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

Penalty under section 271C for failure to deduct tax at source is subject to the reasonable cause exception in section 273B. Where the assessee was not treated as an assessee-in-default under section 201 because the recipient had already discharged the tax liability, the foundation for penalty did not survive. A bona fide belief that further deduction would result in double taxation was treated as reasonable cause. On that basis, the penalty was deleted.

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Issues: Whether penalty under section 271C of the Income-tax Act, 1961, was leviable when the assessee was not treated as an assessee-in-default under section 201 and had shown reasonable cause for not deducting tax at source.

Analysis: Penalty under section 271C is attracted for failure to deduct tax under Chapter XVII-B, but section 273B carves out an exception where the assessee proves reasonable cause. The assessee had not been treated as an assessee-in-default under section 201 because the tax liability had been discharged by the recipient. In those circumstances, the very foundation for imposing penalty under section 271C did not survive. The belief that further deduction would amount to double taxation was also found to be bona fide and reasonable.

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

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