tantamount to double taxation, appears to be a reasonable and bonafide belie No merit in the contention of the Ld. DR that the assessee had no reasonable cause for not deducting tax at source. Further we hold that in lieu of the provisions of section 273B which states that no penalty shall be leviable in cases where reasonable cause for the default committed has been demonstrated, the penalty levied u/s 271C is liable to be deleted. - Decided in favour of assessee Issues Involved:1. Levy of penalty under Section 271C of the Income Tax Act, 1961.2. Whether the penalty levied was barred by limitation under Section 275.Detailed Analysis:1. Levy of Penalty under Section 271C:The primary issue was whether the penalty under Section 271C was justifiable. The assessee, a company engaged in the generation, transmission, and distribution of power, failed to deduct tax at source on payments made to PGCIL for transmission charges. The Assessing Officer (A.O.) imposed penalties for the financial years 2006-07 to 2009-10, citing no reasonable cause for the failure to deduct tax.The assessee argued that it had reasonable cause for not deducting tax at source and that since it was not treated as an assessee in default under Section 201, the penalty under Section 271C could not be levied. The CIT(A) dismissed this appeal, holding that the penalty was validly imposed and not barred by limitation.Upon appeal, the Tribunal noted that the assessee was not treated as an assessee in default as per Section 201, as PGCIL had already paid taxes on the income received. The Tribunal emphasized that Section 271C is invoked for failure to deduct tax as required under Chapter XVII-B, and the penalty is quantified as the amount of tax not deducted. However, Section 201 provides that if the recipient of income has paid the tax, the payer is not treated as an assessee in default. This interpretation was supported by the Karnataka High Court in Remco (Bhel) House Building Co-operative Society Ltd. Vs. ITO.The Tribunal concluded that since the assessee was not an assessee in default under Section 201, the penalty under Section 271C could not be imposed. Additionally, the Tribunal found that the assessee had a reasonable and bonafide belief that deducting further TDS would amount to double taxation, as the taxes were already reimbursed to PGCIL. This belief constituted a 'reasonable cause' under Section 273B, which provides that no penalty shall be imposed if reasonable cause is demonstrated. The Tribunal cited the Delhi High Court in Woodward Governor India Pvt. Ltd. Vs. CIT and the apex court in CIT Vs. Eli Lilly & Co. Pvt. Ltd. to support this view.2. Limitation under Section 275:The assessee also contended that the penalty was barred by limitation. The CIT(A) held that the penalty proceedings were not time-barred, as there is no specific time limit for initiating penalty proceedings under Section 271C, and they need not be initiated during the pendency of other proceedings.However, since the Tribunal deleted the penalty under Section 271C based on the merits of the case, the issue of limitation became academic and was not adjudicated.Conclusion:The Tribunal deleted the penalty levied under Section 271C for the respective years, holding that the assessee was not an assessee in default under Section 201 and had a reasonable cause for not deducting tax at source. Consequently, the appeal was partly allowed, and the issue of limitation was rendered academic.