ITAT Chandigarh Affirms Section 271C Penalty on Government Nodal Agency for TDS Default Under Section 194C

The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, has delivered a significant ruling concerning the applicability of Tax Deducted at Source (TDS) provisions on government bodies acting as nodal agencies. In the case of Assistant Controller F&A Directorate of Industries Vs ITO (TDS), the Tribunal held that merely routing funds through another government undertaking does not exempt an assessee from the statutory obligation to deduct tax under Section 194C of the Income Tax Act, 1961.

The Tribunal dismissed the appeal filed by the assessee, upholding the penalty levied under Section 271C for failure to deduct tax, emphasizing that administrative confusion does not equate to "reasonable cause" under Section 273B.

Case Background and Facts

The assessee serves as a nodal agency for the Government of Himachal Pradesh. During the assessment proceedings for the Assessment Year 2017-18, it was observed that the assessee had released substantial funds to the Himachal Pradesh State Industrial Development Corporation (HPSIDC), a wholly-owned government undertaking, for the execution of various industrial infrastructure and development projects.

The Revenue authorities noted that the assessee failed to deduct tax at source on these payments as required under Section 194C. Consequently, the tax authorities treated the assessee as an "assessee in default" and initiated penalty proceedings. A demand of Rs. 86,74,688/- was raised against the assessee.