Reasonable cause defeats tax collection penalty where bona fide belief and no revenue loss are shown.

Penalty under section 271CA for failure to collect tax at source under section 206C was held unsustainable where the assessee showed reasonable cause. The Tribunal accepted that the assessee's belief that the goods sold were not scrap was bona fide and reasonable, and it noted that the buyers had paid the tax, leaving no outstanding revenue loss. Applying section 273B, the Tribunal reiterated that penalty is not automatic and can be imposed only when the default occurs without reasonable cause. On these facts, the deletion of penalty was upheld in law.

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Issues: Whether penalty under section 271CA for failure to collect tax at source under section 206C was leviable despite the buyers having paid tax and the assessee claiming a bona fide belief that the goods sold were not scrap.

Analysis: The assessee had sold old iron scrap and failed to collect tax at source. The appellate authority found reasonable cause for the failure, relying on the circumstance that the purchasers had paid the tax and that no tax demand remained outstanding, and also on the assessee's belief that the goods sold did not fall within the definition of scrap. The Tribunal found the facts identical to an earlier Chandigarh Bench decision and held that the belief entertained by the assessee, on the facts disclosed, was an honest and reasonable belief. In view of section 273B, penalty is not automatic and can be levied only where failure to comply is without reasonable cause.

Conclusion: Penalty under section 271CA was not exigible and the deletion of penalty was in law.

Ratio Decidendi: Where failure to collect tax at source is supported by reasonable cause, including a bona fide and reasonable belief and absence of revenue loss, penalty under section 271CA is not automatic and cannot be sustained.

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