M/S JAI SHANKAR SEEDS CORPORATION,DELHI vs. JCIT, DELHI

During the course of hearing, the Ld. Counsel for the assessee has invited our attention that the assessee has made certain payments of interest to certain companies but did not deduct the TDS and the AO, accordingly, invoked the provisions of Section 40(a)(ia) of the Act. The assessee accepted the additions made by the AO and has paid taxes due thereon and has also started to deduct the TDS on such payment of interest thereafter. Though the assessee has agreed for the additions but the AO was initiated the penalty proceedings u/s 271C of the Act and levied the penalty of Rs. 82,602/- for non deduction of tax on such interest payments.

Assessee preferred an appeal before the CIT(A) with the submissions that the assessee did not deduct the TDS on such payment of interest because he was under a bona fide belief that he was not required to deduct the TDS on payment of interest paid to non banking financial institutions. The CIT(A) did not appreciate the explanations of the assesses and has confirmed the penalty levied by the AO u/s 271C of the Act.

Now the assessee before us with the submissions that the assessee did not deduct the TDS because of bona fide belief that he was not required to do so. Assessee was under a belief that he is required to deduct the TDS if the interest payment is made to banking financial institutions. Since he did not deduct the TDS under a bona fide belief the penalty u/s 271C of the Act should not be levied. He also placed a reliance upon the judgment of the Apex Court in the case of ACIT vs. Eli Lilly & Company (India) Pvt. Ltd. & Ors. Reported in (2009) 312 ITR 225 and the order of the Tribunal Chandigarh Bench in the case of Sukhdev Singh vs. JCIT (TDS) Chandigarh in ITA No. 116/Chd./2014 in which it has been held that the provisions of Section 271C of the Act cannot be held to be mandatory or compensatory or automatic because u/s 273B Parliament has enacted that penalty shall not be imposed in cases where there is reasonable cause for committing a default. Therefore, penalty can only be levied on such persons who do not have good and sufficient reasons for non deducting tax at source. Therefore, in the instant case, since the assessee has furnished the reasonable cause for non deducting of TDS the penalty should not have been levied upon the assessee.

The Ld. DR placed a heavily reliance upon the order of the CIT(A).

We have carefully examined the order of the lower authorities in the light of the rival submissions and the judgments referred to by the parties and we find that this is the first time when the assessee did not deduct the TDS on payment of interest made to non banking financial institutions. The contention of the assessee that he was under a bona fide belief that TDS can only be deducted on such payments of interest if made to the banking financial institutions, cannot be out rightly rejected. Moreover, the Ld. Counsel for the assessee has also demonstrated that after this assessment year assessee has started deducting TDS on such payment of interest to non banking financial institutions. Keeping in view, the totality of facts and circumstances of the case, we are of the considered opinion that assessee has a bona fide belief and also has a reasonable cause for non deduction of TDS on payments of interest to the non banking financial institutions. Therefore, we find no merit in the penalty levied u/s 271C of the Act. Accordingly, he set aside the order of the CIT(A) and delete the penalty.

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