ITAT Deletes Penalty against Jaypee Sports Internationals as there was Reasonable Cause for Non-Deduction of Tax on Lease Rent [Read Order]

While deleting penalty proceedings under Section 271C of the Income Tax Act initiated by the department, the ITAT held that there was reasonable cause for not deducting tax and therefore, the levy is not justifiable.

The assessee, during the year under consideration, made payments of Lease rent and Interest to Yamuna Expressway Industrial Development Authority (YEIDA) without deduction of tax at source u/s 194I of the Income Tax Act. Consequently, the department initiated penalty against the assessee.

Assessee was given some land on lease for a period of 90 years. The assessee was free to make any construction on such land. Annual lease rent was paid for such land, for which assessee believed that no tax is deductible under section 194I. However, the Delhi High Court concluded the matter against the assessee and held that the payment is subject to TDS.

Section 273B of the Act provides that in case of a reasonable cause, penalty otherwise exigible, inter alia, u/s 271C of the Act, cannot be imposed.

Granting relief to the assessee, the division bench held that “When we advert to the facts of the instant case, being – no deduction of tax at source made prior to the year of survey on 24.02.2014; no other order against the assessee requiring deduction of tax at source at that time when the assessee made payment of lease rental; and the judgment of the Hon’ble Delhi High Court delivered only on 16.02.2017 casting obligation for making deduction of tax at source -, it becomes abundantly clear that the assessee entertained a bona fide belief that no tax withholding was required on lease rent payments. This belief, being a reasonable cause, for non-deduction of tax at source in respect of lease rent payment, magnetizes the provisions of section 273B.”

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