State Bank of India Vs. Addl. CIT-(TDS) (ITAT Agra)
When the AO himself treated the assessee as an assessee not in default in respect of the amounts of TDS to be deducted, then there cannot be any scope for levying penalty u/s. 271 C of the Act. As in this case the amount of tax has been paid by the recipient of the income. Being so, the provisions of section 271 C cannot be applied to the assessee ‘s case as these provisions dearly state that if any person fails to deduct whole or any part of the tax as required under the provisions of Chapter XVII-B, then such person shall be liable to pay by way of penalty an amount equal to the amount of tax which such person failed to deduct or pay as above said. Being so, in the present case the assessee being not in default in respect of the amount of tax itself, there cannot be any levy of penalty u/s. 271C, more so, where there was a reasonable cause for not deducting the TDS on the payment made by the assessee.
Levy of penalty under section 271 C is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision the same was without a reasonable cause. The initial burden is on the assessed to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessed or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. “Reasonable cause” as applied to human act/on is that which would constrain a person of average Intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences follow
Now, undoubtedly, as contended, in reply dated 16.09.2014 (page no. 38-39 of the paper book), as also mentioned by the CIT(A) in his order, it was stated that the appellant had clarified the reasons of such errors to the Assessing Officer and then the assessing officer accepted the justifications and accordingly dropped the tax liabilities on such non- deductions and found that there was no concealment of income and the mistake was bonafide and there was no loss to the Government. The appellant was referring to the letters/explanations which it had submitted before the ITO (TDS), Agra, wherein it had explained all the reasons due to which the non deduction of TDS happened in a few cases (copies enclosed at page 40-44 of the paper book). On page no 43 of paper book, at point nos. 3 and 4 of the reply to AO, it was stated about the updation error in its software caused in turn by some human errors, which allowed PANs of some of its customers to escape consideration for the purpose of deduction of TDS.
Deposit of tax before detection is a mitigating circumstances qua penalty. Herein, as on date, there is no outstanding demand.
Assessee cannot be considered as having done willful neglect for non-compliance of the TDS provisions. This is just a technical mistake and, accordingly, the assessee cannot be held to be an assessee in default and no penalty can be imposed. This is clear from the fact that the moment this descrepancy was highlighted by the AO, the assessee immediately deposited the short deducted amount with the Revenue.
It is evident that the assessee was visited with reasonable cause beyond its control leading to the alleged default. The mistake occurred because of a software updation error, the Revenue is compensated by paying the interest as well as due taxes by the payee. Therefore, there is no loss to the Revenue in the matter. Moreover, the Branch Manager will personally have no interest in non-deduction/ short deduction/ lower deduction of some of the customers of the Branch. Hence, this is an unintentional mistake and, accordingly, no penalty provisions should get attracted.