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Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SMT. ANNAPURNA GUPTA & SHRI SUNIL KUMAR SINGH
ORDER
Per Annapurna Gupta, Accountant Member:
The present appeal has been filed by the assessee against the order dated 30.06.2022 passed by the learned Commissioner of Income- tax (Appeals) National Faceless Appeal Centre (NFAC) [in short “CIT(A)”] u/s. 250(6) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).
Grounds raised by the assessee are as under : “1) That the order of the Ld. CIT(A) NFAC Delhi Dated 30/06/2022 bearing DIN No: ITBA/NFAC/S/250/2022-23/1043692202(1) is arbitrary, capricious and against natural justice.
2) That the impugned order of the Ld. CIT(A) is bad in law and on facts. 3) That Ld. CIT (A) was not justified in sustaining the penalty of Rs. 1462179/- levied U/s 271C by the Addl. CIT(TDS) Kanpur vide order dated 14/09/2021 bearing DIN KNP/95/14092021/00182. The penalty of Rs.1462179/- deserves to be deleted in whole. 4) That Ld CIT(A) completely failed to appreciate the facts that the appellant correctly deducted the TDS within time as prescribed under Law, however, account of non availability of funds and had on continuous disruption in business the same could not deposited in the account of the central government. 5) That the Ld. CIT(A) completely ignored the facts that the appellant sue motto in its audited financial statements, declared the TDS payable as its Liability much before the survey proceedings 133A(2A), which conducted on 23/01/2017. 6) That Ld. CIT(A) failed to appreciate the claim of the appellant that the provisions of section 271C are not attracted in the instant case of the appellant. 7) That the appellant craves the leave to add, modify, alter, delete any of the ground/s of appeal either before or at the time of hearing in the above appeal.
The solitary issue in the present case pertains to levy of penalty u/s.271C of the Act. The orders of the authorities below reveal that the penalty was levied for violation on the part of the assessee to deposit TDS deducted to the account of the government. This fact finds mention in the order of ld. CIT(Appeals) at page 8 as under :
“The appellant Kunj Power Projects Pvt. Ltd. was liable to deduct tax at source and to deposit the amount of tax so deducted to the credit of Central Government as per provisions of chapter XVII of Income Tax Act 1961. In the instant case the appellant deducted tax at source amounting to Rs. 13,83,721 /- under different sections of the Income tax act, 1961 but it did not deposit the tax so deducted into the Central Government account. This fact came to light only during a TDS survey conducted at the office premises of the appellant on 23/01/2017. Consequently, order u/s 201(1)/201(1A) of Income Tax Act, 1961 was 2 | P a g e passed by the ITO(TDS) 1, Agra on 17/03/2021 for F.Y. 2014-15 treating the appellant as the appellant in default for failure to deposit Rs. 13,83,721/- to the credit of Central Govt.”
At the outset itself, we find that the penalty levied in the present case u/s. 271C of the Act is not sustainable in law. The reason being that the penalty u/s. 271C of the Act is leviable for the failure on the part of the assessee to deduct tax at source. The failure to deposit the tax deducted at source invites prosecution u/s. 276C of the Act. Hon’ble Apex Court in the case of US Technologies International Pvt. Ltd. vs. CIT (2023) 453 ITR 644 (SC) had analysed the provisions of section 271C of the Act and categorically held that the said section does not impose penalty for the default of not depositing TDS deduction to the Government account. Relevant order of the Apex Court is reproduced hereunder :
“7.1 The short question which is posed for the consideration of this Court is in case of belated remittance of the TDS after deducting the TDS whether such an assessee is liable to pay penalty under Section 271C of the Act, 1961? 7.2 The question which is also posed for the consideration of this Court is what is the meaning and scope of the words “fails to deduct” occurring in Section 271C(1)(a) and whether an assessee who caused delay in remittance of TDS deducted by him, can be said a person who “fails to deduct TDS”? 7.3 In order to appreciate the rival contentions and to answer the aforesaid questions, it is necessary to have analysis of Statutory provisions. 3 | P a g e
