Short-Deduction of Tax due to bonafide Confusion would not attract Penalty: ITAT [Read Order]

While allowing the appeal filed by the assessee Kolkata bench of Income Tax Appellate Tribunal (ITAT) recently declared that penalty under Section 271C of the Income Tax Act would not attract when there is a short deduction of tax due to bonafied confusion.

In the present case the assessee was a company carrying on the business of civil construction at different sites located in different locations. And the company duly filed its return of income.

During the relevant assessment period, the Assessing Officer noticed that the assessee had deducted tax at source on certain payments at lesser rate as provided by section 194C of the Income Tax Act treating such payment as payment for execution of work. He computed short deduction of tax and accordingly passed an order under section 201(1)/201(1A) of the Income Tax Act 1961 and treated the assessee an assessee in default. Simultaneously, penalty under section 271C of the Act was also imposed.

Assessee contended that the failure referred to in section 271C of the Act was owing to a reasonable cause. It was argued that the failure to deduct tax at source was owing to the location of the assessee’s work site at several places and due to mistake at the clerical level for accounting expenses under proper head submitted by the assessee.

The bench consists of Judicial Member N.V.V.Vasudevan and Accountant Member Dr.A.L.Saini has objected the penalty proceedings initiated by the AO. The bench said that in the present case there was only a short deduction of tax at source and it was not a case of non-deduction of tax at source. And this is because of some small clerical mistakes. On the other hand when the mistake was pointed out, the assessee accepted the mistake and immediately paid the tax that was not deducted at source by applying the proper rate of TDS.

The division bench further observed that the assessee clearly submitted a reasonable cause for the mistake on the tax computation and it can be considered as a short deduction of tax at source and accordingly deleted the penalty imposed by the AO.