Section 271C – Penalty u/s. 271C is not leviable on an assessee who is not treated as an “assessee-in-default” as per section 201 of the Act more so when there was a reasonable cause for not deducting tax on payment made by the assessee.
Facts
The assessee company was engaged in generation, transmission and distribution of power in the State of Himachal Pradesh. It purchased/sold power from PGCIL and was also selling power to consumers. Power was transmitted through transmission network of PGCIL and assessee made payments on account of wheeling charges, SLDC, transmission charges to PGCIL. In respect of payments made by the assessee to PGCIL, during the financial years 2006-07 to 2009-10, the assessee company was liable to deduct tax at source, but did not deduct tax at source.
Since PGCIL was found to have paid taxes on its income received from the assessee, the assessee was not treated as an assessee-in-default u/s. 201 of the Act. However, the AO levied penalty u/s. 271C of the Act amounting to Rs.1,36,00,187; Rs., 2,48,13,453; Rs.2,76,67,625 and Rs.5,71,017 for the financial years 2006-07, 2007-08, 2008-09 and 2009-10 respectively. He held that there was no reasonable cause for the deductor assessee not to deduct tax at source. Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO. Aggrieved, the assessee preferred an appeal to the Tribunal.
Held
The Tribunal, having noted the provisions of section 271C of the Act and also the ratio of the decision of the Karnataka High Court in the case of Remco (BHEL) House Building Co-operative Society Ltd. vs. ITO (2015) 273 CTR 57 (Kar), and observed that the assessee has not been treated as “assessee in default” as per section 201 of the Act, and is therefore neither liable to deduct nor pay any tax as per Chapter XVII-B. It held that in such circumstances, the question of levy of penalty u/s. 271C does not arise. It observed that this view has been upheld by the Hyderabad Bench of the Tribunal, in the case of ACIT vs. Good Health Plan Ltd. in ITA No. 155/Hyd/2013, wherein penalty levied u/s. 271C was deleted, since the assessee was not held to be an assessee in default. The Tribunal held that no penalty u/s. 271C could be levied in the case of the assessee.
The Tribunal also observed, that the fact that the tax on impugned sums had been reimbursed to PGCIL had not been controverted by the Revenue. It held that in such circumstances, the belief harboured by the assessee that by deducting further TDS, it would tantamount to double taxation, appears to be a reasonable and bonafide belief. It considered the explanation of the term “reasonable cause” as explained by the Delhi High Court in the case of Woodward Governor India (P.) Ltd. vs. CIT (2001) 168 CTR 394 (Del), and held that there is no merit in the contention of the Department Representative (DR) that the assessee did not have reasonable cause for not deducting tax at source.
The Tribunal held that the assessee not being in default in respect of the amount of tax itself, there cannot be any levy of penalty u/s. 271C, and more so, where there was a reasonable cause for not deducting the TDS on the payment made.
This ground of appeals filed by the assessee was allowed.
