TDS penalty under section 271C was held unwarranted where tax was later paid and income was already assessed.

Penalty under section 271C was considered in the context of failure to deduct tax at source where the expenditure had already been offered to tax and the tax with interest was later deposited. The reasoning accepted the assessee's explanation of financial difficulty and bona fide belief, and noted that no order under section 201(1) had been passed before penalty proceedings began. On those facts, the levy was treated as unwarranted and as giving rise to double taxation, so the penalty deletion was sustained in favour of the assessee.

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Issues: Whether penalty under section 271C of the Income-tax Act, 1961 was sustainable for failure to deduct tax at source, where the tax was later deposited and the related expenditure had been offered to tax in assessment.

Analysis: The assessee had not deducted tax on certain payments, but the amounts were subsequently brought to tax in the regular assessment and the tax with interest was later deposited. The appellate authority accepted the explanation of financial difficulty and bona fide belief, and also noted that no order under section 201(1) had been passed before initiation of penalty proceedings. The Tribunal agreed that, in the circumstances, levy of penalty would be unwarranted and would lead to double taxation, and relied on the cited precedents supporting deletion of the penalty.

Conclusion: The penalty under section 271C was not justified and the deletion of the penalty was upheld in favour of the assessee.

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