I have paid the short-deducted tax and the interest to close the matter — can the department still levy penalty under section 271C?
No, not on findings like these. The Supreme Court dismissed the Revenue's appeal on 7 January 2016, holding there was no substantial question of law and that the Commissioner (Appeals) and the Tribunal had assessed the facts and the law properly and correctly. The Tribunal had cancelled the section 271C penalty on the footing that the case was not about recovery under section 201(1) or compensatory interest under section 201(1A) — both already paid to end the dispute — and that penalty requires contumacious conduct on the part of the assessee to be established, following the Delhi High Court in Itochu Corporation and Mitsui & Company.
Decided by the Supreme Court (Supreme Court of India; Kurian Joseph and Rohinton Fali Nariman JJ, judgment delivered by Kurian Joseph J) on 2016-01-07, reported as AIR 2016 SUPREME COURT 608; 2016 (15) SCC 81; (2016) 1 SCALE 492; 2016 (2) ADR 493. It bears on section 271C, section 201(1), section 201(1A) of the Income Tax Act 1961, in Penalty and TDS Defaults matters.
This is a short affirmance, and its value lies in what it leaves standing. First, it separates the three consequences of a deduction default: recovery of the tax under section 201(1), interest under section 201(1A), and penalty under section 271C. Paying the first two does not carry the third with it, and the penalty needs its own foundation. Second, the Tribunal's requirement that contumacious conduct be established was left undisturbed, so the deductor's state of mind and the reason for the shortfall are squarely in issue. Third, and practically the most useful, the Court treated the presence or absence of such conduct as a matter of fact: where the Commissioner (Appeals) and the Tribunal have both found for the assessee on it, no substantial question of law arises for the High Court under section 260A.
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The dispute concerned penalty under section 271C levied on the respondent bank by the Assessing Officer. The Commissioner (Appeals) deleted the penalty. The Revenue appealed to the Tribunal, which by order of 31 March 2006 recorded that it was not dealing with collection of tax under section 201(1) or compensatory interest under section 201(1A) — the assessee's case being that those amounts had already been paid so as to end the dispute with the Revenue — and that what was in issue was penalty under section 271C, for which contumacious conduct on the part of the assessee had to be established. Finding the facts similar to those in the Delhi High Court's decisions in Itochu Corporation, 268 ITR 172, and CIT v. Mitsui & Company Ltd., 272 ITR 545, and following also the Delhi Tribunal's decision in Television Eighteen India Ltd., it allowed the assessee's appeal and cancelled the penalty. The Revenue appealed to the Delhi High Court, which rejected the appeal on the ground that no substantial question of law arose. The Revenue then came to the Supreme Court.
The appeal was dismissed with no costs. On the facts, the Court was convinced that no substantial question of law arose, the facts and the law having been properly and correctly assessed and approached both by the Commissioner (Appeals) and by the Tribunal. The Tribunal's cancellation of the penalty under section 271C therefore stands, as does the reasoning on which it rested: that the payment of tax under section 201(1) and interest under section 201(1A) was not what was in issue, and that a penalty under section 271C calls for contumacious conduct on the part of the assessee to be established.
The judgment is very short and does not construe section 271C for itself. What it does is to accept the approach of the two fact-finding authorities and to characterise the question as one of fact. The Tribunal's reasoning, which the Court set out and then approved as a proper and correct assessment of the facts and the law, has three steps. The first is a separation of remedies: recovery of the tax not deducted, and compensatory interest for the delay, are dealt with by sections 201(1) and 201(1A), and in this case both had been paid to bring the dispute to an end. Penalty under section 271C is a distinct consequence and stands on its own footing. The second is the test: to levy that penalty it is necessary to establish contumacious conduct on the part of the assessee, a proposition the Tribunal took from the Delhi High Court in Itochu Corporation and Mitsui & Company. The third is the application: on facts similar to those cases, no such conduct was made out, and the penalty was cancelled. Because the High Court and then this Court treated the correctness of that conclusion as turning on the facts, the appeal failed at the threshold of section 260A rather than on any fresh statement of the law.
we are convinced that there is no substantial question of law, the facts and law having properly and correctly been assessed and approached by the Commissioner of Income Tax (Appeals) as well as by the Income Tax Appellate Tribunal.
