ITAT Deletes section 271C Penalty for Failure to Deduct TDS on LTA

IN THE INCOME TAX APPELLATE TRIBUNAL

The Relevant Text of the Order as follows :

“13. We have carefully considered the rival submissions. It is undisputed that as against the order of the Tribunal holding the Assessee to be in default for non deduction of tax at source, the Assessee has preferred appeal before the Hon’ble Karnataka High Court and the question whether the Assessee is guilty of non deduction of tax at source or not is to be decided in such appellate proceedings. In this background of facts, the question is whether penalty can be imposed on the Assessee under section 271C of the Act. The Hon’ble Karnataka High Court in the case of Ankita Electronics Pvt.Ltd. (supra) had an occasion to deal with identical issue and the Court held as follows:-

ITAT Deletes section 271C Penalty for Failure to Deduct TDS on LTA

“6. While dismissing the appeal, the Tribunal has observed that the additions in respect of which penalty under Section 271(1)(c) of the Act was levied, have been admitted by the High Court for consideration and thus found that the additions made were debatable and would lead credence to the bonafides of the assessee. It thus held that the matter of imposing penalty under Section 271(1)(c) of the Act, was not exigible in the case on hand.

7. The Tribunal placed reliance on decision of the ITAT, Mumbai in the case of Nayan Builders & Developers (P.) Ltd. v. ITO [IT Appeal No. 2379/Mum/2009, dated 18-3-2011], which had also held that “the admission of substantial questions of law by the High Court lends credence to the bona fides of the assessee in claiming deduction. Once it turns out that the claim of the assessee could have been considered for deduction as per a person properly instructed in law and is not completely debarred at all, the mere fact of confirmation of disallowance would not per se lead to the imposition of penalty.”

8. The assessee in the present case had disclosed all the materials on which it was claiming deduction. The matter as to whether the deduction was to be given or not, was taken up by the revenue authorities and it was held that certain deductions claimed by the assessee were to be disallowed. It is not disputed that the questions regarding the disallowance of the deductions claimed by the assessee is under consideration by the High Court, as the appeal filed by the assessee has been admitted, on the substantial questions of law which have been reproduced hereinabove.

9. The mere admission of the appeal by the High Court on the substantial questions of law as have been quoted above, would make it apparent that the additions made were debatable. The Tribunal has thus rightly held that the admission of substantial questions of law by the High Court leads credence to the bona fide of the assessee and therefore, the penalty is not exigible under Section 271(1)(c) of the Act. Merely because the claim of the assessee has been rejected by the revenue authorities would not make the assessee liable for penalty.”

14. In the light of the aforesaid decision of the Hon’ble Karnataka High Court, we are of the view that levy of Section 271C  penalty of the Act, in the given facts and circumstances of the case, cannot be sustained and the same is directed to be deleted.

15. As far as the decision of the co-ordinate Bench in the case of Syndicate Bank (supra) is concerned, we are of the view that this issue has not been raised nor considered in that case. Since the imposition of penalty u/s.271C fails on this ground, we are of the view that there is no necessity to remand the issue to CIT(A) for consideration afresh, as was done by the Tribunal in the case referred to by the learned DR. We therefore hold that the imposition of penalty in the facts and circumstances of the case cannot be justified and the same is directed to be cancelled.”

3. We are of the view that the facts and circumstances under which penalty u/s. 271C of the Act was imposed in the present appeals are similar to the facts and circumstances in the aforesaid decision of the Tribunal. Therefore, following the same, the penalty levied u/s. 271C of the Act in the cases now before us is deleted.

4. In the result, all the appeals by the assessees are allowed.

Pronounced in the open court on this 5th day of October, 2020.