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2014 (10) TMI 170 - AT - Income TaxLevy of penalty u/s 271C – Non-deduction of TDS on interest payment to partnership firm – Levy of interest u/s 201(1) and 201(1A) - Revenue was of the view that the assessee had to deduct tax u/s 194A in respect of interest paid to the partnership firm in which the assessee is a partner - Held that:- following the decision in Thomas Muthoot Versus Joint Commissioner of Income-tax (TDS), Trivandrum [2013 (12) TMI 298 - ITAT COCHIN] - the assesees being individuals, have paid interest to the partnership firm, in which they are partners - the partner and firms re not two legal entities and further in view of the exemption provided in sec.194A in respect of interest credited or paid by a partnership firm to its partners, the assessees were under the belief that they are not liable to deduct tax at source - the assessees cannot be altogether be discounted with as untenable, since the issue that the TDS provisions shall not apply to the payment made by a partner to the partnership firm is a debatable one. The belief entertained by the assessees that they were not liable to deduct tax at source on the interest paid by them to the partnership firm in which they are partners, can be considered as a "reasonable cause" in view of the legal position existing between a partner and the partnership firm - the partners and partnership firm are not two different legal entities, though they are two different taxable entities - the partnership firm, which received interest from the assessees have duly included the same in its return of income filed before the department and the said partnership firm was not liable to pay any tax, since it declared loss - no loss is caused to the revenue - the explanation offered by the assessee fits in the category of "reasonable cause" in terms of sec.273B of the Act – thus, the order of the CIT(A) is set aside and the AO is directed to delete the penalty levied u/s 271C of the Act in the hands of both the assessees – Decided in favour of assessee.
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