Case Law Details
Cognizant Technology Solutions India Private Limited Vs ACIT (Madras High Court)
Material Facts
The petitioner had made provisions in its books of account for services availed across multiple assessment years and deducted tax at source (TDS) later while making payments to the suppliers. Assessment orders were passed holding that there was delayed deduction and remittance of TDS. By a common order dated 22.01.2025, the Income Tax Appellate Tribunal held that the petitioner had deducted TDS belatedly and directed payment of interest on delayed deduction and remittance. Thereafter, penalty proceedings under Section 271C of the Income Tax Act, 1961 were initiated, and penalty orders dated 30.09.2025 were passed. The petitioner challenged these penalty orders before the Commissioner of Income Tax (Appeals), where the appeals remained pending.
Procedural History
Pending disposal of the appeals before the CIT(A), the petitioner sought stay of recovery under Section 220(6) of the Income Tax Act. The impugned orders required payment of 20% of the penalty demand. The petitioner challenged these stay orders before the Madras High Court.
Legal Issues
The Court considered:
- Whether the petitioner had made out a prima facie case regarding the applicability of Section 271C to delayed deduction and remittance of TDS.
- Whether the authorities were justified in directing payment of 20% of the penalty demand while considering the application under Section 220(6).
Relevant Statutory Provisions
- Sections 220(6) and 271C of the Income Tax Act, 1961.
- Chapter XVII-B of the Income Tax Act.
Parties’ Submissions
The petitioner contended that Section 271C was inapplicable since TDS had ultimately been deducted and remitted. Reliance was placed on the Supreme Court decision in US Technologies International (R) Ltd. Vs. Commissioner of Income Tax, which was stated to hold that Section 271C does not apply to cases of belated deduction and remittance of TDS. The petitioner also submitted that CBDT Instruction No.1914 dated 21.03.1996 and the Office Memorandum dated 29.02.2016, as modified on 25.08.2017, were only guidelines and did not restrict the discretion available under Section 220(6).
Court’s Findings and Reasoning
The High Court noted that Section 271C had been interpreted by the Supreme Court in US Technologies, which concluded that the provision does not apply to cases involving belated deduction and remittance of TDS. On reading Section 271C and the Supreme Court judgment, the Court held that the petitioner had established a prima facie case. It clarified that definitive conclusions on the interpretation and applicability of Section 271C were beyond the scope of the present proceedings.
The Court also accepted that the CBDT circulars and office memoranda merely provided guidelines and did not impose any statutory fetter on the exercise of powers under Section 220(6).
Final Ruling
The Madras High Court directed that, subject to the petitioner remitting an aggregate amount of Rs.4 crore towards the penalty demands within two months, recovery proceedings pursuant to the penalty orders would remain stayed until disposal of the appeals before the CIT(A) and for a further period of two weeks thereafter.
The Court also directed the CIT(A) to endeavour to dispose of the pending appeals within three months from receipt of the order, with the petitioner extending full cooperation. The writ petitions were disposed of accordingly.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
In respect of services availed of by the petitioner in multiple assessment years, the petitioner had made provisions in its books of accounts. Tax was deducted at source later while making payments to the suppliers concerned.
2. Assessment orders were issued against the petitioner for delayed deduction and remittance of TDS. Said proceedings culminated in common order dated 22.01.2025 of the Income Tax Appellate Tribunal. By said orders, it was held that the petitioner had deducted TDS belatedly and therefore the petitioner was directed to pay interest on delayed deduction and remittance. Pursuant thereto, proceedings under Section 271 C of the Income Tax Act, 1961 (I-T Act) were initiated and penalty orders were issued on 30.09.2025. These orders were carried in appeal before the Commissioner of Income Tax(A) (CIT (A)) and such appeals are pending.
3. Pending adjudication of the appeals, the petitioner applied under Section 220 (6) of the I-T. Act for stay of recovery of penalty. By orders impugned herein, the petitioner was directed to pay 20% of the amount demanded by way of penalty.
4. Learned Senior Counsel for the petitioner contends that Section 271 C of the I-T. Act is inapplicable to the petitioner because the petitioner deducted and remitted TDS. He relies on the judgment of the Hon’ble Supreme Court in US Technologies International (R) Ltd. Vs. Commissioner of Income Tax (US Technologies) [(2023) 149 com 144 (SC)] . He also submits that the CBDT Instruction No.1914 dated 21.03.1996 and the office Memorandum dated 29.02.2016, as modified on 25.08.2017, are merely guidelines and do not impose a fetter on the discretion vested under Section 220 (6) of the I-T Act.
5. Section 271 C (1) of the I-T Act reads as under:
Penalty for failure to deduct tax at source
271C. [(1) If any person fails to-
(a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or
(b) pay [or ensure payment of] the whole or any part of the tax as required by or under –
(i) sub-section (2) of Section 115-0; or
(ii) the proviso to Section 194-B,;
(iii) the first proviso to sub-section (1) of Section 194R; or
(iv) the proviso to sub-section (1) of Section 194S; or]
(v) sub-section (2) of section 194BA]
then such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay[or ensure payment of] as aforesaid]
6. This provision was interpreted in US Technologies by the Hon’ble Supreme Court by concluding that the provision does not apply to a case of belated deduction and remittance of TDS.
7. Both on reading Section 271 C and the judgment in US Technologies, a prima facie case is made out by the petitioner. Definitive conclusions on the scope, interpretation and applicability of Section 271 C of the I-T Act are beyond the scope of the present proceedings. A demand for aggregate penalty of Rs.101,14,92,186/- was made in the penalty orders impugned before the CIT(A).
8. As contended by learned Senior Counsel for the petitioner, the circulars and office Memoranda merely laid down guidelines and do not impose any statutory fetter on the exercise of jurisdiction under 220 (6) of the I-T Act.
9. Considering the above facts and circumstances, including revenue interest, at this juncture, subject to remittance of Rs.4,00,00,000/- (Rupees Four Crore only) in the aggregate towards demands made under all the penalty orders within a period of two months from the date of receipt of a copy of this order, there shall be a stay of recovery proceedings pursuant to the penalty orders, until disposal of the appeals and a further period of two weeks therefrom.
10. The CIT(A) shall endeavour to dispose of the appeals within a period of three months from the date of receipt of a copy of this order. The petitioner is directed to extend full cooperation in this regard.
11. With the above direction, these writ petitions are disposed of. No costs. Consequently, connected miscellaneous petitions are closed.
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