Penalty u/s 271C not leviable when assessee misconstrued provisions

Penalty u/s 271C cannot be levied when the assessee misconstrued the provision of law and did not deduct tax at source

In the instant case, the assessee is a Co-operative Bank. Clause 5 of sub-section (3) of Section 194 A expressly exempts the Bank from deducting the tax at source on interest payable by the Bank to its members and other Co-operative Societies. As stated by the assessee, they did not properly construe this provision. By mis­construing this provision they also did not deduct tax from the interest payable to non-members.That is the bonafide mistake which they have committed. Their bonfides is demonstrated to the effect that once in a survey the said mistake was notice and pointed out immediately they have paid the tax with interest. Therefore, in the light of this undisputed facts of this case, when the Appellate Commissioner and the Tribunal held that the same constitutes a reasonable cause and when the same is not shown to be false, the assessee has satisfied the requirement of Section 273-B, in which event, no penalty shall be imposable.

IN THE HIGH COURT OF KARNATAKA
AT BANGALORE

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