High Court of Delhi

Commissioner of Income tax

v.

Fourways International

MADAN B. LOKUR AND DR. S.MURALIDHAR, JJ.

IT APPEAL 382 OF 2007

September 25, 2007

Section 271C, read with sections 194C & 273B, of the Income-tax Act, 1961 – Penalty – For failure to deduct tax at source – Assessment years 2000-01 & 2001-02 – On being advised by its chartered accountant assessee being a new firm, failed to deduct tax at source from certain payments made for fabrication charges – Tribunal having found assessee’s explanation to be bonafide, cancelled penalty levied under section 271C – Whether assessee would not be liable to penalty if he was able to prove that there was a reasonable cause for failing to deduct tax – Held, yes – Whether view taken by Tribunal was not perverse as to warrant interference or which gave rise to a substantial question of law – Held, yes

FACTS

Based on the wrong advice given by its chartered accountant, the assessee made certain payment for fabrication charges but had not deducted tax at source. The assessee was a new firm, and its partner being a matriculate, depended entirely on the said advice. The Tribunal found this explanation to be bonafide. It, accordingly, cancelled the levy of penalty imposed by the Assessing Officer, which had been upheld by the Commissioner (Appeals). The Tribunal further concluded on facts that the assessee was not avoiding its liability and had cooperated with the revenue in the payment of tax.

On revenue’s appeal.

HELD

Section 273B does not make a levy of penalty under section 271C mandatory. The assessee would not be liable to penalty if he was able to prove that there was a reasonable cause for failing to deduct the tax. The assessee in the instant case had given an explanation which found favour with the Tribunal. The view taken by the Tribunal was not perverse as to warrant interference or which gave rise to a substantial question of law.