2025 (5) TMI 342 - AT - Income Tax

Penalty u/s 271CA - non-deduction of TCS on sale of coal and lignite by the appellant - HELD THAT - Penalty u/s 271CA is leviable for failure to collect tax at source by any person as required by or under the provisions of Chapter XVII BB of the Act. In the present case the appellant deposited TCS of Rs. 87, 750/- in the same FY.2012-13 albeit belatedly. The reason for the delay was the person for collection of Form No. 27C was on leave due to illness. Though the assessee was not required TCS but still had paid TCS of Rs. 87, 750/-. Copies of challans evidencing the payment submitted. In our view there was reasonable cause u/s 273B of the Act for failure to comply with the relevant provisions including section 271CA of the Act. Decisions relied upon by the AR support the case of the appellant on the ground of reasonable cause u/s 273B of the Act and the order of AO being time barred. Order of CIT(A) is set aside and AO is directed to delete levy of penalty. Accordingly this ground of assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether penalty under section 271CA of the Income-tax Act, 1961 (the Act) can be levied for alleged non-deduction/collection of Tax Collected at Source (TCS) when the appellant had eventually deposited the TCS within the same financial year, albeit belatedly.

(b) Whether the appellant had a reasonable cause for the delay in compliance with TCS provisions, specifically in obtaining Form No. 27C from purchasers and depositing TCS.

(c) Whether the penalty order passed by the Assessing Officer (AO) and confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)] is sustainable in light of the facts and relevant legal principles, including the applicability of section 273B of the Act (which provides for waiver of penalty if reasonable cause is shown).

(d) Whether the appellant received proper notice regarding the penalty proceedings, and if non-receipt of notice can be a ground for relief.

(e) Whether the penalty order is time-barred.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) - Levy of penalty under section 271CA for non-deduction/collection of TCS despite belated payment

Relevant legal framework and precedents: Section 271CA of the Act imposes penalty for failure to collect tax at source as required under Chapter XVII-BB. However, section 273B provides that no penalty shall be imposed if the person shows reasonable cause for such failure.

Precedents cited by the appellant include decisions where penalty was waived due to reasonable cause and timely rectification, such as ITO (TDS) vs. Shri Om Parksh Gupta (HUF), ITO (TDS) vs. Shri Tarsem Lal, Chandmal Sancheti vs. ITO, G.K.Traders vs. ITO, and Nisarahmed Abdulsattar Shaikh vs. ITO-TDS. These cases emphasize that bona fide delay and subsequent compliance can constitute reasonable cause.

Court's interpretation and reasoning: The Tribunal noted that the appellant had deposited TCS amounting to Rs. 87,750/- in the same financial year (2012-13), although after the due date. The delay was attributed to the responsible person being on medical leave, which impeded timely collection of Form No. 27C and consequent compliance. The Tribunal found this to be a reasonable cause under section 273B.

Key evidence and findings: The appellant produced challans evidencing payment of TCS during FY 2012-13. The appellant also demonstrated that the delay was due to illness of the person responsible for Form 27C collection. The AO did not raise any demand under sections 201(1) or 201(1A) since the TCS was eventually paid.

Application of law to facts: Since the TCS was paid within the same financial year, and the delay was due to a valid reason, the Tribunal applied section 273B to hold that penalty under section 271CA was not justified.

Treatment of competing arguments: The revenue argued that the appellant was in default as it contravened section 206C(1) without reasonable cause and that the penalty was rightly imposed. The CIT(A) had relied on decisions relating to concealment of income under section 271(1)(c), which the Tribunal found distinguishable and inapplicable to TCS penalty provisions.

Conclusions: The Tribunal concluded that the appellant had reasonable cause for delay and had complied with TCS provisions belatedly but within the same FY, thereby negating the basis for penalty under section 271CA.

Issue (b) - Reasonable cause for delay in compliance and non-collection of Form No. 27C

Relevant legal framework and precedents: Section 273B of the Act allows waiver of penalty if reasonable cause is shown. The appellant contended that the delay in obtaining Form No. 27C was due to the illness of the responsible official, which is a valid cause recognized by courts.

