Not Deducting TDS U/S 194J On Account Of Bonafide Belief, Does Not Attract Levy Of Penalty U/S 271C: Delhi ITAT

As per Section 194J(1)(ba) of Income Tax Act, any payment made to the director like sitting fees, remuneration, or any other sum other than those on which tax deductible u/s 192 is to be considered for deduction of tax at source @ 10% u/s 194J.

Similarly, Section 271C of Income Tax Act lays down the law relating to the penalty which should be imposed by the Income Tax Department for failure to deduct TDS or remit TDS before the applicable due date.

The Bench of the ITAT comprising of Anubhav Sharma (Judicial Member) and Dr. B.R.R. Kumar (Accountant Member) observed that “After considering the explanation given by the assessee in regard to the 'Transaction charges which the tax authorities have considered as 'Professional charges' paid to directors falling in limb (ba) of sub-section (1) of section 194J of the Act, it comes up that the PCIT has accepted the plea of the assessee that payments made to directors on account of sitting fee is allowable. The assessee seems to have had valid reasons to consider the payments on account of 'transactional charges' to be not covered by Section 194J(1)(ba) of the Act as there is no such head in this section. Thereby not deducting the TDS seems to be out of bonafide belief. Imposition of penalty is thus not justified.” (Para 4)

Facts of the case:

Based on the information from ACIT, a verification was completed u/s 201(1)/201(1A) and it was observed that during the survey operations carried out at the premises of the assessee's company, it was found that the assessee was making payments towards directors sitting fees amounting to Rs.6,80,000/- without deduction of TDS thereon. Further, the assessee had paid an amount of Rs.10,89,200/- on account of transaction charges being professional payment without deduction of TDS in violation of section 194J. Thus, after issuing a show-cause notice u/s 271C, the penalty order was passed.

On appeal, the CIT(A) had bifurcated the payments to directors as a sitting fee penalty to the extent of Rs.68,000/. However, he sustained the penalty of Rs.1,08,920/- on account of professional charges paid to directors.

Observations of Tribunal:

The Bench noted that the assessee was under the bonafide belief that no TDS is required to be deducted on sitting fees of the Directors.

The Bench observed that the assessee is fully covered by the provisions of section 273B which states that if there is a reasonable cause then no penalty u/s 271C should be imposed.

The Bench further observed that with regard to the Transaction Charges, the assessee was under the bonafide belief that there is no category of TDS under which this transaction would fall and hence the assessee did not deduct the TDS. It will not be out of place to mention that the payee did pay the entire taxes on all the transaction charges received from the assessee in their respective tax returns.

Therefore, on finding that imposition of penalty was not justified, the ITAT allowed the assessee's appeal.

Counsel for Appellant/Taxpayer: Anand Chaudhuri

Counsel for Respondent/Department: Amit Katoch

Case Title: Ambience Private Limited verses ITO

Case Number: ITA No.558/DEL/2022

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