7.4 The relevant provisions are as under: - “Section 201(1A) of the Act Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest, — (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub- section (3) of Section 200: Section 271C of the Act 271-C. Penalty for failure to deduct tax at source. (1) If any person fails to— (a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or (b) pay the whole or any part of the tax as required by or under,— (i) sub-section (2) of Section 115-O; or (ii) the second proviso to Section 194-B; then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid. (2) Any penalty imposable under sub- section (1) shall be imposed by the Joint Commissioner. Section 273B of the Act 273-B. Penalty not to be imposed in certain cases.—Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of Section 271, Section 271-A Section 271- AA, Section 271-B Section 271- BA, Section 271-BB, Section 271-C, Section 271- CA, 4 | P a g e
Section 271-D, Section 271- E, Section 271-F, Section 271-FA, Section 271-FAB, Section 271-FB, Section 271-G, Section 271-GA, Section 271- GB, Section 271- H, Section 271-I, Section 271-J, clause (c) or clause (d) of sub- section (1) or sub-section (2) of Section 272-A, sub-section (1) of Section 272- AA or Section 272-B or sub-section (1) or sub-section (1-A) of Section 272-BB or sub-section (1) of Section 272-BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of Section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. Section 276B of the Act 276-B. Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B.—If a person fails to pay to the credit of the Central Government,— (a) the tax deducted at source by him as required by or under the provisions of Chapter XVII-B; or (b) the tax payable by him, as required by or under,— (i) sub-section (2) of Section 115-O; or (ii) the second proviso to Section 194-B, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.” 7.5 At the outset, it is required to be noted that all these cases are with respect to the belated remittance of the TDS though deducted by the assessee and therefore, Section 271C(1)(a) shall be applicable. At the cost of repetition, it is observed that it is a case of belated remittance of the TDS though deducted by the assessee and not a case of non-deduction of tax at source at all. 7.6 As per Section 271C(1)(a), if any person fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVIIB then such a person shall be 5 | P a g e liable to pay by way of penalty a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid. So far as failure to pay the whole or any part of the tax is concerned, the same would be with respect to Section 271C(1)(b) which is not the case here. Therefore, Section 271C(1)(a) shall be applicable in case of a failure on the part of the concerned person/assessee to “deduct” the whole of any part of the tax as required by or under the provisions of Chapter XVIIB. The words used in Section 271C(1)(a) are very clear and the relevant words used are “fails to deduct.” It does not speak about belated remittance of the TDS. As per settled position of law, the penal provisions are required to be construed strictly and literally. As per the cardinal principle of interpretation of statute and more particularly, the penal provision, the penal provisions are required to be read as they are. Nothing is to be added or nothing is to be taken out of the penal provision. Therefore, on plain reading of Section 271C of the Act, 1961, there shall not be penalty leviable on belated remittance of the TDS after the same is deducted by the assessee. Section 271C of the Income Tax Act is quite categoric. Its scope and extent of application is discernible from the provision itself, in unambiguous terms. When the non- deduction of the whole or any part of the tax, as required by or under the various instances/provisions of Chapter XVIIB would invite penalty under Clause 271C(1)(a); only a limited text, involving sub-section (2) of Section 115O or covered by the second proviso to Section 194B alone would constitute an instance where penalty can be imposed in terms of Section 271C(1)(b) of the Act, namely, on non-payment. It is not for the Court to read something more into it, contrary to the intent and legislative wisdom. 7.7 At this stage, it is required to be noted that wherever the Parliament wanted to have the consequences of non-payment and/or belated remittance/payment of the TDS, the Parliament/Legislature has provided the same like in Section 201(1A) and Section 276B of the Act. 7.8 Section 201(1A) provides that in case a tax has been deducted at source but the same is subsequently remitted 6 | P a g e may be belatedly or after some days, such a person is liable to pay the interest as provided under Section 201(1A) of the Act. The levy of interest under Section 201(1A) thus can be said to be compensatory in nature on belated remittance of the TDS after deducting the same. Therefore, consequences of non-payment/belated remittance/payment of the TDS are specifically provided under Section 201(1A). 