THE COMMISSIONER OF IT vs. THE IMPROVEMENT TRUST, BHATINDA

This appeal has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 28.7.2005 (Annexure A-5) passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) for the assessment year 1994-95, claiming the following substantial question of law:- “Whether on the facts and circumstances of the case, the Hon'ble ITAT is justified in deleting the penalty imposed u/s 271C of the Income Tax Act, 1961, for the assessment year 1994-95 holding that penalty is not leviable because order u/s 201(1) and 201(1A) of GURBACHAN SINGH 2014.08.11 16:35 I attest to the accuracy and integrity of this document High Court Chandigarh -2- the Act has been quashed?

The facts, in brief, necessary for adjudication of the present appeal as narrated therein may be noticed. The assessee had failed to deduct and deposit the tax at source for the assessment year 1994-95 from the interest paid for delayed/enhanced payment of land compensation in accordance with the provisions of Section 194A of the Act. The Assessing Officer vide order dated 19.1.1995 (Annexure A-2) made a demand of ` 3,14,144/- under Section 201(1) of the Act on account of tax at source and ` 35,343/- under Section 201(1A) of the Act on account of interest. Further, vide order dated 8.3.1995 (Annexure A- 3) penalty amounting to ` 3,14,144/- under Section 271C of the Act was also imposed upon the assessee. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity “the CIT(A)”]. The CIT (A) vide consolidated order dated 12.9.1996 (Annexure A-4) for the assessment years 1993-94 and 1994-95 partly allowed the appeals and directed the Assessing Officer to consider the reasonable cause. Still not satisfied, the assessee filed an appeal before the Tribunal. The Tribunal vide order dated 28.7.2005 (Annexure A-5) set aside the penalty order as well as the order dated 12.9.1996 passed by the CIT(A) and deleted the penalty. It was held that since the order under Section 201(1) and 201(1A) of the Act have been quashed, Section 194A of the Act was not applicable and, therefore, the penalty under Section 271C of the Act was not leviable. It was also recorded that the assessee had reasonable cause for failure to comply with the provisions of the Act. Hence, the present appeal by the revenue.

We have heard learned counsel for the parties. GURBACHAN SINGH 2014.08.11 16:35 I attest to the accuracy and integrity of this document High Court Chandigarh -3-

Learned counsel for the revenue submitted that the assessee was required to deduct tax at source under Section 194A of the Act, therefore, failure to deduct tax at source had made the assessee liable under Section 201(1) of the Act and interest under Section 201(1A) of the Act and the assessee having failed to do so, was liable to penal action under Section 271C of the Act.

On the other hand, learned counsel for the assessee submitted that the order under Section 201(1) and 201(1A) of the Act had been quashed and, therefore, no penalty could be imposed. Further, reliance was placed upon the decision of the Delhi High Court in Woodward Governor India (P) Ltd. v. CIT 253 ITR 745. 6. Learned counsel for the revenue was unable to show that any error or perversity in the order passed by the Tribunal. Once an order under Section 201(1) and 201(1A) of the Act was quashed, the levy of penalty under Section 271C of the Act could not be maintained. Further, the Tribunal had concluded that the assessee had reasonable cause for not deducting tax at source, which finding has not been shown to be erroneous or perverse in any manner.

In view of the above, the substantial question of law is decided against the revenue. Finding no merit in the instant appeal, the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE July 8, 2014