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Handle my notice → Ask a CA on WhatsAppNo, not on findings like these. The Supreme Court dismissed the Revenue's appeal on 7 January 2016, holding there was no substantial question of law and that the Commissioner (Appeals) and the Tribunal had assessed the facts and the law properly and correctly. The Tribunal had cancelled the section 271C penalty on the footing that the case was not about recovery under section 201(1) or compensatory interest under section 201(1A) — both already paid to end the dispute — and that penalty requires contumacious conduct on the part of the assessee to be established, following the Delhi High Court in Itochu Corporation and Mitsui & Company. This was decided by the Supreme Court (Supreme Court of India; Kurian Joseph and Rohinton Fali Nariman JJ, judgment delivered by Kurian Joseph J) and bears on section 271C, section 201(1), section 201(1A) of the Income Tax Act 1961. It is reported as AIR 2016 SUPREME COURT 608; 2016 (15) SCC 81; (2016) 1 SCALE 492; 2016 (2) ADR 493. This is a short affirmance, and its value lies in what it leaves standing. First, it separates the three consequences of a deduction default: recovery of the tax under section 201(1), interest under section 201(1A), and penalty under section 271C. Paying the first two does not carry the third with it, and the penalty needs its own foundation. Second, the Tribunal's requirement that contumacious conduct be established was left undisturbed, so the deductor's state of mind and the reason for the shortfall are squarely in issue. Third, and practically the most useful, the Court treated the presence or absence of such conduct as a matter of fact: where the Commissioner (Appeals) and the Tribunal have both found for the assessee on it, no substantial question of law arises for the High Court under section 260A. If it applies to you, the first step is this: Deal with the penalty separately from the demand — paying tax and interest under sections 201(1) and 201(1A) is not an admission that a penalty is due, and say so when you pay.
The dispute concerned penalty under section 271C levied on the respondent bank by the Assessing Officer. The Commissioner (Appeals) deleted the penalty. The Revenue appealed to the Tribunal, which by order of 31 March 2006 recorded that it was not dealing with collection of tax under section 201(1) or compensatory interest under section 201(1A) — the assessee's case being that those amounts had already been paid so as to end the dispute with the Revenue — and that what was in issue was penalty under section 271C, for which contumacious conduct on the part of the assessee had to be established. Finding the facts similar to those in the Delhi High Court's decisions in Itochu Corporation, 268 ITR 172, and CIT v. Mitsui & Company Ltd., 272 ITR 545, and following also the Delhi Tribunal's decision in Television Eighteen India Ltd., it allowed the assessee's appeal and cancelled the penalty. The Revenue appealed to the Delhi High Court, which rejected the appeal on the ground that no substantial question of law arose. The Revenue then came to the Supreme Court. The matter was decided on 2016-01-07 by the Supreme Court (Supreme Court of India; Kurian Joseph and Rohinton Fali Nariman JJ, judgment delivered by Kurian Joseph J). On those facts the Supreme Court held as follows. The appeal was dismissed with no costs. On the facts, the Court was convinced that no substantial question of law arose, the facts and the law having been properly and correctly assessed and approached both by the Commissioner (Appeals) and by the Tribunal. The Tribunal's cancellation of the penalty under section 271C therefore stands, as does the reasoning on which it rested: that the payment of tax under section 201(1) and interest under section 201(1A) was not what was in issue, and that a penalty under section 271C calls for contumacious conduct on the part of the assessee to be established.
The judgment is very short and does not construe section 271C for itself. What it does is to accept the approach of the two fact-finding authorities and to characterise the question as one of fact. The Tribunal's reasoning, which the Court set out and then approved as a proper and correct assessment of the facts and the law, has three steps. The first is a separation of remedies: recovery of the tax not deducted, and compensatory interest for the delay, are dealt with by sections 201(1) and 201(1A), and in this case both had been paid to bring the dispute to an end. Penalty under section 271C is a distinct consequence and stands on its own footing. The second is the test: to levy that penalty it is necessary to establish contumacious conduct on the part of the assessee, a proposition the Tribunal took from the Delhi High Court in Itochu Corporation and Mitsui & Company. The third is the application: on facts similar to those cases, no such conduct was made out, and the penalty was cancelled. Because the High Court and then this Court treated the correctness of that conclusion as turning on the facts, the appeal failed at the threshold of section 260A rather than on any fresh statement of the law. In the words reproduced by the source cited on this page: "we are convinced that there is no substantial question of law, the facts and law having properly and correctly been assessed and approached by the Commissioner of Income Tax (Appeals) as well as by the Income Tax Appellate Tribunal."
