No penalty u/s 271C for not deducting TDS on Foreign Remittances

Isys Softech Pvt. Ltd. Vs ITO (ITAT Jaipur)

Conclusion: Since assessee had deliberately not avoided TDS and there was no contumacious conduct on the part of the assessee, therefore, penalty was not leviable for not deducting TDS on foreign remittances. 

Held: During scrutiny proceedings, it was found that in the P & L account assessee company had debited an amount of Rs. 1,14,68,382/- under the head ‘Software License and Set-up charges’ which was credited to M/s BJW consulting Service LLC and Practice forces – Anesthesia Billing software. Assessee company had not deduct TDS at the time of payment/credit to the parties. Therefore, AO disallowed the amount of Rs. 1,14,68,382/- u/s 40(a)(i). The matter went in appeal and finally the Income Tax Appellate Tribunal held that the payment made by assessee would fall in the definition of royalty as defined u/s. 9(1)(vi) as well as under Article 13(2) of Indo-US DTAA. As assessee was considered as defaulted in payment of TDS notice u/s. 271C was issued to the assessee. Considering the reply of assessee, AO did not convince and held that the assessee was defaulter in not deducting TDS and liable for penalty u/s. 271C. It was held that since the effect was revenue neutral and assessee was was under bona-fide belief that since both the American suppliers had no PE or Agent or PAN in India and therefore, as per the provisions of section 195 of Act, they were not liable to be taxed in India. Assessee was having reasonable cause for not deducting the tax and ultimately the revenue had chosen it to income of the assessee by adding the same in the income of the assessee u/s. 40(a)(i). Further, the bench noted that there was no deliberate inaction on the part of assessee. Therefore, in the case of CIT vs. Bank of Nova Scotia wherein the Hon’ble Apex Court held that assessee had deliberately not avoided TDS and there was no contumacious conduct on the part of the assessee. Therefore, levy of penalty was not correct as assessee had reasonable cause for such failure and the revenue had already disregarded and disallowed the claim of the assessee on account of non deduction of tax. Thus, the levy of penalty was deleted on the ground that there was bona fide and reasonable cause in not deducting TDS.

FULL TEXT OF THE ORDER OF ITAT JAIPUR