Reasonable cause for TDS default protected the assessee from penalty where the omission was bona fide and non-deliberate.

Penalty for failure to deduct or short deduct tax at source was cancelled because the assessee showed reasonable cause under the statutory protection for bona fide default. The Tribunal accepted that the assessee was a small trader in a small town, dealing with ginning, pressing, lint converting charges and commission, and that the omission was not deliberate. It also relied on the fact that the default came to light only during survey proceedings and that the assessee held a bona fide belief that tax was not deductible on the payments in question.

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Issues: Whether penalty under section 271C of the Income-tax Act, 1961 was leviable in the facts of the case, or whether the assessee had shown reasonable cause for failure or short deduction of tax at source so as to attract the protection of section 273B of the Income-tax Act, 1961.

Analysis: The assessee was a small trader operating in a small town, and the defaults arose in the context of payments for ginning, pressing, lint converting charges, and commission. The record showed that the failure to deduct tax was not deliberate and that the default was detected only during survey proceedings. The Tribunal also noted the surrounding circumstances, including the nature of the business and the assessee's bona fide belief that tax was not deductible on the payments in question. On these facts, the Tribunal treated the explanation as a reasonable cause within the meaning of section 273B.

Conclusion: Penalty under section 271C was cancelled because the assessee established reasonable cause for the failure to deduct or short deduct tax at source.

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