( 1 ) CHALLENGE in this appeal under Section 260a of the Income Tax Act, 1961 (in short referred as the Act ) is to the order passed by the Income Tax appellate Tribunal dated 5th November, 2004 deleting the penalties under Section 271 (C) and by accepting the appeal preferred by the assessee against the order of the commissioner of Income Tax dated 10th October, 2000.

( 2 ) THE finding of the Income Tax Appellate Tribunal that there was reasonable cause for not deducting Tax at Source (TDS) on the payments made by the company to its employees overseas, for services rendered by them in India, on the ground that the said finding is erroneous and is contrary to law.

( 3 ) THE Assessee-Company is a non-resident company incorporated in japan. It has a liaison office in India as a permanent establishment. In the survey conducted by the Department under Section 133a at the liaison office at Delhi on 16th November, 1998, statement of certain persons were recorded, documents were found showing that the Company had utilised services of its expertise employees for rendering services in India, though they were paid their salary and perquisites outside india. According to the Revenue, the tax at source was not deducted and paid on the payments made by the assessee to its employees overseas in terms of Section 192 of the Act. While relying upon circular no. 685 and 686 dated 11th June, 1994 and 12th august, 1994 respectively, issued by the Central Board of Direct Taxes, a submission was made that the assessee was liable for imposition of penalties in terms of Section 271 (C ) of the Act.

( 4 ) THE Joint Commissioner of Income Tax vide his order dated 27th May, 1999 imposed a penalty under Section 271 (C) of the Act on the above basis while rejecting the contention of the assessee that they had sufficient cause for alleged short deduction of tax at source. Appeal of the assessee against this order of the Joint commissioner was dismissed on 10th October, 2000 by the Commissioner of Income tax (Appeals) against which a further appeal was preferred by the assessee which was accepted by the Income Tax Appellate Tribunal, vide order dated 5th November, 2004, giving rise to the filing of the present appeal by the Revenue. In its order, the tribunal while referring to some judgments of this Court, found that the case of the assessee was squarely covered on questions of facts and law, and as such directed deletion of the penalty imposed upon the assessee.

( 5 ) AT the very outset, we may notice that a similar question in relation to the same assessee for other years came up for consideration before this Court in the case of Commissioner of Income Tax vs. M/s. Matsushita Electric Industrial company Ltd. in ITA NO. 294/2005 decided on 12th May, 2005, where the Court while taking the following view, dismissed the appeal of the revenue:- it is the case of the Revenue that assessee deputed certain employees to work in india. However part of salary payable to these expatriate employees was paid in japan. This fact was concealed and not declared by the employees and the assessee had not deducted tax on these overseas payments. On 16. 11. 98, survey was carried out which revealed that the employees of the assessee working in India, as afore- referred, were paid in Japan and no TDS was deducted and in fact no tax was paid. The Joint Commissioner of Income-tax vide his order dated 27th May, 1999 imposed penalty under section 271c of the Act. Against this order, the assessee filed an appeal before the Commissioner Income-tax (Appeals) which was also dismissed vide order of the First Appellate Court dated 10th October, 2000. Dissatisfied with the order of the Court Appellate Authority, the assessee filed an appeal before the income-tax Appellate Tribunal which was allowed vide order dated 21st December, 2004. While relying upon its earlier orders and judgment of the High Court in the case of Commissioner of Income-tax vs. ITOCHU Corpn. 268