Brief Facts of the Case: The assessee has delayed in payment of Tax deducted at source. Therefore, penalty proceedings were initiated and penalty was levied U/s 271C of the Income Tax Act. It was argued by the assessee that there was no willful or deliberate delay in payment of TDS and therefore, penalty is not exigible U/s 271C.
Question of Law: Whether penalty was exigible U/s 271C of the Income Tax Act when delay in payment of TDS is caused due to unreasonable cause on the part of assessee?
Contention of the Assessee:
It was contended by the assessee that no penalty is exigible U/s 271C as the entire tax along with the Interest was remitted before initiation of penalty proceedings as laid down in the Judgment of M/s U. S Technologies International (P) Limited V/s CIT [(2010) 195 Taxman 323]. It was also contended by the assessee that the Tribunal has erred in law in proceeding on the assumption that there was continuous delay of four years and the belated deposit of deducted amount every year showed the assessee as willful defaulter. Further, the Tribunal has not considered the financial hardship caused to the assessee and also the order of Tribunal is barred by limitation on account of inordinate delay and the entire order was erroneous and unsustainable in law for failure to apply the correct principles of law in this regard.
Contention of the High Court:
It was contended by the High Court that it was admitted by the parties that TDS was remitted belatedly though with interest. In such case provisions of Section 271C are fully applicable. In so far as the Judgment of the Court in U S Technologies International (P) Limited (supra) is concerned, it was held that
“Counsel for the appellant has referred to Section 273B of the Act authorizing the officer to waive or reduce penalty if the defaulted assessee proves that there was reasonable cause for such failure which attracts penalty. Standing Counsel has referred to the findings on cash flow and the application of funds by assessee for other purposes and contended that there was no reasonable cause justifying the failure on the part of the assessee. He has further contended that even for earlier year assessee has remitted recovered tax with delay. In our view, the Tribunal has not considered challenge against quantum of penalty in so much details probably because in the penalty order it is stated that only minimum penalty is levied. So far as failure on the part of the assessee to remit the tax recovered at source is concerned, we do not think there can be any justifying circumstance for delay in remittance because assessee cannot divert tax recovered for the Government towards working capital or any other purpose. So much so, in our view, defense available under Section 273B does not cover failure in payment of recovered tax. However, if there is failure to remit on account of failure to recover for any reason whatsoever, then the case calls for reduction of penalty, if not waiver. Similarly, we feel recovery and remittance of tax, though with delay but with interest, before detection is certainly a mitigating circumstance for waiver or reduction of penalty. Further, if full amount of tax with interest was paid before levy of penalty, we feel quantum reduction is called for by the AO. Therefore, we direct the AO to reconsider the quantum of penalty by giving one more opportunity to the assessee to furnish facts in the light of our observations above. The appeal is accordingly disposed of upholding the order of the Tribunal on the levy of penalty, but with direction to the AO to grant further reduction in penalty, if any new fact or circumstance is brought to the notice of the AO based on observations above or otherwise in terms of Section 273B of the Act.”
On reading of the above paragraph, it is clear that Section 273B is not attracted when TDS is deducted and not remitted to the revenue. Therefore, the judgment in U S Technologies International Private Limited (supra) does not support the claim of the appellant in any manner. It was held by court that the authorities were fully justified in levying penalty U/s 271C. In result, appeals are dismissed.