Reasonable cause defeats TCS penalty where processed timber plank sales were largely supported by tax payment evidence and legal advice.

Penalty for failure to collect tax at source on processed timber planks was held unsustainable where the assessee was not treated as an assessee in default for the substantial accepted sales and had produced confirmation and tax payment evidence for the remaining turnover. The Tribunal also found reasonable cause under section 273B, relying on the assessee's bona fide belief, departmental correspondence, legal advice, and the prevailing clarification that processed cut-size planks were not covered in the same manner as timber logs. On that basis, penalty was not leviable and the deletion of penalty was upheld.

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Issues: Whether penalty under section 271CA was leviable for failure to collect tax at source on sale of processed timber planks, and whether the assessee had shown reasonable cause under section 273B.

Analysis: The Assessing Officer had treated the assessee as an assessee in default only for a part of the sales under section 201(1), while accepting confirmations and tax payment evidence for the remaining substantial sales. The penalty was nevertheless levied on the entire sale turnover. The assessee supported its case with departmental correspondence, a legal opinion, and the claim that processed cut-size planks were not covered in the same manner as timber logs. The Tribunal held that once the assessee was not treated as an assessee in default for the substantial accepted portion, penalty could not be sustained on that part. It further held that the assessee had established reasonable cause within section 273B, as the default arose from a bona fide belief supported by legal advice and the prevailing clarification, and penalty is not to be imposed where such reasonable cause exists.

Conclusion: Penalty under section 271CA was not leviable and the deletion of penalty was upheld in favour of the assessee.

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