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These appeals by the Revenue are directed against the orders of the CIT(A) II, Hyderabad, both dated 5.10.2007, cancelling part of the penalties levied by the assessing officer under S.271C of the Income-tax Act, 1961. Since common issues are involved, both these appeals are being disposed of, with this common order for the sake of convenience.

2. Effective grounds of the Revenue in this appeal are as follows-

2) The learned CIT(A) has erred in not appreciating the legal provision u/s. 271C which makes the defaulting assessee liable to pay penalty "a sum equal to the amount of tax which such person failed to deduct...."

whereas demand u/s. 201(1) of the I.T. Act treating the deductor as assessee in default is subject to explanation under section 191 of the Act.

3) The learned CIT(A) erred in not appreciating that demand payable u/s. 201(1) read with Explanation to Section 191 need not always represent the default in terms of section 271C of the I.T. Act for which penalty is imposable under that section.

8. On the merits of the case, one of the pleas that found favour with the CIT(A) was that the assessing officer was not justified in levying penalty of Rs.3,46,225 in relation to defaults in terms of S.194A of the Act, ignoring the reliefs that the assessee secured in the order of the assessing officer dated 21.6.2006 passed under S.154 of the Act, rectifying the earlier order dated 11.11.2005 passed under S.201(1) and 201(1A) of the Act, and determining the short deduction of tax at source for this year only at Rs.22,925, after excluding the amounts of interest paid to various concerns of Venkataraya Group, in respect of which, according to the CIT(A), assessee cannot be held to be the assessee in default. Observing that as per the provisions of S.271C, penalty is due to be imposed only with reference to the short- deduction of tax at source, directed the assessing officer to restrict the M/s. Sree Jaya Constructions, Hyderabad penalty levied under S.271C only to that imposable with reference to that short deduction of Rs.22,925.

12. The learned counsel for the assessee, on the others hand, strongly supported the order of the CIT(A) and submitted that M/s. Sree Jaya Constructions, Hyderabad

13. We have heard the parties and perused the material on record, in the light of the grounds of the Revenue extracted hereinabove. In this case, we find that the order passed under S.201(1) and 201(1A) dated 11.11.2005, which gave rise to the penalty proceedings under S.271C, was subject matter of rectification by the assessing officer under S.154 of the Act, vide his order dated 21.1.2006, whereby the original order was corrected. The CIT(A) noted from the rectification order dated 21.1.2006 that the assessing officer noted that the assessee has claimed total interest payment of Rs.1,15,29,680, out of which Rs.1,13,11,351 was paid towards interest to various concerns of Venkataraya Group. In view of the explanation below S.191 of the I.T. Act, the assessing officer, the CIT(A) noted, the assessee is not deemed to be an assessee in default in respect of the above payment of interest. However, the assessee was held to be assessee in default in respect of balance interest payment of Rs.2,18,329. The CIT(A) noted that the assessing officer has worked out the short deduction of tax u/s. 201(1) at Rs.22,925 at page 2 of the rectification order. Being so, the CIT(A) has directed the assessing officer to consider the amount of short deduction of tax under S. 201 for levying penalty under S.271C of the Act. In the facts and circumstances, we find no infirmity in the directions of the CIT(A), inasmuch as there is no justification for the assessing officer to consider the entire amount of Rs.32,97,380 for purpose of levying penalty under S.271C of the Act. We accordingly uphold the order of the CIT(A) and reject the grounds of the Revenue on this aspect.