By TIOL News Service

AGRA, FEB 07, 2018: THE issue is - Whether failure of the assessee to deduct TDS on account of software updation error is to be treated as wilful neglect for non-compliance with the TDS provisions. NO is the answer.

Facts of the case

The Assessee-company, engaged in banking services, filed its TDS return for the relevant AY. However, the AO observed that the Assessee paid interest on FDR to depositors and some non deduction of TDS happened in a few cases. However, the Assessee contended that there was no willful default on its part in not deducting or in short- deducting the TDS from the payments of interest to some of its customers and due to an updation error in its software, PANs of some of its customers remained to be considered for deduction of TDS and that was the reason for the default. However, the AO rejected the contention of the Assessee and held that the Assessee was in assessee in default in not deducting the TDS and accordingly, imposed penalty u/s 271C of the Act. On appeal, the CIT(A) dismissed the appeal of the Assessee and upheld the decision of the AO.

On appeal, the Tribunal held that,

++ the assessee had clarified the reasons of such errors to the assessing officer and then the assessing officer accepted the justifications and accordingly dropped the tax liabilities on such non- deductions and found that there was no concealment of income and the mistake was bonafide and there was no loss to the Government. The assessee was referring to the letters/explanations which it had submitted before the ITO (TDS), Agra, wherein it had explained all the reasons due to which the non deduction of TDS happened in a few cases. On page no 43 of paper book, at point nos. 3 and 4 of the reply to AO, it was stated about the updation error in its software caused in turn by some human errors, which allowed PANs of some of its customers to escape consideration for the purpose of deduction of TDS;

++ the assessee cannot be considered as having done willful neglect for non-compliance of the TDS provisions. This is just a technical mistake and, accordingly, the assessee cannot be held to be an assessee in default and no penalty can be imposed. This is clear from the fact that the moment this descrepancy was highlighted by the AO, the assessee immediately deposited the short deducted amount with the Revenue. It is evident that the assessee was visited with reasonable cause beyond its control leading to the alleged default. The mistake occurred because of a software updation error, the Revenue is compensated by paying the interest as well as due taxes by the payee. Therefore, there is no loss to the Revenue in the matter. Moreover, the Branch Manager will personally have no interest in non-deduction/ short deduction/ lower deduction of some of the customers of the Branch. Hence, this is an unintentional mistake and, accordingly, no penalty provisions should get attracted.

(See 2018-TIOL-221-ITAT-AGRA)