2009 (6) TMI 966

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....the financial year 2002-2003. The assessee is a Software Company which has it's unit in Techno Park, Trivandrum. On 10.3.2003 the Survey Team of the Income Tax Department conducted a survey in the premises of the assessee under Section 133A of the Act. It was noticed that massive amount of tax deducted at source for payment under the heads salaries, payment to contractors, professional fees for technical services, rent, etc. have been retained by the assessee without making remittance to  the department. It was found that out of Rs. 1,10,41,898/- being the TDS recovered from various payments for the financial year 2002-2003 relevant for the assessment year 2003-2004, the assessee had remitted only Rs. 38,94,687/- as on the date of ....

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....did not grant reduction in penalty. The challenge against jurisdiction was rejected by C.I.T.(Appeals) for the reason that Section 271C authorises penalty not only for failure to deduct or short deduction, but for non-payment as well. It is against this order the assessee filed appeal before the Tribunal challenging the jurisdiction of the officer as well as against quantum on the ground that they have reasonable cause for the delay in remittance. The Tribunal found that Section 271C authorises penalty not only for failure to deduct tax at source in terms of the provisions of Chapter XVIIB, but it authorises penalty for non-payment of tax deducted at source in time. Assessee's claim that there was reasonable cause for  their failur....

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....ax and for both. In other words, according to him, penalty provided under Section 271C also covers the situation where the assessee after deduction at source retains the recovered amount without payment to the department. In our view, the Tribunal while considering the appeal recast the Section in it's own way completely distorting it's meaning. Originally there was no provision for penalty for failure to deduct tax or remit the deducted tax and the provision under Section 276B only authorised prosecution for violation. However, Section 271C was introduced by the Direct Laws (Amendment) Act, 1987 with effect from 1.4.1989 providing for penalty for failure to deduct or remit tax under Chapter XVIIB, subsection (2) of Section 115(O) a....

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....tion (2) of Section 115(O) or second proviso to Section 194B of the Act. We are unable to accept this contention because the first part of clause (b) of Section 271C(1) i.e. failure to pay whole or any part of tax as required, takes in the tax deducted under clause (a) under any of the provisions of Chapter XVIIB. So much so, in our view, failure to deduct or failure to remit recovered tax, both will attract penalty under Section 271C of the Act. So much so, the contention of the appellant fails and we uphold the finding of the Tribunal dismissing the challenge against levy of penalty. 4. The next question to be considered is the quantum of penalty which in this case is above Rs. 1.1 crore. Counsel for the appellant referred to Section 273....