7.9 Similarly, Section 276B talks about the prosecution on failure to pay the TDS after deducting the same. At this stage, it is required to be noted that Section 271C has been amended subsequently in the year 1997 providing Sections 271C(1)(a) and 271C(1)(b). As observed hereinabove, fails to pay the whole or any part of the tax would be falling under Section 271C(1)(b) and the word used between 271C(1)(a) and 271C(1)(b) is “or”. At this stage, it is required to be noted that Section 276B provides for prosecution in case of failure to “pay” tax to the credit of Central Government. The word “pay” is missing in Section 271C(1)(a). Now so far as the reliance placed upon the CBDT’s Circular No. 551 dated 23.01.1998 by learned ASG is concerned, at the outset, it is required to be noted that the said circular as deals with the circumstances under which Section 271C was introduced in the Statute, for levy of penalty. Paragraph 16.5 of the above Circular reads as follows: “16.5: Insertion of a new section 271C to provide for levy of penalty for failure to deduct tax at source- under the old provisions of Chapter XXI of the Income Tax Act no penalty was provided for failure to deduct tax at source. This default, however, attracted prosecution under the provisions of Section 276B, which prescribed punishment for failure to deduct tax at source or after deducting failure to pay the same to the Government. It was decided that the first part of the default, i.e., failure to deduct tax at source should be made liable to levy of penalty, while the second part of the default, i.e., failure to pay the tax deducted at source to the Government which is a more serious offence, should continue to attract prosecution. The Amending Act, 1987 has accordingly inserted a new Section 271C to provide for 7 | P a g e imposition of penalty on any person who fails to deduct tax at source as required under the provisions of Chapter XVIIB of the Act. The penalty is of a sum equal to the amount of tax which should have been deducted at source. On fair reading of said CBDT’s circular, it talks about the levy of penalty on failure to deduct tax at source. It also takes note of the fact that if there is any delay in remitting the tax, it will attract payment of interest under Section 201(1A) of the Act and because of the gravity of the mischief involved, it may involve prosecution proceedings as well, under Section 276B of the Act. If there is any omission to deduct the tax at source, it may lead to loss of Revenue and hence remedial measures have been provided by incorporating the provision to ensure that tax liability to the said extent would stand shifted to the shoulders of the party who failed to effect deduction, in the form of penalty. On deduction of tax, if there is delay in remitting the amount to Revenue, it has to be satisfied with interest as payable under Section 201(1A) of the Act, besides the liability to face the prosecution proceedings, if launched in appropriate cases, in terms of Section 276B of the Act. Even the CBDT has taken note of the fact that no penalty is envisaged under Section 271C of the Income Tax Act for non- deduction TDS and no penalty is envisaged under Section 271C for belated remittance/payment/deposit of the TDS. 8.1 Even otherwise, the words “fails to deduct” occurring in Section 271C(1)(a) cannot be read into “failure to deposit/pay the tax deducted.” 8.2 Therefore, on true interpretation of Section 271C, there shall not be any penalty leviable under Section 271C on mere delay in remittance of the TDS after deducting the same by the concerned assessee. As observed hereinabove, the consequences on non- payment/belated remittance of the TDS would be under Section 201(1A) and Section 276B of the Act, 1961.
In view of the above in all these cases as the respective assessees remitted the TDS though belatedly and it is not case of non-deduction of the TDS at all they are no liable to pay the penalty under Section 271C of the Income Tax Act. Therefore, any question on applicability of Section 273B of the Act is not required to be considered any further.
In view of the above and for the reasons stated above, all these appeals succeed. Impugned judgment(s) and order(s) passed by the High Court are hereby quashed and set aside and the question of law on interpretation of Section 271C of the Income Tax Act is answered in favour of the assessee(s) and against the Revenue and it is specifically observed and 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 of the Income Tax Act. Present appeals are accordingly allowed. No costs.” 5. In the light of the same, considering the fact on record that the default committed by the assessee pertains to non-deposit of TDS deducted to the Govt. account, the issue stands squarely covered in favour of the assessee by the proposition of law settled by Hon’ble Apex Court in the decision cited above. Following the same, we, therefore, hold that the penalty levied in the present case u/s. 271C is not sustainable in law and we direct deletion of the same.
Appeal of the assessee is allowed.
Order pronounced in the open court on 16.04.2025.