It was decided by the Supreme Court on 2016-01-07 and is reported as AIR 2016 SUPREME COURT 608; 2016 (15) SCC 81; (2016) 1 SCALE 492; 2016 (2) ADR 493. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271C, section 201(1), section 201(1A), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed with no costs. On the facts, the Court was convinced that no substantial question of law arose, the facts and the law having been properly and correctly assessed and approached both by the Commissioner (Appeals) and by the Tribunal. The Tribunal's cancellation of the penalty under section 271C therefore stands, as does the reasoning on which it rested: that the payment of tax under section 201(1) and interest under section 201(1A) was not what was in issue, and that a penalty under section 271C calls for contumacious conduct on the part of the assessee to be established. It arises in Penalty and TDS Defaults matters, on section 271C, section 201(1), section 201(1A) of the Income Tax Act 1961, and was decided by Supreme Court of India; Kurian Joseph and Rohinton Fali Nariman JJ, judgment delivered by Kurian Joseph J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Build the penalty reply around why the shortfall happened: the view taken, the advice relied on, the state of the law at the time, and the absence of any deliberate withholding. Where the Commissioner (Appeals) and the Tribunal have both found no contumacious conduct, resist a section 260A appeal on the ground that the finding is one of fact. Cite the Delhi High Court decisions in Itochu Corporation and Mitsui & Company, on which the Tribunal's order in this case rested and which the Supreme Court left undisturbed.
Still good law. A citator search returns 63 later decisions citing the judgment, the most recent a Jodhpur Tribunal order of 24 March 2025. It is applied at High Court level: the Allahabad High Court in Commissioner of Income Tax (TDS) v M/s Sahara India Commercial (18 January 2017) adopted the proposition that 'to attract penalty under Section 271C it was necessary to establish that there was a contumacious conduct on the part of Assessee', and the Kerala High Court relied on it in Commissioner of Income Tax (TDS) v Eurotech Maritime Academy Pvt Ltd (25 September 2018). It is applied routinely at Tribunal level on the same point, most recently in Income Tax Officer (TDS), Udaipur v Deputy Conservator of Forest (South) (Jodhpur Tribunal, 24 March 2025). The Supreme Court's own later decision in M/s US Technologies International Pvt Ltd v CIT (10 April 2023) records reliance on it in the course of holding section 271C not attracted by mere belated remittance. Nothing overruling, doubting or confining it was found. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment is barely two pages and gives no facts of its own: it does not state the assessment years, the payments on which tax was short-deducted, the amount of the penalty, or why the deduction fell short. Everything about the merits comes from the paragraph of the Tribunal's order that the Court reproduced. The Court does not itself analyse section 271C or section 273B, and does not in terms adopt "contumacious conduct" as the statutory test — it approves the authorities below as having assessed the facts and the law properly. The judgment is marked NON-REPORTABLE on its face although it is carried in the reports cited above. Anyone relying on it for a proposition of law should read the Delhi High Court decisions in Itochu Corporation and Mitsui & Company, which were not harvested here. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed with no costs. On the facts, the Court was convinced that no substantial question of law arose, the facts and the law having been properly and correctly assessed and approached both by the Commissioner (Appeals) and by the Tribunal. The Tribunal's cancellation of the penalty under section 271C therefore stands, as does the reasoning on which it rested: that the payment of tax under section 201(1) and interest under section 201(1A) was not what was in issue, and that a penalty under section 271C calls for contumacious conduct on the part of the assessee to be established.
TaxSphere, “CIT v Bank of Nova Scotia”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-bank-of-nova-scotia/ (validity last checked 2026-08-29)
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