The New Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the penalty order passed by the Commissioner of Income Tax ( Appeal ) ( CIT(A) ) under section 271C. of the Income Tax Act, 1961 and observed that the payments on account of ‘transactional charges’ to be not covered by section 194J(1)(ba) of the act.
The Tribunal found that the assessee seems to have had valid reasons to consider the payments on account of ‘transactional charges’ to be not covered by Section 194J(1)(ba) of the Act as there is no such head in this section. Therefore not deducting the TDS seems to be out of bonafide belief and the imposition of a penalty is thus not justified.
During the survey operations carried out at the premises of Ambience Private Limited, the assessee’s company, it was found that the assessee was making payments towards directors sitting fees amounting to Rs.6,80,000/- without deduction of Tax Deducted at Source ( TDS ) thereon. Further, the assessee had paid an amount of Rs.10,89,200/- on account of transaction charges being professional payment without deduction of TDS in violation of section 194J.
A show-cause notice under section271C was issued imposing the penalty. On appeal, the CIT(A) had bifurcated the payments to directors as a sitting fee penalty to the extent of Rs.68,000/. However, he sustained the penalty of Rs.1,08,920/- on account of professional charges paid to directors.
It was submitted that the assessee was under the bonafide belief that no TDS is required to be deducted from the sitting fees of the Directors. Regarding Transaction Charges, the assessee was under the bonafide belief that there is no category of TDS under which this transaction would fall and hence the assessee did not deduct the TDS. It will not be out of place to mention that the payee did pay the entire taxes on all the transaction charges received from the assessee in their respective tax returns.
As per Section 194J(1)(ba) of Income Tax Act, any payment made to the director like sitting fees, remuneration, or any other sum other than those on which tax deductible under section 192 of the act is to be considered for deduction of tax at source @ 10% under section 194J.
It was observed that Section 271C of the Income Tax Act lays down the law relating to the penalty that should be imposed by the Income Tax Department for failure to deduct TDS or remit TDS before the applicable due date.
The two-member Bench comprising Anubhav Sharma (Judicial Member) and Dr. B.R.R. Kumar (Accountant Member) observed that the tax authority considered the ‘Transaction charges as ‘Professional charges’ paid to directors falling in limb (ba) of sub-section (1) of section 194J of the Act, it comes up that the PCIT has accepted the plea of the assessee that payments made to directors on account of sitting fee is allowable.
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