The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a penalty order under section 271C of the Income Tax Act, 1961 by holding that the non-deduction of tax was due to non-receipt of invoices.
The Tribunal bench consisting of Kul Bharat (Judicial Member) and R.K. Panda (Accountant Member), has upheld the CIT(A) order, holding that the mere fact that taxes were not deducted on the year end provision but were deducted and deposited upon crystallisation of liability to pay the expenses does not automatically justify the imposition of a penalty under section 271C of the Income Tax Act.
The respondent/assessee is in the business of providing engineering consultancy services and supply of manpower services to the Indian power sector and infrastructure sector and providing multidisciplinary consultancy services for power and infrastructure projects outside India.
The JCIT issued show cause notice asking the assessee as to why penalty u/s 271C r.w.s 274(1) of the Act should not be imposed. It was explained by the assessee that it is not a case of non-deduction of tax at all. The assessee had duly deducted and deposited the taxes with the government treasury in the subsequent years, when the liability to pay such expenses was crystallized on receipt of invoices. The same was supported by filing challans evidencing the payment of taxes.
The assessee during the course of hearing of penalty proceedings before the JCIT had categorically mentioned that in absence of receipt of actual invoices as in the last day of respective financial years, the amount of provision for expenses were based on estimates.
It was observed that in the absence of invoices and consequential liability to make the payment, the assessee did not withhold taxes on the said yearend provision for expenses u/s 40(a)(i)/40(a)(ia) of the Act.
Relying on a catena of decisions, the Tribunal upheld the order of the first appellate authority and held that “since, the Ld. CIT(A) while cancelling the penalty levied u/s 271C has given justifiable reasons, therefore, in absence of any distinguishable features brought to our notice by the Ld. DR to take a contrary view than the view taken by the Ld. CIT(A) on this issue on the basis of facts available on record, we do not find any infirmity in the order of the Ld. CIT(A). Accordingly the same is upheld and the grounds raised by the Revenue are dismissed.”
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