Penalty under Section 271C must be imposed separately for each year; consolidated penalty for multiple years not allowed

ITAT Delhi held that imposing a consolidated penalty under section 271C for multiple assessment years was not permissible, as each year is distinct and penalties must be levied separately for defaults in each reportable period. The tribunal found that the penalty was based on short deductions due to clerical errors, not willful default, and noted the need for a liberal interpretation of TDS provisions without malice. The common penalty order covering several years was quashed, and the appeal was allowed, setting aside the penalty imposed by the lower authorities.

---

---

ISSUES:

Whether penalty under section 271C of the Income Tax Act, 1961 can be imposed by clubbing short deduction defaults across multiple assessment years in a single consolidated order.Whether inadvertent or clerical errors by the accountant leading to short deduction of tax at source constitute sufficient cause to waive or reduce penalty under section 271C.Whether penalty under section 271C can be imposed on the basis of demand reflected in TRACES account prior to filing of revised TDS returns correcting short deduction amounts.Whether repeated inadvertent mistakes by a corporate entity's accounting staff justify imposition of penalty under section 271C despite absence of malice or willful default.

RULINGS / HOLDINGS:

Penalty under section 271C cannot be imposed by issuing a common consolidated penalty order covering multiple assessment years, as "every assessment year is separate and distinctive" and "consolidated penalty notice, penalty proceedings and penalty order u/s 271C of the Act, are not permissible."Inadvertent mistakes or clerical errors committed by the accountant, even if recurring, do not demonstrate malice or willful default and therefore do not justify penalty under section 271C; "lack of competence or negligence of individuals performing duties of a corporate entity should be considered sufficient justification in case of short deductions."Penalty should be imposed only on the basis of actual short deduction amount after filing of revised TDS returns; penalty based on higher demand figures shown in TRACES prior to revision is not sustainable.The imposition of penalty under section 271C was not justified where the short deduction was due to inadvertent mistakes and was subsequently rectified; thus, the penalty was quashed.

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, 1961, particularly section 271C, which prescribes penalty for failure to deduct tax at source as "a sum equal to the amount of tax which such person failed to deduct or pay."The Court emphasized that the Act mandates filing of quarterly TDS returns and treats each default period as a separate cause of action, precluding consolidation of penalty proceedings across multiple assessment years.The Court recognized that human errors such as "arithmetical and clerical mistakes are always likely to happen" and that the tax authorities should adopt a "realistic attitude" and require "traces of malice" to justify penalty imposition.The Court rejected the appellate authority's approach of confirming penalty despite the explanation of inadvertent mistakes and subsequent correction, noting that "no malice can be imputed" and that "the provisions concerning TDS should be liberally construed."

---