2016 (9) TMI 498 - AT - Income Tax

Tribunal upholds decision to delete penalty under Income Tax Act

The Tribunal upheld the decision of the Ld. CIT(A) to delete the penalty imposed under sections 271(1)(c) and 271C of the Income Tax Act. The Tribunal ... Penalty for failure to deduct tax under Chapter XVII-B / Section 271C - offer of disputed expenditure to tax to avoid double taxation - requirement of prior proceedings under Section 201(1) before imposition of penalty under Section 271C - bona fide belief and subsequent deposit of TDS with interestPenalty for failure to deduct tax under Chapter XVII-B / Section 271C - offer of disputed expenditure to tax to avoid double taxation - requirement of prior proceedings under Section 201(1) before imposition of penalty under Section 271C - bona fide belief and subsequent deposit of TDS with interest - Validity of penalty levied under Section 271C where the assessee had offered the relevant amounts to tax in assessment proceedings and subsequently deposited the TDS with interest, without any prior order under Section 201(1). - HELD THAT: - The Tribunal upheld the view of the first appellate authority that the assessee had, in its return and in assessment proceedings, offered the amounts on which TDS was not earlier deducted for taxation and thereafter deposited the TDS along with interest. Imposition of penalty under Section 271C in those circumstances would result in double taxation. The Tribunal noted and followed relevant precedents which support deletion of penalty where tax has been offered and paid subsequently and where proceedings under Section 201(1) were not concluded prior to initiation of penalty proceedings. The Tribunal accepted that the assessee acted under a bona fide belief (in view of Section 40(a)(i) treatment) and remedied the default when its financial position permitted, producing challans evidencing payment. Applying these facts to the legal principles, the Tribunal found no infirmity in the CIT(A)'s deletion of the penalty. [Paras 7, 8]Penalty levied under Section 271C deleted and the Revenue's appeal dismissed.Final Conclusion: The Tribunal dismisses the Revenue's appeal and upholds the deletion of the penalty under Section 271C on the ground that the assessee had offered the disputed amounts to tax and subsequently deposited the TDS with interest, and that penalty proceedings were unsustainable in the absence of prior Section 201(1) action. Issues:1. Interpretation of penalty provisions under sections 271(1)(c) and 271C of the Income Tax Act, 1961.2. Application of penalty for failure to deduct TDS under Chapter XVII-B of the Act.Analysis:1. The appeal was filed by the Revenue against the Order of the Ld. CIT(A) relevant to assessment year 2009-10. The AO levied a penalty under section 271(1)(c) of the Act for the assessee's failure to deduct TDS amounting to Rs. 24,16,490. The AO observed that as per Section 271C, failure to deduct tax as required by Chapter XVII-B makes the person liable for penalty equal to the amount of tax not deducted. The Ld. CIT(A) allowed the appeal of the assessee, leading to the Revenue's appeal before the Tribunal.2. The Ld. CIT(A) elaborately discussed the issue and adjudicated that the penalty should be deleted. The assessee argued that due to liquidity issues, TDS was not deducted on royalty payments initially, but later deposited with interest. The assessee contended that the assessment was completed without initiating penalty proceedings. The company voluntarily offered the un-deducted TDS amount for taxation and paid the due TDS with interest. The delay in payment was due to financial constraints. The Ld. CIT(A) noted that imposing a penalty would result in double taxation as the amounts were already offered for tax and TDS paid. Precedents like Woodward Governor India Ltd. Vs CIT and Hindustan Steel Ltd. Vs State of Orissa supported this view. The failure to pass an order under section 201(1) before initiating penalty proceedings under section 271C was also highlighted.3. The Tribunal upheld the Ld. CIT(A)'s order, stating that the penalty would lead to double taxation since the assessee had already offered the amounts for tax and paid the TDS. The Tribunal agreed that the assessee acted in good faith, believing that the provisions of section 40(a)(i) exempted them from depositing the TDS initially. The Tribunal cited the Indo Nissin Foods Ltd. case to emphasize the invalidity of imposing a penalty without passing an order under section 201(1) first. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty.This detailed analysis highlights the interpretation of penalty provisions and the application of penalties for TDS deductions under the Income Tax Act, emphasizing the importance of good faith actions and compliance with legal procedures before imposing penalties.