2024 (7) TMI 632 - AT - Income Tax

Tribunal Overturns Penalty for Non-Deduction of TDS on Directors' Fees, Citing Bonafide Belief and Reasonable Cause.

The Tribunal allowed the appeal, deleting the penalty under section 271C of the Income Tax Act for non-deduction of TDS on directors' fees and transaction ... TDS u/s 271C - non deduction of TDS on Directors fee and transaction charges u/s 194J - HELD THAT:- ‘Transaction charges which the tax authorities have considered as ‘Professional charges’ paid to directors falling in limb (ba) of sub-section (1) of section 194J of the Act, it comes up that the PCIT has accepted the plea of the assessee that payments made to directors on account of sitting fee is allowable. The assessee seems to have had valid reasons to consider the payments on account of ‘transactional charges’ to be not covered by Section 194J(1)(ba) of the Act as there is no such head in this section. Thereby not deducting the TDS seems to be out of bonafide belief. Imposition of penalty is thus not justified. Appeal of the assessee is allowed. Issues involved:1. Penalty under section 271C of the Income Tax Act for non-deduction of TDS on directors' fees and transaction charges.2. Interpretation of section 194J of the Income Tax Act regarding the applicability of TDS on professional charges.3. Application of section 273B for reasonable cause exemption from penalty.Analysis:1. The appeal was against the penalty order passed by the JCIT for non-deduction of TDS on directors' sitting fees and transaction charges. The CIT(A) partially confirmed the penalty, reducing it for sitting fees but upholding it for professional charges. The appellant challenged the order on the grounds of being bad in law and contrary to facts and settled law. The assessee argued that there was a bonafide belief regarding TDS deduction on sitting fees and that the amendment in section 194J was not clear for the relevant financial year. The assessee also cited section 273B for reasonable cause exemption from penalty. The Tribunal considered the explanations provided and held that the imposition of penalty was not justified, ultimately allowing the appeal and deleting the penalty.2. The issue regarding the interpretation of section 194J of the Income Tax Act was crucial in determining the applicability of TDS on professional charges. The assessee contended that the transaction charges were not covered under any TDS category, leading to a bonafide belief in not deducting TDS. The Tribunal acknowledged the valid reasons presented by the assessee and accepted that the payments made to directors for transaction charges did not fall under section 194J(1)(ba) of the Act. Consequently, the Tribunal found that the non-deduction of TDS was based on a bonafide belief and ruled that the penalty was not justified, leading to the deletion of the penalty.3. The application of section 273B for reasonable cause exemption from penalty was a significant aspect of the case. The assessee invoked section 273B, arguing that there was a reasonable cause for not deducting TDS on directors' sitting fees and transaction charges. The Tribunal, after considering the explanations and circumstances presented, agreed with the assessee's contention that there was a bonafide belief in not deducting TDS. Consequently, the Tribunal held that the penalty under section 271C was not justified and deleted the penalty, emphasizing the applicability of section 273B for reasonable cause exemption.Overall, the Tribunal's judgment focused on the bonafide belief of the assessee, the interpretation of relevant sections of the Income Tax Act, and the application of provisions such as section 273B for reasonable cause exemption from penalty, ultimately leading to the deletion of the imposed penalty.