Non-deduction of TDS on certain amounts is no basis alone for levy of penalty u/s 271(1)(c)

Hearing an appeal against imposition of penalty under Section 271(1)(c) of the Income Tax Act 1961, for non-deduction of TDS on certain amounts, the Income Tax Appellate Tribunal at Mumbai held that no penalty was imposable solely because a claim raised by the Assessee had come to be rejected or because there was a difference of opinion between the Assessee and the AO over computation of the deduction claimed.

A Division Bench of Mr. B R Baskaran, Accountant Member and Mrs. Kavitha Rajagopal, Judicial Member, further observed that as per settled precedent, penalty under Section 271(1)(c) of the Act could not be imposed in respect of an issue which is debatable in nature during the relevant period.

The Appellant-Assessee was represented by Ms. Bhavya Bansal Goyal, Advocate, whereas the Respondent-Revenue was represented by Ms. Richa Gulati, Advocate.

The Assessee, engaged in developing online and offline game softwares, operates out of its 100% Export Oriented Unit. In assessment for the relevant AY, additions were made to the Assessee’s income. The AO also initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act 1961, to the tune of about Rs 38 Lakhs. An addition of about Rs 53 Lakhs was made under Section 40(a)(ia), allegedly on account of the Assessee not having deducted tax at source on a sum of about Rs 90 Lakhs.

On hearing the contentions of both parties, the Bench noted from the penalty order that a claim made by the Assessee under Section 10A of the Act, had been rejected on account of Audit Report in Form 56F not being filed. Penalty had also been imposed for claiming deduction under Section 10A of the Act before set off of brought forward losses. The Bench observed this to be a case of rejection of a claim on technical reasons as well as on account of a difference of opinion between the Assessee and the AO on the methodology of computation of deduction.

The Bench further noted that none of the particulars in the financial statements were found to be incorrect. Hence the present case was not one involving furnishing of inaccurate particulars of income, the Bench observed. Moreover, the decision taken by the AO was a debatable one, in which case, no penalty could be imposed. Reliance was placed by the Bench in this regard, on the judgment of the Supreme Court in CIT vs Reliance Petroproducts (P.) Ltd.

With these observations, the penalty imposed under Section 271(1)(c) was set aside.

Cause Title: M/s Trine Entertainment vs ITO [ITA No. 276/Mum/2023 / 2023-Enterslice-30-ITAT-Mum]

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