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Facts
The assessee made interest payments of Rs. 42,51,571/- during FY 2015-16 without deducting TDS. The Assessing Officer held the assessee in default and imposed a penalty of Rs. 4,25,157/- under Section 271C. The CIT(A) confirmed the penalty.
Held
The Tribunal noted that the assessee claimed to have paid the TDS belatedly due to financial difficulties and relied on a Supreme Court ruling that mere belated remittance of TDS after deduction does not attract penalty under Section 271C. The matter was restored to the AO for verification of TDS deduction and remittance.
Key Issues
Whether penalty under Section 271C is leviable for failure to deduct TDS or for belated remittance of TDS, especially when claimed due to financial constraints and supported by a Supreme Court judgment.
Sections Cited
271C, 194A, 201(1), 201(1A), 274
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
This appeal by the assessee arises from the order dated 30.04.2025 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”], for Assessment Year 2016-17, whereby the CIT(A) confirmed the penalty of Rs. 4,25,157/- levied under section 271C of the Income- tax Act, 1961 [hereinafter referred to as “the Act”]. The penalty had been imposed by the Joint Commissioner of Income-tax, TDS Range, Vadodara vide order dated 28.02.2023, in proceedings initiated for failure to deduct tax at source on interest under section 194A of the Act.
2.1 The brief facts, as culled out from the penalty order under section 271C passed by the Joint Commissioner of Income-tax, TDS Range, Vadodara, are that during the Financial Year 2015-16 the assessee made payment of interest amounting in aggregate to Rs.42,51,571/-. On verification of records, it was noticed that no tax had been deducted at source on the said payment as required by section 194A. The Assessing Officer recorded that an order under sections 201(1)/201(1A) had already been passed on 04.08.2021 holding the assessee to be an assessee-in-default in respect of the said non-deduction. The matter was thereafter taken up for levy of penalty under section 271C.
2.2 In the penalty order, it is recorded that notices under section 274 read with section 271C were issued on 25.08.2022, 25.11.2022 and finally on 20.12.2022, all duly served, but the assessee failed to furnish any reply. The Assessing Officer observed that the assessee was liable to deduct tax at 10 percent on the interest payment of Rs. 42,51,571/-, amounting to Rs. 4,25,157/-, but no deduction was made. Referring to section 271C, the Assessing Officer held that in the absence of any reasonable cause, the assessee was liable for penalty equal to the tax not deducted and accordingly imposed a penalty of Rs.4,25,157/-.
2.3 The assessee preferred appeal before the CIT(A) where the assessee placed on record a statement of facts stating that it has been facing huge financial difficulties and that the interest payment of Rs.42,51,571/- pertained to Techtonic Motors Pvt. Ltd. The assessee also stated that the TDS along with interest had been paid subsequently to the date of deduction.
3 2.4 The CIT(A) noted that during appellate proceedings the assessee failed to provide any satisfactory explanation or supporting evidence for the non-deduction of tax in F.Y. 2015-16 relevant to A.Y. 2016-17. Referring to section 271C, it was observed that since the assessee had not deducted and deposited tax on the interest payments as required under section 194A, it was liable for penalty. The CIT(A) further held that the assessee did not demonstrate any reasonable cause for the lapse and had offered no satisfactory explanation for the default. Accordingly, the CIT(A) dismissed the appeal.
Aggrieved by the order of CIT(A) the assessee is in appeal before us raising following grounds:
1. The Learned CIT (Appeals) erred in disregarding the decision of the Honourable Kerala High Court contested by U.S. Technologies Pvt.Ltd. before the Hon'ble Apex Court filed during the course of appellate proceedings and further erred in confirming the penalty of Rs.4,25,157/-u/s 271C of the Act.
The appellant company craves, leave to add, alter or amend any of the grounds mentioned above. 4. During the course of hearing, none appeared on behalf of the assessee, nor was any adjournment application placed on record. The learned Departmental Representative, on the other hand, relied upon the orders of lower authorities.
We have considered the material on record. None appeared for the assessee at the time of hearing, and no adjournment was sought. The assessee has, however, placed on record that owing to financial difficulties it has subsequently paid the TDS along with interest. The penalty order under section 271C proceeds on the footing that the assessee failed to deduct tax at source on interest of Rs. 42,51,571/- under section 194A and, despite show cause notices dated 25.08.2022, 25.11.2022 and 20.12.2022, furnished no reply, 4 whereupon penalty equal to Rs. 4,25,157/- was imposed. The CIT(A) has recorded that during appellate proceedings the assessee did not furnish a satisfactory explanation or supporting documents and has affirmed the penalty.
5.1 The assessee’s specific plea is that TDS stands paid along with interest, though belatedly, due to financial constraints. The factual character of the default is therefore pivotal. If it is a case of belated remittance after deduction, the ratio of the Honourable Supreme Court in U.S. Technologies International Pvt. Ltd. v. CIT [TS-5044-SC- 2023-O] squarely governs the issue. The Hon’ble Apex Court has held that “on mere belated remitting the TDS after deducting the same by the concerned person/assessee, no penalty shall be leviable under Section 271C. It is further explained that the “words ‘fails to deduct’… cannot be read into ‘failure to deposit/pay the tax deducted’.”
5.2 In view of the above authoritative pronouncement, if in fact the assessee had deducted tax and only remitted it belatedly with interest, penalty under section 271C would not be attracted. Conversely, if the default is one of non-deduction itself under section 194A, the Assessing Officer would have to examine the assessee’s claim of financial difficulties and the plea of subsequent compliance on the touchstone of the statutory scheme, after affording due opportunity.
5.3 On the present record, there is no primary verification by the Assessing Officer or by the CIT(A) of the assessee’s assertion that TDS, along with interest, was subsequently paid. The issue requires verification through production and examination of primary evidence such as challans, Form 26Q statements and corresponding ledger extracts, and correlation with the specific interest payments 5 aggregating to Rs.42,51,571/-. The factual determination whether there was deduction and belated remittance, or a failure to deduct, is indispensable for a correct application of law laid down by the Honourable Supreme Court.
5.4 Having regard to the above, the orders of the lower authorities are set aside, and the matter is restored to the file of the Assessing Officer for a limited purpose. The Assessing Officer shall verify, on the basis of primary records, whether the assessee deducted TDS on the impugned interest and remitted the same along with applicable interest. If it is found that the tax was deducted and only remitted belatedly, the Assessing Officer shall delete the penalty in view of the law declared in U.S. Technologies International Pvt. Ltd. that no penalty under section 271C is leviable for mere belated remittance of TDS already deducted. If it is found that there was a failure to deduct tax, the Assessing Officer shall re-adjudicate the levy strictly in accordance with law after granting the assessee a reasonable opportunity and by passing a speaking order.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 24th September, 2025 at Ahmedabad.