2011 (4) TMI 498 - AT - Income Tax

Appellate Tribunal upholds penalty deletion under Income Tax Act for timely TDS payment.

The Appellate Tribunal upheld the deletion of the penalty imposed under section 271(1)(c) based on the disallowance under section 40(a)(ia) of the Income ... Penalty - Addition u/s 40(a)(ia) - Revised return - CIT(A) has rightly deleted the penalty levied u/s 271(1)(c) of the Act on account of disallowance of expenditure on which tax was duly deducted by the assessee but paid lately beyond the specified date - If the tax was deductible and was so deducted during March, 2005, the deduction of expenses shall not be disallowed if the tax so deducted is paid on or before the due date specified in sub-section (1) of Section 139 of the Act - If the amendment brought by the Finance Act, 2008 with retrospective effect from 1.4.2005 is applied to the present case, which is related to AY 2005-06, the disallowance of payment of Rs.3,98,88,136/- is itself not called for - it is not a case where assessee has concealed any particulars about his liability to deduct the tax at source and payment thereof - this is not a fit case where penalty u/s 271(1)(c) can be levied. - Decided in the favour of the assessee Issues:Penalty under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2005-06 based on disallowance under section 40(a)(ia) of the Act.Analysis:Issue 1: Disallowance under Section 40(a)(ia) of the ActThe Appellate Tribunal dealt with the disallowance of Rs.3,98,88,136/- by the Assessing Officer (AO) under Section 40(a)(ia) of the Income Tax Act, 1961. The AO disallowed this amount as the tax deducted at source (TDS) was not paid within the specified date. The AO initiated penalty proceedings under section 271(1)(c) of the Act based on this disallowance.Issue 2: Penalty Imposition by the AOThe AO imposed a penalty of 100% of the tax sought to be evaded on the disallowed amount of Rs.3,98,88,136/- under section 40(a)(ia) of the Act. The AO relied on the decision of the Supreme Court in the case of K.P. Madhusudanan vs. CIT - 251 ITR 99 (SC) to support the penalty imposition.Issue 3: Appeal before the CIT(A)The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)] against the penalty order. The assessee argued that the disallowance should be deleted based on the retrospective amendment to section 40(a)(ia) effective from 1.4.2005. The assessee contended that since the TDS was paid before the due date specified under section 139(1) of the Act, the disallowance was not justified.Issue 4: CIT(A) DecisionThe CIT(A) considered the submissions of the assessee, the retrospective amendment to section 40(a)(ia), and relevant case law. The CIT(A) deleted the penalty by emphasizing that the expenditure should not have been disallowed as the TDS was paid before the due date specified under section 139(1) of the Act. The CIT(A) concluded that there was no concealment of income or inaccurate particulars filed by the assessee.Issue 5: Appellate Tribunal DecisionThe Appellate Tribunal upheld the CIT(A)'s decision to delete the penalty. The Tribunal noted the retrospective amendment by the Finance Act, 2008, and its application to the case related to Assessment Year 2005-06. The Tribunal found that the disallowance was made based on provisions that were subsequently amended with retrospective effect. Therefore, the Tribunal confirmed the CIT(A)'s order and dismissed the Revenue's appeal.In conclusion, the Appellate Tribunal upheld the deletion of the penalty imposed under section 271(1)(c) based on the disallowance under section 40(a)(ia) of the Income Tax Act, 1961 for Assessment Year 2005-06. The decision was based on the retrospective amendment and the timely payment of TDS by the assessee.