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7. The Assessinq Officer failed to appreciate that there was no judicial precedent directly on the applicability of payments made to the hospital by third party administrators its determination was at a "nascent' stage and therefore the penal provisions of section 271C of the IT Act could not be imposed against the Appellant. 8 The Assessing Officer tailed to appreciate that the practice of not deducting tax at source under Section 194J for the payments made by the Third Party Administrators directly to the hospital under the cashless hospitalization scheme was an established industry practice and therefore the penal provisions of section 271C of the ITA could not be imposed against the Appellant.

5. The ITO(OSD)(TDS)-3(2) passed an order u/s 201(1) of the IT Act, 1961 on 05-11-2009 thereby, raising a demand of Rs.4,76,39,992/- being the short deduction on account of payments made to hospitals.

The order passed u/s 201(1) of the IT Act was subsequently, rectified u/s 154 on 30-03-2010 and the total short deduction u/s 201 was held to be Rs.21.39,048/-.

The assessee filed appeal with the CIT(A) and the CIT(A) after hearing both the parties has held that the payment made to hospitals nursing homes is liable for deduction of tax at source as per the provisions of sec.194J of the IT Act, 1961 Thereafter, the penalty proceedings u/s 271C of the IT Act on account of default of the assessee as per the provisions of Sec. 201(1), 201(1A) of the Act, were initiated. The AO after considering the contentions raised by the assessee and after considering the case of Dedicated health care services TPA(Ind.)Pvt. Ltd Vs ACIT(2010) held that sec.194J is applicable on the payments made by TPA's to the hospitals and also the wordings of section are very clear and not ambiguous. The Assessing Officer held that the assessee has interpreted the law in his own way which is not consistent with the words used in the sec.194J of the IT Act, and since the assessee was unable to show bonafide belief or reasonable cause for non-deduction of tax. Therefore, a sum of Rs.21,39,048/- was imposed as penalty u/s 271C of I.T. Act.

" 5.5 a reading of this portion of the order makes it clear that wherever a tax payer is able to show the reasonable cause for his failure to deduct tax, penalty u/s 271C is not leviable automatically. Now coming to present case, the subject matter of this appeal, appellant has argued that there were contradictory decisions available on the issue whether in a case like theirs, TPA, TDS was to be made u/s 194J or not and hence the appellants were under bonafide belief that they are not required to deduct tax. The appellant has then also pleaded that though Assessing Officer has relied upon this very decision of Hon'ble' Bombay High Court for levying penalty only for the reason that the case was decided against them, but he has not considered the decision given regarding applicability of CBDT Circular which was set aside for the purpose levying penalty u/s 271C. I have also considered this aspect and after going through these facts available on record. I am of the considered view that penalty u/s 271C was not leviable in this case for the reason that appellant did not deduct tax following favourable decision available to them at that time according to which no tax was deductible by them being TPA u/s 194J. This being a reasonable cause itself in view of provision of section 273B, the penalty levied u/s 271C when the appellant has reasonable cause for not deducting the tax Is not tenable. Accordingly, the penalty imposed u/s 271C of the Act levied at Rs.21,39,048/- for SAY: 2007- 08 being not sustainable is deleted herewith".

12. From the conjoint reading of the impugned order passed by the CIT(A) as well as the written submissions by the assessee as well as the arguments advanced by both the parties, we are of the considered view, that while deleting the penalty the CIT(A) has mentioned that the penalty u/s 271C was not leviable in the case of assessee for the reasons that the assessee did not deduct tax following "favourable decisions" available to them at "that time". According to which no tax was deductible by them for being TPA u/s 195J. Therefore, the CIT(A) while passing the impugned order has held that "this being a reasonable cause itself, in view of provisions of sec.273B" the penalty levied u/s 271C of the Act, upon the assessee was deleted.