Penalty order passed U/S 271C for non-deduction of TDS, beyond period of 6 months from date of reference for imposition of penalty would be barred by limitation

Recently, ITAT Jaipur Bench in M.D.S. Universityvs. Assistant Commissioner of Income-tax held that, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated whichever period expires later, the penalty U/S 271C cannot be imposed.

Facts of the case:

Penalty during the course of TDS survey, it was found that the assessee had not made TDS out of mobilization advance paid to M,’s Rajasthan State Road Development Corporation Ltd. The ITO (TDS), Ajmer on.19th March, 2000, held the assessee deductor as defaulter and raised a demand of TDS. This was brought to the notice of Addl. CIT, Udaipur, who issued a notice under s. 274/271C of the Act to show cause as to why penalty under s. 271C should not be imposed in its case for default of not making TDS U/S194C of the Act while making advances to M/s Rajasthan State Road Development Corporation Ltd. (RSRDCL).

The assessee submitted in its reply that it did not make any TDS on the payments made to RSRDCL on the impression that the TDS provisions were not applicable in view of s. 196 of the Act. It was further submitted that the assessee-deductor had deposited the entire payment raised by ITO (TDS) within a stipulated time. However, the AO did not find merit in the submissions of the assessee and levied penalty U/S 271C of the Act vide order dt. 18th Aug., 2010.

Being aggrieved, the assessee carried the matter to the learned CIT (A), who confirmed the penalty stating that the argument of the appellant that tax is to be deducted on the income component of the payment is not acceptable.

Hence, an appeal was made by the assesse.

It was held that:

Learned counsel for the assessee submitted that the penalty levied by the AO was barred by limitation as per the provisions contained in s. 275(l)(c) of the Act which provides that “no penalty can be imposed after expiry of financial year in which proceedings, in the course of which action for imposition of penalty has been initiated are completed”. It was contended that in this case, the relevant proceedings were commenced on 19th March, 2009 and the financial year ends on 31st March, 2009. It was further stated that the penalty could not have been imposed from the end of the month, in which action for imposition of penalty was initiated, which in the present case was on 24th Dec., 2009. Therefore, the penalty could have been levied before 30th June, 2010, however, in this case it was levied on 18th Aug., 2010, so, it was barred by limitation.

Thus it was held that, the penalty U/S 271C levied in the case was not justified and liable to be set aside. Considering the totality of the facts the ITAT was of the view that the learned CIT(A) was not justified in confirming the penalty order passed by the AO under s. 271C of the Act.