Mere belated TDS Remittance won't attract Penalty u/s 271C of Income Tax Act: SC [Read Judgement]

The Supreme Court (SC) of India has held that mere belated TDS remittance won't attract a penalty under section 271C of the Income Tax Act, 1961.

M/s US Technologies, the appellant challenged the impugned judgment(s) and order(s) passed by the High Court of Kerala at Ernakulam in confirming the levy of interest/penalty under Section 271C of the Income Tax Act, 1961 (hereinafter referred to as the Act) on the failure of the respective assessees to deposit the tax deducted at source (TDS) (or belated remittance of the TDS).

The appellant–assessee, engaged in a software development business at Techno Park, Trivandrum which employed about 700 employees, deducted tax at source (TDS) in respect of salaries, contract payments, etc.,totalling Rs. 1,10,41,898/­ for the assessment year (AY) 2003­04. In March, the assessee remitted part of the TDS Rs. 38,94,687/­ and the balance of Rs. 71,47,211/was remitted later.

The period of delay ranged from 05 days to 10 months. On 10.03.2003, a survey was conducted by the Revenue at the assessee’s premises and it was noted that TDS was not deposited within the prescribed dates under Income Tax Rules (IT Rules). On 02.06.2003, Income Tax Officer (ITO) vide order under Section 201(1A) of the Act, 1961 levied penal interest of Rs. 4,97,920/­ for the period of delay in remittance of TDS.

On 09.10.2003, the Additional Commissioner of Income Tax issued a show cause notice proposing to levy a penalty under Section 271C of the amount equal to TDS. The High Court vide impugned judgment and order has dismissed the appeal preferred by the assessee by holding that failure to deduct/remit the TDS would attract a penalty under Section 271C of the Act, 1961.

On a fair reading of said CBDT’s circularthat if there is any delay in remitting the tax, it will attract payment of interest under Section 201(1A) of the Act and because of the gravity of the mischief involved, it may involveprosecution proceedings as well, under Section 276B of the Act.

A Coram comprising Justice M R Shah and Justice C T Ravikumar held that the assessees remitted the TDS though belatedly and it is not a case of non­deduction of the TDS at all they are not liable to pay the penalty under Section 271C of the Income Tax Act.

The Court quashed and set aside the Impugned judgment(s) and order(s) passed by the High Court and held that on mere belated remitting of the TDS after deducting the same by the concerned person/assessee, no penalty shall be leviable under Section 271C of the Income Tax Act.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to TaxscanAdFree. Follow us on Telegram for quick updates.