Bona fide belief that TDS was deducted and no additional tax was payable accepted

Bonafide belief that TDS was deducted and no additional tax was payable accepted by ITAT

In a recent judgment, ITAT Mumbai has held that the submissions of the assessee, that she was under a bonafide belief that the tax at source was deducted properly and no additional tax was payable by her, being based on her legitimate expectation, deserves to be accepted. 

ABCAUS Case Law Citation:
ABCAUS 4180 (2024) (08) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) National Faceless Appeal Centre (NFAC) confirming the penalty u/s 271(1)(c) of the Income Tax Act, 1961 (the Act).

The appellant assessee was a non resident Indian, settled in Dubai. .During the relevant assessment year, the only source of appellant’s income was interest on investments. Appellant did not file her return of income as per the provisions of Section 139 of the Act.

It was noted that the assessee had entered into transactions on which TDS was deducted u/s 195. The case was reopened and notice u/s 148 of the Act was issued. Assessee responded and filled ITR. The Assessing Officer (AO) accepted the income declared by the assessee. However, penalty proceeding u/s 271(1)(c) of the Act was separately initiated culminating in levy of minimum penalty @100% of tax.

Aggrieved by the penalty order, assessee preferred an appeal before CIT(A), who dismissed assessee’s appeal and confirmed the penalty order.

Before the Tribunal, the assessee she was a Non Resident Indian (NRI) of 69 years of age, settled in Dubai. She was in possession of tax residency certificate of UAE for the year under assessment. The source of income of the assessee during the assessment year, was interest on investments.

The assessee further submitted that as per DTAA between India & UAE, the tax was required to be deducted at source from interest income @12.5% but the deductor deducted tax at source on interest income @10% resulting in additional tax. She further submitted that after knowing the shortfall, she immediately paid the balance tax along with interest.

It was also submitted that she was under a bonafide belief that tax would have been deducted properly and no additional tax would have been payable by her. The aforesaid factual submissions were not disputed by revenue.

The Tribunal opined that the instant case was neither a case of concealment of income nor a case of furnishing of inaccurate particulars of income as the income declared by the assessee

was accepted by the revenue. The submissions of the assessee, that she was under a bonafide belief that the tax at source was deducted properly and no additional tax was payable by her, being based on her legitimate expectation, deserved to be accepted. The penalty proceedings cannot thus be sustained under the law.

Accordingly, the Tribunal allowed the appeal, set aside the impugned order and penalty order was quashed.

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