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These are bunch of three appeals filed by the department against consolidated order dated 22-9-2009, passed by the CIT(A)-11, Mumbai in relation to penalty proceedings under Section 271C for the assessment year 2000-2001, 20001-2002 & 2002-2003. Since the common issues are involved in all the three appeals, therefore, all the three appeals are being disposed off by this common order. For the sake of ready reference, grounds of appeal in ITA No.6473/M/2009 (AY 2000-2001), which are common in all the three appeals, are reproduced herein below :-

5 ITA Nos : 6473/09, 6474/09 & 6475/09 to the Assessing Officer, tax was required to be deducted at source by the assessee from the credits/payments made to the Channel Companies under section 195 of the Act. Since, the tax was not deducted and paid to the Government, the Assessing Officer disallowed the cost of advertising airtime procured by the assessee from the Channel Companies under the provisions of section 40(a)(i). Against the said order, the assessee preferred an appeal before the CIT(A), who upheld the order of the Assessing Officer. Thereafter in second appeal before the ITAT, though the Tribunal upheld the disallowance, but gave a categorical remark that this case involves complex issue of question of law. Even though the assessment order was passed under Section 143(3) for the assessment year 2000-2001, 2001-2002 & 2002-2003, however, no order was passed under Section 201(1A) for any of the assessment year under consideration, holding the assessee as 'assessee in default' for failure to deduct tax at source. The Assessing Officer after a gap had issued a show cause notice on 9th March, 2006 for imposition of interest under section 201(IA) along with the levy of penalty under section 271C. In response to the said notice, the assessee filed detail reply on 22-3-2006 and, thereafter only order under section 201(IA) was passed and no penalty order under section 271C was passed. It was only on February, 2008, the Assessing Officer issued a show cause notice for levy of penalty under section 271C. In response to the same, the assessee again made a detail submission as to why it was not liable to deduct tax at 6 ITA Nos : 6473/09, 6474/09 & 6475/09 source under Section 195 on the amounts payment to Channel Companies for the cost of advertising airtime and also under what circumstances it had a bonafide belief that TDS was not to be deducted. However, after considering the submissions of the assessee, the Assessing officer, levied the penalty under Section 271C, on the ground that the assessee is a non-resident, which had failed to deduct the withholding tax on the cost of advertising airtime payable to Channel Companies and thus committed a default within the meaning of 271C read with section 273B of the Act. Accordingly, penalty for all assessment years was levied, on the following reasonings :-

(v) Show cause notice dated March 9, 2006 was for default under section 201(1) of the Act and 201(IA) of the Act and any mention of levy of penalty in the said notice has no relevance since the AO did not have jurisdiction to either initiate penalty proceeding or levy the penalty; accordingly, the time limit for levy of penalty under section 271C of the Act should run from the show cause notice dated February, 9, 2008. As a result, the order for levy of penalty under section 271C of the Act is not time barred; and

6. We have carefully considered the rival submissions, perused the relevant findings given by the CIT(A) as well as the Assessing Officer and also perused the material placed on record. It is an admitted fact that the assessee is a non-resident company having its principal place of business at Honkong and the various Channel Companies are also non-resident companies based in Honkong. Hence, the payment in question is made by a non-resident company to a non-resident company. In the return of income, while computing the taxable income, the assessee has shown his taxable income and also claimed deduction of the cost of advertising airtime procured from the Channel Companies on principal-to-principal basis outside India. At the time of filing of return there was a prevalent view of the judicial pronouncement by the ITAT Mumbai Bench in the case of Shree Kumar Poddar Vs. CIT, reported in 65 ITD 248 and commentaries given in Kanga and Palkhivala. Thus, the assessee was under a bonafide belief that no tax was deductible at source under section 195 with respect to transaction with the Channel Companies for advertising airtime, since the companies were not taxable in India. It is also undisputed fact that after passing of the assessment order under Section 143(3), the assessee has deposited all the tax, the details of which have been given at pages 11 to 12 of the impugned penalty order. The basic charge of the Assessing Officer is that since the assessee had not come before the Assessing Officer under Section 195(2), therefore, the gross amount was to be taxed. Even though this 14 ITA Nos : 6473/09, 6474/09 & 6475/09 was upheld by the CIT(A) and ITAT, however, it has been observed by the ITAT that the issue involved is quite complex and is debatable. Now in wake of law settled by the Hon'ble Apex Court in the case of Vodafone International Holdings(supra), one can say that the assessee was definitely under the bonafide belief that there was no requirement to deduct TDS on the payment made by a non-resident to a non-resident under Section 195. Even the telecasting of signals by Satellite companies and location of ultimate viewership in India is not a source of income in India or business connection in India, has been upheld by the Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd.(supra). From all these judicial propositions, which have been settled recently, we hold that there was no liability to deduct tax and atleast one can say that there was a bonafide belief and reasonable cause for non-deducting of tax on the payments made to the Channel Companies under section 195. 6.1. Thus, in view of the decision of the Hon'ble Supreme Court in the case of Eli Lilly & CO. Ltd. (supra), that if the assessee had a bonafide belief that it was not required to deduct tax at source even if the amount is held taxable lateron will not result in levy of penalty under section 271C, we hold that no penalty under Section 271C cannot be levied. Accordingly, the reasoning given by the CIT(A) for deleting the penalty is upheld and the grounds taken by the department are dismissed.