In M/s PSR Associates vs. Joint Commissioner of Income Tax, the VishakhaPatnam bench of the ITAT held that default in not deducting tax due to wrong classification of payments is a ‘reasonable cause’ for deleting penalty under section 273B of the Income Tax Act.
In the instant case, the assessee, PSR Associates challenged the CIT(A)’s order in which the department imposed penalty on them u/s 271C of ITA for not deducting TDS on certain payments made by it.
On appeal CIT(A) deleted the penalty imposed on account of short deduction and confirmed the penalty on non-deduction of TDS.
On departmental appeal before ITAT, the assessee submitted that the payments for hire charges and sub contract payments made by the appellate company was inadvertently accounted in soil purchase account. Since the sub contracts attracts TDS and purchases do not, the inclusion of sub contracts accounts in the purchase account gave the impression that the payment represented purchases and hence the TDS was not made. The company has deducted the TDS on all the remaining payments except soil purchase account which makes it evident that the company acted with bonafide intention.
The bench accepted the above contentions and held that by virtue of section 273B of the ITA, no penalty u/s 271C shall be imposed on any person if he proves that there is reasonable cause for the said failure.
It was held that the default due to wrong classification of payment is a reasonable cause u/s 273B and penalty imposed was cancelled. Their appeal on this ground was allowed.
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