Reasonable cause bars penalty for bona fide non-deduction of tax on prepaid distributor discounts amid conflicting judicial views.

Penalty under section 271C was deleted because the assessee's failure to deduct tax on discounts allowed to prepaid distributors arose from a bona fide view on a debatable issue. The order noted that the applicability of section 194H to discounts on prepaid SIM cards and recharge vouchers had been the subject of conflicting judicial opinions and had reached the Supreme Court. On that footing, the assessee showed reasonable cause within section 273B, and the default did not justify penalty.

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Issues: Whether penalty under section 271C of the Income-tax Act, 1961 was leviable for non-deduction of tax at source on discount allowed to prepaid distributors, in the light of section 273B and the assessee's plea of reasonable cause.

Analysis: The dispute concerned whether the discount on sale of prepaid SIM cards and recharge vouchers attracted tax deduction under section 194H, and whether failure to deduct tax, in a setting where judicial views were divergent and the issue had travelled to the Supreme Court, could still justify penalty. The order applied the principle that section 273B bars penalty where the assessee proves reasonable cause. It accepted that the assessee acted under a bona fide belief on a debatable issue, supported by conflicting High Court and Tribunal decisions, and that such circumstances constituted reasonable cause for the default.

Conclusion: Penalty under section 271C was held not leviable and was deleted.

Ratio Decidendi: Where non-deduction of tax arises from a bona fide view on a debatable legal issue supported by conflicting judicial opinions, the assessee demonstrates reasonable cause under section 273B and penalty under section 271C is not imposable.

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