2011 (3) TMI 239 - HC - Income Tax

Appeals Dismissed for Incorrect TDS Deductions under Income Tax Act Section 194C

The appeals against incorrect TDS deductions made by the assessee under various sections of the Income Tax Act were dismissed by the Tribunal. The ... Penalty - TDS - Wrong deduction of TDS - Penalty - Reasonable Cause - Held that: - Since the assessee was deducting under the advice of the Chartered Accountant - That there is a reasonable cause for such belief, therefore, the penalty is not exigible - Even otherwise for imposition of penalty, the general presumption is that definite finding about concealment is necessary - The Hon'ble Punjab & Haryana High Court in the case of Hari Gopal Singh vs CIT (2002 -TMI - 12268 - PUNJAB AND HARYANA High Court) clearly held that penalty cannot be levied when income has been estimated - Acordingly appeals of the assessee are allowedThe assessee had been deducting tax from the payments payable to CFA under Section 194C on a consolidated basis towards different heads. There is no reason to disbelieve the assessee that the same was being done by its employees on misconceived professional advice given by the Chartered Accountants. Since the payment were to be deducted from CFA no benefit was to be derived by the assessee for making lesser or inaccurate deductions. No malafide intention of any kind can be attributed to the assessee for deducting tax under one provision of law than the other. - It can not be said that the assessee has failed to comply with the provision of Section 194I and 194J of the Act without reasonable cause. - Decided in favor of assessee. Issues:Appeals against common order of ITAT on incorrect TDS deductions under different sections of the Income Tax Act for assessment years 2002-03, 2003-04, and 2004-05.Analysis:1. The appeals were filed against a common order of the ITAT regarding incorrect TDS deductions made by the assessee under various sections of the Income Tax Act. The assessee, engaged in the business of manufacturing and selling products, had engaged Clearing & Forwarding Agents (CFAs) and was deducting TDS under Section 194C instead of Sections 194I and 194J for rent and CFAs remuneration. The Assessing Officer held the assessee in default under Section 201(1) and 201(1A) of the Act, raising a demand of Rs. 26,25,828 and levying a penalty of Rs. 19,72,384. The CIT(A) dismissed the appeals, emphasizing the conscious decision of the assessee to deduct tax at a lower rate or not deduct at all, leading to the default.2. The CIT(A) referred to various judgments and reasoned that the assessee was deducting TDS under professional advice, indicating a reasonable cause for the belief. The CIT(A) highlighted that penalty proceedings should be construed strictly and deleted the penalty based on the reasonable cause shown by the assessee. The ITAT allowed the second appeal of the assessee, leading to the present appeals by the revenue in the penalty proceedings.3. The Tribunal considered the arguments regarding the finality of quantum proceedings and the reasonable cause for deducting TDS under Section 194C. Relying on legal precedents, including the Division Bench decision in Woodward Governor India P. Ltd v. CIT, the Tribunal emphasized that the burden was on the assessee to show a reasonable cause for the failure to deduct TDS correctly. The Tribunal found that the assessee's actions were based on misconceived professional advice, not malafide or negligent intentions, and dismissed the appeals as there was no substantial question of law involved.4. The Tribunal concluded that the assessee's deductions under Section 194C were based on a misconceived belief of the law's applicability, without malafide intentions. The Tribunal found no reason to disbelieve the assessee's claim of following professional advice and held that there was a reasonable cause for the incorrect TDS deductions. As there was no substantial question of law, the appeals were dismissed, affirming the Tribunal's decision.5. In light of the above analysis and legal principles, the appeals against the incorrect TDS deductions made by the assessee were dismissed by the Tribunal, emphasizing the reasonable cause shown by the assessee for the misconceived belief in deducting TDS under Section 194C instead of the correct sections.