Court's interpretation and reasoning: The Tribunal accepted the explanation of illness as a reasonable cause. It also noted that despite the delay, the appellant had paid TCS voluntarily, which further supports bona fide compliance.

Key evidence and findings: The appellant's submissions and evidence of payment were considered credible. The Tribunal found no mala fide or willful default.

Application of law to facts: The reasonable cause provision was applied, and the delay was excused accordingly.

Treatment of competing arguments: The revenue did not dispute the illness but emphasized non-compliance. The Tribunal gave weight to bona fide efforts and the absence of any concealment or evasion.

Conclusions: The Tribunal held that the delay was excusable and did not warrant penalty.

Issue (c) - Validity of penalty order and applicability of section 273B

Relevant legal framework and precedents: Section 271CA imposes penalty for failure to collect TCS, but section 273B provides relief if reasonable cause is shown. The Tribunal distinguished decisions relied upon by CIT(A) relating to section 271(1)(c) (concealment) as not applicable here.

Court's interpretation and reasoning: The Tribunal found that the penalty order was not sustainable because the appellant had reasonable cause and had complied with TCS provisions, albeit belatedly.

Key evidence and findings: The penalty was levied only after survey and show cause notices. The appellant's payment and explanation were sufficient to invoke section 273B relief.

Application of law to facts: The Tribunal applied section 273B to set aside the penalty.

Treatment of competing arguments: Revenue's reliance on penalty for default without reasonable cause was rejected in view of the facts.

Conclusions: The penalty order was quashed.

Issue (d) - Non-receipt of notice and its effect on penalty proceedings

Relevant legal framework and precedents: Proper service of notice is a prerequisite for penalty proceedings. Non-receipt of notice can constitute reasonable cause or vitiate the proceedings.

Court's interpretation and reasoning: The appellant contended that notices were sent to an incorrect address and hence not received. The Tribunal accepted this contention as a valid ground for reasonable cause.

Key evidence and findings: The appellant's address differed from that on the notices. The Tribunal found this discrepancy significant.

Application of law to facts: Non-receipt of notice was considered a reasonable cause under section 273B.

Treatment of competing arguments: Revenue argued that the address in assessment and penalty orders was the same and notices were properly sent. The Tribunal found the appellant's submission credible and gave it weight.

Conclusions: Non-receipt of notice contributed to reasonable cause for delay.

Issue (e) - Whether penalty order is time-barred

Relevant legal framework and precedents: Penalty proceedings are subject to limitation periods under the Act.

Court's interpretation and reasoning: The appellant relied on precedents stating that the order dated 11.02.2019 was time-barred. The Tribunal found merit in this submission.

Key evidence and findings: The delay in initiating penalty proceedings was noted.

Application of law to facts: The Tribunal considered the time bar as an additional ground for relief.

Treatment of competing arguments: Revenue did not successfully rebut the time-bar argument.

Conclusions: The penalty order was held to be time-barred.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"In our view, there was reasonable cause u/s 273B of the Act for failure to comply with the relevant provisions including section 271CA of the Act."

"The decisions referred to by the CIT(A) are on the issue of penalty for concealment of income u/s 271(1)(c) of the Act and not on the provisions of TCS or on 273B of the Act."

"In view of the above facts and the decisions cited supra, the order of CIT(A) is set aside and AO is directed to delete levy of penalty of Rs. 87,750/-."

Core principles established include:

(i) Payment of TCS within the same financial year, even if delayed, coupled with reasonable cause such as illness of responsible personnel and non-receipt of notices, can absolve the assessee from penalty under section 271CA.

(ii) Penalty under section 271CA is not automatic upon delay; reasonable cause under section 273B must be considered.

(iii) Decisions relating to concealment of income under section 271(1)(c) are not applicable to penalty proceedings under section 271CA.

(iv) Proper service of notice is essential; non-receipt can constitute reasonable cause.

(v) Penalty orders beyond the limitation period are liable to be quashed.

Final determination: The appeal was allowed, and the penalty of Rs. 87,750/- under section 271CA was deleted.