No penalty for Failure to deduct TDS due to Wrong Classification of Payments

M/s P.S.R. Associates Vs. The JCIT (ITAT Visakhapatnam)

The assessee has not deducted the TDS on sub contract payments amounting to Rs. 38,12,952/- on which the penalty was imposed by the JCIT and confirmed by the Ld.CIT(A). The assessee has deducted the TDS on all the payments, except short deduction and non deduction to the extent of payments included in the purchase account, there was no other default in respect of complying the provisions of TDS by the assesse and this fact was not disputed by the AO. The AO also did not treat the assessee as assessee in default u/s 201(1) and 201(1A) of I.T.Act for any other non compliance of the provisions of TDS including the present issue of non deduction of tax at source. The assessee has debited the payments in soil purchase account instead of sub contract payments which is evidenced by the assessment order. As per section 271B of I.T.Act, no penalty shall be imposed if the assessee proves that there is reasonable cause for the failure of the assessee.

In the instant case, the tax has not deducted the TDS due to wrong classification of the payments made which was included under the heading ‘purchases’ and the purchases do not attract the TDS, whereas the sub contract payments attract TDS. Since the payments were included in the purchases account which does not attract the TDS, the assessee could not take immediate attention and deduct the TDS. Since there was no failure on the part of the assessee in respect of other TDS payments, we hold the explanation offered by the assessee is reasonable. The assessee also explained that the said explanation could not be taken before the AO as well as the Ld.CIT(A) due to oversight. Therefore, we are of the considered opinion that the assessee’s explanation of inclusion of sub contract payments in the soil purchase account skipped the attention of the assessee for deduction of tax at source appears to be genuine and reasonable. Accordingly, we set aside the order of the Ld.CIT(A) and cancel the penalty imposed by the AO u/s 271(1)(c) for non deduction of tax at source. Appeal of the assessee on this ground is allowed.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

1. This appeal is filed by the assessee against the order of the Commissioner of Income-Tax (Appeals)-2, [CIT(A)], Visakhapatnam vide ITA No. 0043/0728/13-14/Jt.CIT,R-6(TDS)/VSP/14-15 dated 27.02.2015 for the assessment year 2009-10.

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