2017 (8) TMI 284 - HC - Income Tax

High Court Upholds Deletion of Penalty Under Income Tax Act

The High Court upheld the decisions of the CIT(A) and ITAT to delete the penalty imposed on the respondent-assessee under Section 221 of the Income Tax ... Levy of penalty u/s 221 - reasonable cause for non compliance - not deducting tax at source within the prescribed time - Held that:- Held that:- Section 221 of the Act deals with penalty payable when tax in default. According to the said provision, when an assessee is in default or is deemed to be in default in making payment of tax, he shall in addition to the amount of the arrears and the amount of interest payable under Section 220(2) be liable, by way of penalty for such an amount as the Assessing Officer may direct and where there is continuing default such further amount or amounts as the Assessing Officer may direct from time to time but the total amount of penalty shall not exceed the amount of tax in arrears. As concluded by the CIT(A) that there was just, sufficient and reasonable cause before the assessee in not making compliance to the provisions of the TDS as the issue of deduction of tax involved complexity and uncertainty. The CIT(A) also referred to the judgment in Eli Lilly and Co. (India) Private Limited’s case (2009 (3) TMI 33 - SUPREME COURT ) wherein it was held that the liability to penalty under Section 271C can be fastened only on the person who does not have good and sufficient reason for not deducting tax at source. The burden, of course will be on that person to prove such good and sufficient reason. In the present case, the assessee had shown good and sufficient reasons for not deducting tax at source within the prescribed time. Thus, the CIT(A) rightly allowed the appeal filed by the assessee - Decided in favour of assessee. Issues Involved:1. Deletion of penalty under Section 221 of the Income Tax Act, 1961.2. Application of the second proviso to Section 221 of the Income Tax Act, 1961.3. Payment of tax deducted at source along with interest.4. Justification of the CIT(A) and ITAT's decisions based on reasonable cause.5. Findings of the ITAT being perverse and contrary to the material on record.Issue-wise Detailed Analysis:1. Deletion of Penalty under Section 221 of the Income Tax Act, 1961:The appellant-revenue challenged the deletion of the penalty imposed on the respondent-assessee under Section 221 of the Income Tax Act, 1961. The penalty was levied due to the respondent-assessee's failure to deposit the tax deducted at source (TDS) within the prescribed time. The Tribunal upheld the CIT(A)'s decision to delete the penalty, citing that the respondent-assessee had a reasonable cause for the delay.2. Application of the Second Proviso to Section 221 of the Income Tax Act, 1961:The second proviso to Section 221(1) of the Act states that no penalty shall be levied if the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons. The CIT(A) and the Tribunal found that the respondent-assessee's lack of proper understanding of Indian Tax Laws and the complexities involved constituted a 'good and sufficient reason' for the delay in depositing the TDS.3. Payment of Tax Deducted at Source Along with Interest:The respondent-assessee had deposited the TDS amount along with the due interest before the issuance of the show cause notice. This compliance was considered by the CIT(A) and the Tribunal as a mitigating factor, although the explanation to Section 221 states that penalty may still be imposed even if the tax is paid before the levy of penalty.4. Justification of the CIT(A) and ITAT's Decisions Based on Reasonable Cause:The CIT(A) referred to the Supreme Court's judgment in Commissioner of Income Tax Vs. Eli Lilly and Co. (India) Private Limited, which held that the liability to penalty can only be fastened on a person who does not have a good and sufficient reason for not deducting tax at source. The CIT(A) concluded that the respondent-assessee had shown good and sufficient reasons for the delay, given the complexity and uncertainty of the tax provisions. The Tribunal concurred with this finding, emphasizing that the issue of deduction of tax at source from the salary of non-residents expatriated to India was a debatable issue, which was finally resolved by the Supreme Court.5. Findings of the ITAT Being Perverse and Contrary to the Material on Record:The appellant-revenue argued that the findings of the ITAT were perverse and contrary to the material on record. However, the Tribunal, after examining the matter and relevant case law, found no illegality or perversity in the CIT(A)'s findings. The Tribunal dismissed the revenue's appeal, affirming that the respondent-assessee had a reasonable cause for the delay in depositing the TDS.Conclusion:The High Court dismissed the appeal filed by the appellant-revenue, concluding that no substantial question of law arose. The Court upheld the CIT(A) and the Tribunal's findings that the respondent-assessee had a reasonable cause for the delay in depositing the TDS, and thus, the penalty under Section 221 of the Income Tax Act, 1961, was rightly deleted.