No section 271C penalty for TDS Non-Deduction if Form 15G & 15H submitted

Unity Dye Chem Pvt. Ltd. Sokhada Vs CIT (ITAT Ahmedabad)

Introduction: The case of “Unity Dye Chem Pvt. Ltd. vs CIT” involves an appeal to the ITAT Ahmedabad against the imposition of a penalty under section 271C for non-deduction of TDS. The key contention is whether the submission of Form 15G and 15H can exempt the assessee from the penalty.

Analysis: The appellant was penalized under section 271C for not deducting TDS on interest payments to certain parties. However, the appellant argued that they had received Form 15G and 15H from these parties, declaring their income as non-taxable. These forms were submitted to the Commissioner with a minor delay of one month.

The ITAT analyzed the circumstances and observed that the appellant received the necessary forms before making the interest payments. Additionally, the Commissioner, in the quantum proceedings, had ruled in favor of the appellant, stating that TDS was not required under Section 40(a)(ia) of the Income Tax Act.

Considering these factors, the ITAT ruled that the penalty under section 271C should not be imposed in this case, as the submission of Form 15G and 15H supported the appellant’s non-deduction of TDS.

Conclusion: The ITAT’s decision highlights the significance of submitting Form 15G and 15H to support non-deduction of TDS. In this case, due to the timely submission of these forms and the Commissioner’s ruling, the penalty under section 271C was deemed inappropriate. This ruling clarifies the interplay between TDS requirements and the acceptance of relevant forms by tax authorities.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This is an appeal filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi, in proceeding u/s. 250 vide order dated 16/12/2021 passed for the assessment year 2013-14.

2. The assessee has taken the following grounds of appeal:-

“(1) That the CIT(A) and The ACIT(TDS), Baroda has erred both in law and on the facts of the case in levying penalty U/s 271C of the Income Tax Act, 1961 of Rs. 1,16,941/-, which deserves to be deleted.

(2) That the order passed U/s 271C by ACIT, TDS range, Baroda is without jurisdiction and therefore the Order passed U/s 271C may please be quashed.

(3) That the Order passed u/s 271C is barred by limitation, Therefore the penalty imposed of Rs. 1,16,941/- requires to be deleted.

(4) That the order passed U/s 271C by National Faceless Appeal Center – Delhi without considering the documents avail on record and without considering the quantum order of CIT(A) and therefore the order passed is against the facts available on record and therefore the penalty u/s 271C requires to be deleted.

(5) That the assessee has supplied all the Form 15G along with forwarding letter dated 05/04/2013 to Commissioner of Income Tax but without considering the same the Order passed by National Faceless Appeal Center – Delhi is against the principal of natural justice, and therefore the penalty of Rs. 1,16_,941/- requires to be deleted.

(6) That the order by the learned ACIT-TDS is in gross violation of provisions of sec. 274(2)(b) of the I.T. Act, 1961 which requires to be cancelled.

(7) Your appellant craves leave to add, to alter or to amend any of the grounds till the appeal is finally heard and decided.”

3. The brief facts of the case are that in the assessment proceedings passed u/s. 143(3) for A.Y. 2012-13, the Assessing Officer observed that assessee had made payment of interest to 22 parties, but no TDS was deducted from interest payment made to 12 parties. Accordingly, the Assessing Officer made an addition on account of disallowance of Rs. 11,69,412/- u/s. 40(a)(ia) of the Act r.w.s. 194A of the Act. The Assessing Officer also initiated proceedings u/s. 271C for non-deduction of tax at source. In 271C proceedings, the assessee submitted that the assessee received Form No. 15G from various parties on 5^th April, 2013, certifying that the payments are not subject to tax deduction at source. It was submitted that all depositors are assessed to tax and their PAN No as mentioned in Form No. 15G and further the respondents are not having income liable to income tax. The aforesaid Form 15F were filed with the officer of Commissioner of Income Tax, Baroda, 07-05-2013 i.e. after a delay of one month on account of the fact that the mother of the concerned staff member of the assessee company was unwell, which prevented her from depositing Form 15F within permissible time before the office of Commissioner of Income Tax, Baroda. However, the Assessing Officer sustained the penalty on the ground that there was admittedly a delay in filing Form 15G, which was filed on 07-05-2013 with the officer of Commissioner of Income Tax and there was a delay of one month in filing Form 15G. While upholding the penalty, the Assessing Officer made the following observations:-

“4. The reply of the assessee is duly considered but the same is not acceptable. On going through the submissions, it is observed that assessee has submitted all the called for documents, however, the evidence of which assessee is contending in its submission, i.e. copy of Form 15G received from several parties have not been filed alongwith the submission dt. 29.11.2.017. The assessee’s contention of being not liable to deduct tax from the payments made due to receipt of declaration under Form 15G from the parties cannot be acceded to because in its submission, the assessee-deductor had itself accepted the fact that he forms No. 15G were received on 5^th April, 2013 from all the deposits however, copy of Forms No. 15G have been filed in the Commissioner office on 07-05-2023, i.e. delayed by a month. Assessee deductor should have filed the same on or before 07-04­2023.”

4. In appeal, the ld. CIT(A) upheld the penalty with the following observations:-

“5.2. I have considered the matter. For non-deduction of tax on interest payment, the payees are to file Form15G to the payer before or at the time of receiving the payment. Assessee stated that Form 15G were received from all depositors on 5.04.2013. Accordingly to the AO, form was due to be submitted before the Commissioner by 7.4.2013. But the same were filed before CIT only on 7.5.2013. The explanation given that the mother of dealing staff was sick and the concerned staff was not attending office regularly is a very general kind of excuse/arguments. The statute lays time limits for adherence by tax deductors. Assessee should try to account for each day of delay instead of giving general statement like someone was not keeping well. In view of the above, ground nos. 2 to 4 are dismissed.”

5. Before us, the counsel for the assessee submitted that penalty u/s. 271C has been imposed without appreciating that Form 15G and 15H have been fully submitted before the Commissioner of Income Tax (Appeals), although there was a minor delay of only one month in depositing of such forms. The ld. counsel for the assessee pointed out that the Commissioner of Income Tax (Appeals) in quantum proceedings also deleted the addition u/s. 40(a)(ia) of the Act by observing that all the 12 parties had furnished Form 15G to the assessee before credit/payment of interest declaring no taxable income and therefore, the liability to deduct tax by the assessee ceases upon receipt of Form No. 15G. The counsel for the assessee furnished before us the copy of order passed by ld. CIT(A) deleting the addition made by the Assessing Officer u/s. 40(a)(ia) of the Act.

6. On going through the facts of the instant case, we observe that it is not disputed that the assessee received Form 15G before the credit/payment of interest from the parties declaring no taxable income. Further, ld. CIT(A), in quantum proceedings, decided the issue in favour of the assessee by holding that the assessee was not required to deduct tax at source under Section 40(a)(ia) of the Act. Further, it has also not been disputed that above Form 15G was furnished to the concerned Commissioner, although there was minor delay of one month in submitting the same for reasons mentioned by the assessee.

6.1 Accordingly, looking into the facts of the instant case, penalty imposed u/s 271C of the Act for failure to deduct tax at source is directed to be set aside In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 14-07-2023