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M/s. Ramani Timbers Mart

3. Before the learned CIT(A) the assessee reiterating the stand taken before the Assessing Officer made elaborate submissions. The learned CIT(A) considering the submissions made by the assessee deleted the penalty by observing as under:-

"9.1 On careful examination of the material facts, it is seen that the AO has accepted the contentions of the assessee in respect of sale amounting to Rs.12,40,93,199/- on the basis of the confirmations submitted by the TAN holder treating the assessee 'as not an assessee in default'. But the AO has treated the assessee as an "assessee in default" for non-collection of TCS on the amount of sale to the tune of Rs. 54,83,410/-. The AO has accepted the explanation of the assessee in view of the decision of the Hon'ble Apex Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. in the Civil Appeal No.3675/2007 dated 16.08.2007. In its decision, the Hon'ble Apex Court has held that the Circular No.275/201/95-IT(B) dated 29.01.1997 issued by CBDT put an end to the controversy. The said Circular declares that "No demand visualized under section 201 (1) of the Income tax Act should be enforced after the tax deductor has satisfied the office-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under section 201 (1A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalty under section 271C of the Income tax Act."

9.5 The Board's Circular is clarificatory in nature and levy of penalty is not mandatory and automatic and it depends on facts M/s. Ramani Timbers Mart and circumstances of each case. Therefore, to my considered opinion, the levy of penalty on the amount of sale in this case u/s 271C, when the assessee has been held to be not an assessee in default in respect of the substantial amount of sale of Rs.12,40,93,199/- by the AO is not justified.

M/s. Ramani Timbers Mart 9.14 The appellant in this regard has also relied on the decision of Hon'ble Apex Court in the case of CIT vs. Eli Lilly & Company (India) (P) Ltd. & ors . , (2009) 223 CTR 0020. In this case the Hon'ble Apex Court has held that:

"Penalty under s. 271C-Failure to deduct tax at source- Reasonable cause-Sec. 271C cannot be held to be mandatory or compensatory or automatic because s. 273B states that penalty shall not be imposed in case falling there under- In the instant cases, non-deduction of tax at source took place on account of the controversial addition-Further, in most of the cases, the assessees have not claimed deduction under s. 40 (a) (Hi) -In some cases, the expatriate employees have directly paid the taxes due on foreign salary by way of advance tax/self assessment tax- Assessees were under genuine and bona fide belief that there was no obligation to deduct tax at source from the home salary paid by the foreign company/head office-Consequently, penalty under S.271C is not leviable in any case."

9.15 The appellant has also relied on the decision of Hon'ble Delhi High Court in the case of Woodward Governers India Pvt. Ltd., wherein the Hon'ble High Court has held that "Penalty under s. 271C-Failure to deduct tax at source-Reasonable cause-Sec. 273B starts with a non obstante clause which means that it has an overriding effect over other provisions of the Act-Initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in s. 271C- Thereafter the officer dealing with the matter has to consider the explanation offered by the assessee and ascertain as to whether the failure was on account of reasonable cause-Non-consideration of plea raised by assessee about existence of reasonable cause vitiated the CIT's order under s. 264-Impugned order set aside- CIT directed to re-examine the matter."