Penalty under section 271C not leviable for delayed TDS payment absent a default order under section 201(1).

Penalty under section 271C of the Income-tax Act was not leviable where no order under section 201(1) had been passed treating the assessee as in default and the tax deducted at source was ultimately deposited, though belatedly. The provision applies to failure to deduct or failure to pay tax in the situations specifically covered by Chapter XVII-B, whereas the facts showed only delayed remittance and levy of interest under section 201(1A). In those circumstances, the consequence was confined to interest for delay, not penalty. The deletion of the penalty was therefore upheld.

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Issues: Whether penalty under section 271C of the Income-tax Act, 1961 was leviable when no order had been passed under section 201(1) of the Income-tax Act, 1961 holding the assessee to be in default and the tax deducted at source was deposited late.

Analysis: The liability under section 271C arises only where there is a failure to deduct the whole or any part of tax as required by Chapter XVII-B or a failure to pay tax in the situations specifically covered by the provision. On the facts found, no order under section 201(1) had been passed declaring the assessee in default; only interest had been levied under section 201(1A) for delayed payment. The existing judicial view recognised that where the tax was ultimately paid, the assessee could not be treated as in default and the consequence would ordinarily be confined to interest for delay, not penalty under section 271C.

Conclusion: Penalty under section 271C was not leviable, and the deletion of penalty was upheld.

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