Madras High Court Grants Stay On ₹101.14 Crore TDS Penalty Recovery Against Cognizant

The Madras High Court on 6 July granted interim relief to Cognizant Technology Solutions India Private Limited by staying recovery proceedings arising from tax deducted at source (TDS) penalty demands exceeding Rs. 101.14 crore.

A Bench of Justice Senthilkumar Ramamoorthy found that the company had established a prima facie case, directed it to deposit Rs. 4 crore within two months, and stayed recovery of the balance penalty amount until the Commissioner of Income Tax (Appeals) decides the pending appeals and for two weeks thereafter. He observed:

“Definitive conclusions on the scope, interpretation and applicability of Section 271 C of the I-T Act are beyond the scope of the present proceedings.”

The Income Tax Department imposed penalties under Section 271C of the Income Tax Act, 1961 (which provides for penalties for failure to deduct tax at source) for multiple assessment years, alleging delayed deduction and remittance of TDS.

Cognizant argued that Section 271C applied only where a taxpayer failed to deduct tax and not where it deducts and remits tax belatedly. It relied on the Supreme Court's decision in US Technologies International (P.) Ltd. v. Commissioner of Income Tax (2023), which held that Section 271C does not cover cases involving delayed deduction and remittance of TDS.

The Bench observed that Cognizant had established a prima facie case in light of the Supreme Court's interpretation of Section 271C. It also held that CBDT Instruction No. 1914 dated 21 March 1996 and the Office Memoranda governing the grant of stay merely provide guidelines and do not restrict the statutory discretion available under Section 220(6) of the Income Tax Act (which empowers the assessing authority to treat a taxpayer as not being in default during the pendency of an appeal). It noted:

“As contended by learned Senior Counsel for the petitioner, the circulars and office Memoranda merely laid down guidelines and do not impose any statutory fetter on the exercise of jurisdiction under 220 (6) of the I-T Act.”

Accordingly, the High Court stayed recovery of the balance penalty amount subject to Cognizant depositing Rs. 4 crore within two months and directed the appellate authority to dispose of the pending appeals expeditiously.

For Petitioner: Mr.Srinath Sridevan, Senior Counsel 

For Respondent: Dr.B.Ramaswamy, Senior Standing Counsel