2017 (5) TMI 1709 - AT - Income Tax

Penalty u/s 271CA - default in collecting tax at source on further sales in compliance with the provisions of section 206C(1) - HELD THAT - In identical set of facts in the own case of the assessee this Tribunal has upheld the order of the CIT(Appeals) deleting the penalty levied u/s 271CA wherein held Reasonable cause as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds of the existence of a state of circumstances which assuming them to be true would reasonably lead any ordinarily prudent and cautious man placed in the position of the person concerned to come to the conclusion that same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous without substance or foundation the prescribed consequences follow. In view of the same we agree with the Ld.CIT(A) that the assessee had reasonable cause for not collecting tax at source the absence of which is essential for levying penalty as held by the Delhi High Court in the case of woodward governor 2001 (4) TMI 34 - DELHI HIGH COURT . We therefore uphold the order of the Ld. CIT(Appeals) deleting the levy of penalty under section 271CA of the Act. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271CA of the Income Tax Act for default in collecting tax at source.

Analysis:
The appeal was filed by the Revenue against the order of Ld. CIT (Appeals) deleting the penalty levied under section 271CA of the Income Tax Act for default in collecting tax at source on further sales. The grounds of appeal by the Revenue included contentions regarding the applicability of penalties under various sections of the Income Tax Act, non-compliance with statutory provisions, and the denial of purchasing scrap material. The Revenue's grievance was solely against the deletion of the penalty by the CIT (Appeals).

The brief facts revealed that the assessee, an individual engaged in the business of buying and selling old iron scrap, failed to collect tax at source on the sale of scrap as required under section 206C(1) of the Act. Penalty proceedings were initiated under section 271CA. The Assessing Officer issued a show cause notice, and despite the assessee's reliance on a judgment by Hon'ble I.T.A.T., the penalty was imposed due to non-collection of TCS on sales. The CIT (Appeals) later deleted the penalty, citing reasonable cause for non-levying of the penalty based on the fact that taxes had been paid by the buyers, causing no loss to the exchequer.

During the appeal before the Tribunal, it was noted that in a previous case involving the same assessee, the penalty under section 271CA was deleted, following a similar reasoning based on reasonable cause for not collecting tax at source. The Tribunal upheld the CIT (Appeals) order, emphasizing that the belief harbored by the assessee constituted a reasonable belief, and there was no categorical proof that the goods sold were scrap. The Tribunal referred to the definition of "reasonable cause" as defined by the Delhi High Court and concluded that the assessee had a reasonable cause for not collecting tax at source, leading to the dismissal of the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, citing the precedent set in a previous case involving the same assessee. The Tribunal upheld the order of the CIT (Appeals) deleting the penalty under section 271CA of the Income Tax Act, based on the reasonable cause for not collecting tax at source.