2018 (5) TMI 939 - AT - Income Tax

Appeal allowed: Penalty overturned for TDS statement delay due to software issue.

The ITAT Kolkata allowed the appeal, overturning the penalty imposed under section 272A(2)(k) of the Income Tax Act. The change in software causing delays ... Levying penalty u/s 272A(2)(k) - Delay in quarterly TDS statements submission - ‘reasonable cause’ for delay - assessee submitted the reason for delay as migration to new software system - Held that:- Fact of change of software from ‘Genesis’ to ‘CWISS’ Module by the assessee has not been disputed by the revenue in the instant case. It is quite natural that change of software would lead to various teething troubles which need to be addressed and plugged at the initial stage itself, so that the new Module could function smoothly later on. It is well known that migration to a new software would certainly result in lot of issues on accounting, accounting heads, etc which consumes considerable time for addressing the same. The assessee in the instant case had to undergo the same problems from October 2009 onwards which had been duly stated by the senior branch manager of Serampore Branch, vide letter dated 11.11.2011. the assessee was reasonably prevented from filing its quarterly TDS statements for 2nd and 3rd quarters of financial year 2009-10 with delay due to reasons beyond the control of the assessee. We hold that the explanation offered by the assessee would constitute ‘reasonable cause’ within the meaning of section 273B of the Act and hence the assessee would be entitled for immunity from levy of penalty u/s 272A(2)(k) - Decided in favour of assessee. Issues:Penalty u/s 272A(2)(k) of the Income Tax Act, 1961 for delayed filing of TDS statements.Analysis:The appeal challenged the penalty imposed by the Assessing Officer (AO) under section 272A(2)(k) of the Income Tax Act for delays in filing TDS statements. The AO levied a penalty of Rs. 94,200 for delays in the second and third quarters of the financial year 2009-10. The assessee cited the replacement of software from 'Genesis' to 'CWISS' Module as the reason for the delays. The AO rejected the explanation, leading to the appeal before the Commissioner of Income Tax (Appeals) [CITA]. The CITA upheld the penalty, prompting the assessee to appeal to the ITAT Kolkata.The ITAT Kolkata noted that the change in software was undisputed and acknowledged the challenges associated with such transitions. The assessee faced difficulties due to the software change from October 2009 onwards. The ITAT held that the assessee was justified in the delay in filing TDS statements for the relevant quarters due to reasons beyond its control. The explanation provided by the assessee was deemed to constitute a 'reasonable cause' under section 273B of the Act, granting immunity from penalty under section 272A(2)(k). Importantly, there was no loss to the exchequer as the TDS was duly remitted on time to the Central Government. The ITAT concluded that the delay was a technical breach and not a deliberate violation warranting a penalty.Ultimately, the ITAT allowed the appeal of the assessee, overturning the penalty imposed by the AO and upheld by the CITA. The decision was based on the recognition of the genuine challenges faced by the assessee due to the software transition, the absence of financial loss to the government, and the technical nature of the delay in filing the TDS statements. The ITAT's ruling provided relief to the assessee from the penalty under section 272A(2)(k) of the Income Tax Act.In conclusion, the ITAT Kolkata's judgment emphasized the importance of considering genuine reasons for delays in compliance, especially when external factors beyond the assessee's control, such as software transitions, contribute to the delay. The decision highlighted the distinction between technical breaches and deliberate violations, ensuring that penalties are imposed judiciously and in line with the provisions of the Income Tax Act.