Alleged Failure to Deduct TDS on Salary: ITAT quashes Time-Barred Income Tax Penalty u/s 271C [Read Order]
Issuing the penalty proceedings more than two years later rendered it invalid.
TDS - ITAT - quashes - Income Tax Penalty - taxscan
TDS - ITAT - quashes - Income Tax Penalty - taxscan
The Income Tax Appellate Tribunal (ITAT), New Delhi Bench, has held that a penalty order under Section 271C of the Income Tax Act, 1961 was time-barred under Section 275(1)(c) of the Income Tax Act, thereby dismissing the Revenue’s appeal.
The case concerned the assessment for AY 2010-11, where the assessee, Kushal Infra Project Industries India Ltd., had filed its return of income, which was processed under Section 143(3) at a reported loss of ₹41.70 crore. In the same order dated 20.03.2013, the Assessing Officer (AO) initiated penalty proceedings under Section 271C(1)(a) for alleged non-compliance of Section 192(1) relating to TDS on salary.
Subsequently, on 14.07.2016, the AO levied a penalty of ₹4.17 crore, calculated at 10% of certain contractual payments, citing defaults under Sections 194C and 194J.
The assessee, represented by Ms. Ragini Handa, argued before the Commissioner of Income Tax (Appeals) [CIT(A)] that the penalty order was time-barred under Section 275(1)(c). Since penalty proceedings were initiated on 20.03.2013, the order should have been passed by 30.06.2014.
It was further contended that no contractual payments appeared in the Profit & Loss account, nor did the tax audit report mention any TDS non-compliance. The reference to Annexure G in the penalty order was described as erroneous, reflecting non-application of mind.
On the other hand, the Revenue, represented by Shri Dayainder Singh Sidhu, CIT-DR, argued that the limitation should be reckoned from the date of show-cause notice by the JCIT/Addl. CIT (TDS), not from the AO’s recommendation. It was further submitted that the CIT(A) wrongly deleted penalty despite confirming some assessment additions.
The Bench comprising Shri Vimal Kumar (Judicial Member) and Shri Naveen Chandra (Accountant Member) examined the record and cited rulings reported by Taxscan in Mahesh Wood Products Pvt. Ltd. and JKD Capital & Finlease Ltd., where it was held that limitation under Section 275(1)(c) begins from the initiation of penalty proceedings by the AO.
Since initiation in this case was on 20.03.2013, the last permissible date for passing a penalty order was 30.06.2014. The order dated 14.07.2016 was therefore barred by limitation. The Tribunal also observed that incorrect facts and figures in the order showed lack of due application of mind.
The Tribunal upheld the CIT(A)’s decision deleting the penalty of ₹4.17 crore and dismissed the Revenue’s appeal.
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