Reasonable cause defeats TDS penalty where tax was already paid and double taxation was a bona fide concern.

Penalty for failure to deduct tax at source under section 271C is subject to the reasonable-cause protection in section 273B. Where the assessee was not treated as an assessee in default under section 201 because the recipient had already paid the tax, the non-deduction did not justify penalty. The belief that further deduction would have caused double taxation was accepted as a bona fide and reasonable cause. On that basis, penalty under section 271C was held not exigible and was deleted in favour of the assessee.

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Issues: Whether penalty under section 271C could be sustained when the assessee was not treated as an assessee in default under section 201 and had shown reasonable cause for non-deduction of tax at source.

Analysis: Penalty under section 271C is attracted for failure to deduct tax required under Chapter XVII-B, but its levy is controlled by section 273B, which bars penalty where reasonable cause is proved. The assessee was not treated as an assessee in default under section 201 because the recipient had paid the tax. In that situation, the failure to deduct did not justify penalty under section 271C. The belief that further deduction would result in double taxation was treated as a bona fide and reasonable cause.

Conclusion: Penalty under section 271C was not exigible and was deleted in favour of the assessee.

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