ITAT Kolkata Deletes TDS and TCS Penalties on Bona Fide Belief Under Section 273B

Mani Square Limited Vs ACIT (ITAT Kolkata)

Bona fide belief that rent paid to Government company was covered by Section 196 and construction scrap was outside TCS constitutes reasonable cause: Kolkata ITAT deletes penalties

The Kolkata Bench of the Income Tax Appellate Tribunal has deleted penalties imposed under Sections 271C and 271CA for failure to deduct TDS on rent and collect TCS on the sale of construction scrap. The Tribunal held that the assessee’s bona fide interpretation of the relevant provisions constituted a “reasonable cause” under Section 273B, even though the tax authorities had treated the underlying transactions as liable to TDS and TCS.

Non-deduction of TDS on rent paid to Government company

The assessee, engaged in the construction and real-estate development business, had entered into a sub-lease agreement with Bengal Chemical and Pharmaceuticals Ltd. for a portion of land situated at Canal Circular Road, Kolkata.

The assessee did not deduct tax under Section 194-I on the lease rent paid to the company. Its understanding was that Bengal Chemical and Pharmaceuticals Ltd. was substantially owned and controlled by the Government of India and was consequently covered by Section 196, which grants exemption from TDS in respect of specified payments made to the Government and certain statutory entities.