TPGLOBAL CREATIONS PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER (TDS)-2(3)(2), MUMBAI

Aggrieved by the levy of penalty, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The assessee also relied upon the decision of the Hon'ble Supreme Court in US Technologies International Pvt. Ltd. v. CIT to contend that penalty under section 271C is not leviable where the tax liability has been discharged.

In appeal, CIT(Appeals) confirmed the order passed by the Assessing Officer levying penalty u/s 271C of the Act.

The assessee is in appeal before us against the order passed by ld. CIT(A).

We have heard the rival contentions and perused the material available on record. The solitary issue arising for our consideration is whether, on the facts of the present case, the penalty of ₹1,93,338/- levied under section 271C of the Act is sustainable.

The assessee was held to be an assessee in default under sections 201(1) and 201(1A) of the Act and the Assessing Officer raised a demand of ₹2,84,173/-, comprising TDS of ₹1,93,338/- and interest of ₹90,835/-. The assessee paid the entire demand immediately on 24.01.2023. Therefore, before initiation of the impugned penalty proceedings under section 271C of the Act, the assessee had already discharged the tax and interest against the aforesaid demand.

The object of section 271C is to ensure compliance with the provisions relating to deduction of tax at source. The levy of penalty is not intended to be automatic merely because a default under Chapter XVII-B has been noticed. The Legislature itself has incorporated section 273B which provides that no penalty shall be imposable where the assessee proves that there was reasonable cause for the failure. Thus, before sustaining a penalty under section 271C of the Act, the Assessing Officer is required to examine the surrounding circumstances, the conduct of the assessee and whether the penalty is liable to be imposed, looking into the assessee’s set of facts.

In the present case, we are of the considered view that we find that the Revenue has given any finding whether the conduct of the assessee was deliberate and or was not bona fide.

The Hon'ble Supreme Court in US Technologies International Pvt. Ltd. v. CIT [(2023) 453 ITR 644 (SC)] held that section 271C, being a penal provision, has to be construed strictly and penalty is not attracted merely because there is a default connected with TDS provisions. Though that decision dealt with belated remittance after deduction of tax, the underlying principle is that the recovery of tax and interest cannot automatically result in levy of penalty under section 271C of the Act without satisfying the statutory requirements of the penal provisions.

Further, the Hon'ble Supreme Court in CIT v. Bank of Nova Scotia [(2016) 380 ITR 550 (SC)] upheld the deletion of penalty under section 271C of the Income-tax Act by affirming the concurrent findings of the Commissioner of Income-tax (Appeals) and the Income Tax Appellate Tribunal. The Tribunal had held that while the assessee had already discharged the liability under sections 201(1) and 201(1A), the levy of penalty under section 271C was not automatic and could be sustained only if the Revenue showed that there was a deliberate conduct on the part of the assessee. The Tribunal placed reliance on the decisions of the Delhi High Court in Itochu Corporation v. CIT (268 ITR 172) and CIT v. Mitsui & Co. Ltd. (272 ITR 545) and held that in the absence of any willful conduct on part of the assessee, penalty under section 271C was not justified. The Hon'ble Supreme Court agreed with the appreciation of facts and law by the CIT(A) and the Tribunal and held that no substantial question of law arose for consideration, and dismissed the Revenue's appeal, thereby affirming that penalty under section 271C cannot be sustained merely because there has been a TDS default.

Accordingly, considering the totality of the facts and circumstances, the fact that the assessee had made prompt payment of the tax and interest, the fact that there was absence of any loss to the Revenue and the settled legal position that penalty provisions cannot be invoked mechanically, we are of the considered opinion that the levy of penalty under section 271C is not justified in the peculiar facts of the present case.

In the result, the appeal of the assessee is allowed.