2024 (12) TMI 1612 - AT - Income Tax

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

Parsvnath Developers Ltd. Versus JCIT, Range-76, New Delhi

ITAT Delhi held that imposing a consolidated penalty under section 271C for multiple assessment years was not permissible, as each year is distinct and ... Penalty u/s 271C - short deduction as noticed in the TRACES account of the assessee - clubbing of penalties - short deduction was found to be in respect of statement filed in quarter Q1, Q2, Q3 and Q4 of FY 2007-08 to 2013-14, 2015 16 and 2016-17 in Form 26Q/24Q. HELD THAT:- JCIT has passed common order for imposing penalty u/s 271C of the Act, for 9 FYs i.e. 2007-08 to 2013-14 and 2015-16 to 2016-17 without appreciating the fact that as per the provisions of the Income tax Act, 1961 every assessment year is separate and distinctive from each other. DR was unable to justify how common notice for different AY and a common order with a consolidated penalty can be imposed under the Act. Act mandates filing of quarterly statements of TDS compliances. The provision of penalty u/s 271C of the Act for failure to deduct tax at source sanctions a levy of penalty for each default as the penalty sanctioned to be imposed is ‘a sum equal to the amount of tax which such person failed to deduct or pay”. Thus every default is a separate cause of action for levy of penalty and since the Act requires filing of relevant returns of TDS compliances periodically, then the competent authority can levy penalty taking cognizance of defaults on the basis of these returns only. Therefore, as per the Act, the penalty notice and proceedings of defaults covered in one reportable period can be clubbed but consolidated penalty notice, penalty proceedings and penalty order u/s 271C of the Act, are not permissible. Thus the consolidated penalty order covering penalty for the relevant AY 2012-13, is not sustainable in law. CIT(A) has fallen in error in not appreciating the fact that it was not a case of no deduction, but, short deductions for which the assessee had explained that due to some errors committed by the Accountant, the discrepancies occurred leading to short deposits. Tax authorities below have been too rigid to expect an explanation overlooking the principles of human behaviour, conduct and prudence. We are of the considered view that arithmetical and clerical mistakes are always likely to happen in accounting and reporting transactions to the ld. Tax authorities. Provisions for advance tax deposits, TDS or TCS are mode of 12 collecting taxes and the provisions in the Act concerning them should be liberally construed and certainly traces of malice should be visible from the facts to justify penalty for short deduction. Thus, we are of the considered view that the imposition of penalty was not justified. Accordingly, the grounds raised are allowed and the appeal of the assessee is allowed. 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.'