Reasonable cause for TDS default bars penalty where warehouse-charge deduction was debatable and the taxpayer acted bona fide.

Where the TDS treatment of warehouse charges was debatable, the assessee's failure to deduct tax under the correct provision was protected by reasonable cause under Section 273B. The Delhi HC treated the decisive question for penalty under Section 271C as whether the default was bona fide, not the quantum dispute over the deduction provision. As the assessee had acted on a genuine understanding that Section 194-C applied, and the materials showed no deliberate or contumacious default, penalty was not leviable. The existence of CBDT circulars did not, by itself, negate reasonable cause.

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Issues: Whether the assessee had shown reasonable cause, for the purposes of Section 271C read with Section 273B of the Income-tax Act, 1961, for its failure to deduct tax at source under Section 194-I of the Income-tax Act, 1961 on warehouse charges.

Analysis: The liability to deduct tax on the warehousing payments was not a settled position at the relevant time and the controversy itself was the subject of repeated proceedings. The assessee had proceeded on the footing that the payments attracted deduction under Section 194-C, while the Revenue's position was that Section 194-I applied. The Court held that, for penalty under Section 271C, the decisive question was not the quantum dispute but whether the failure to deduct the correct tax was supported by reasonable cause within the meaning of Section 273B. The materials showed that the issue was debatable and that the assessee had acted on a bona fide understanding of the contractual arrangement and the applicable deduction provision. The Court also held that the existence of CBDT circulars did not establish a deliberate or contumacious default by the assessee.

Conclusion: The assessee had established reasonable cause. Penalty under Section 271C was not leviable.

Ratio Decidendi: Where the applicable TDS provision was debatable and the assessee's non-deduction under the correct provision was based on a bona fide view, reasonable cause under Section 273B bars penalty under Section 271C.

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