Penalty for belated TDS deposit not sustainable where tax was deducted and delay was explained; only compensatory interest may apply.

Penalty under section 271C was held unsustainable where tax had been deducted at source but deposited belatedly. The Tribunal applied the settled distinction between failure to deduct tax, which can attract section 271C, and mere delay in remittance of already deducted tax, for which compensatory interest under section 201(1A) may arise instead. On the facts, the assessee had deducted tax and explained the delay in deposit by business disruption, so no penalty was leviable and the addition was deleted in favour of the assessee.

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Issues: Whether penalty under section 271C of the Income-tax Act, 1961 was sustainable where tax deducted at source was deposited belatedly, and whether the assessee had shown reasonable cause for the delay.

Analysis: Penalty under section 271C lies only where there is a failure to deduct the whole or any part of tax as required under Chapter XVII-B, or to pay tax in the limited situations covered by that provision. Where tax has in fact been deducted and later deposited, the default is in delay of remittance, for which interest may arise under section 201(1A), but the situation does not attract penalty under section 271C. The assessee had shown that tax was deducted and the delay in deposit was explained by disruption of business activities, and the Tribunal followed the settled position that belated payment of TDS, without more, does not warrant penalty under section 271C.

Conclusion: The penalty under section 271C was not sustainable and was deleted in favour of the assessee.

Final Conclusion: Belated deposit of already deducted tax did not justify penalty under section 271C on the facts found, and the assessee obtained complete relief.

Ratio Decidendi: Penalty under section 271C cannot be imposed for mere delayed remittance of tax already deducted at source; in such a case the appropriate consequence is compensatory interest, subject to the statutory scheme.

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