ITO vs. Pushpanjali Hospital and Research Centre Pvt Ltd (ITAT Agra)

(i) “Reasonable cause” for the purpose of application of Section 271C in the backdrop of Section 273B has been explained by the Hon’ble Delhi High Court in the case of Woodward Governors India (P) Ltd. Vs. CIT (2002) 253 ITR 0745 to mean a probable cause, an honest belief founded on reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned to come to the conclusion that same was the right thing to do. The cause should not be found to be frivolous, without substance or foundation.

(ii) Measured on the touchstone of the definition of reasonable cause as stated above we find the Ld. CIT(A) has rightly held that the explanation offered by the assessee that the resignation of the manager handling the taxation matter of the assessee, supported by the affidavit of the manager, constituted reasonable cause for committing the default. We also agree with the Ld. CIT(A) that when the same reason was found to constitute reasonable cause for not levying penalty u/s 272(A)(2)(k)of the Act by the Ld. JCIT(TDS) it could not be held otherwise for the purpose of levying penalty under section 271C.

(iii) We therefore hold that in view of the reasonable cause adduced by the assessee no contumacious conduct can be attributed to the assessee and therefore no penalty under section 271C is leviable. We find support for this proposition in the decision of the Hon’ble Supreme Court in the case of CIT Vs. Bank of Nova Scotia Civil Appeal No. 1704 of 2008 dt. 07/01/2016.