By TIOL News Service

NEW DELHI, JUNE 13, 2018: THE ISSUE AT HAND BEFORE THE BENCH IS - Whether the provisions of Sec 201(3) apply only to cases where there is failure to deduct the whole or any part of tax, and not to non-payment of tax. YES IS THE ANSWER.

Facts of the case

The assessee company is a leading provider of telecommunication services. In 2004, survey proceedings u/s 133A conducted to verify compliance with TDS provisions on payments made by the assessee, it was noted that the asssessee did not deduct TDS on Inter connect charges paid by it. It was further noted that the assessee began deducting TDS from a later date in 2004. Thereupon, TDS compliance for the AYs preceding the relevant AY was examined. Subsequently, the assessee was served notices seeking details of TDS deducted on payments made to various third parties & service providers. Some details were furnished by the assessee & the AO mentioned that they would be used to complete proceedings u/s 201(1).

The TDS officers issued several letters asking for more details and also fixing date of hearing. The TDS officer also mentioned that the details were being called for in pursuance of proceedings u/s 201(1) & 201(1A). In 2010, an SCN was issued u/s 201(1) & 201(1A), again asking for details already sought for through an earlier letter. In response, the assessee claimed that the SCN was unsustainable as it was barred by limitation. Concurrently, the assessee also filed a writ petition agitating such re-initiation of proceedings. However, the AO rejected the assessee's contentions and raised duty demand for the AYs 2000-2001 to 2004-2005 for non deduction of TDS. In a separate order, demand for interest u/s 201(1A) was also raised.

While the assessee approached the CIT(A), the Bombay High Court also disposed off the assessee's writ, directing the CIT(A) to dispose off the appeal within three months. Thereupon, the CIT(A) dismissed most of the grounds raised by the assessee and remanded the rest for re-verification. The issues of demands raised u/s 201(10) & 201(1A) were also remanded. Hence the cross appeals by the assessee and the Revenue.

On appeal, the Tribunal held that,

++ a careful perusal of the provisions of Sec. 201(3) would show that the same would cover to an assessee who is considered to be in default on account of failure to deduct the whole or any part of tax. So the time limit prescribed in Sec. 201(3) of the Act would apply to the cases, where there was failure to deduct the whole or any part of the tax, meaning thereby, the time limit prescribed in Sec 201(3) of the Act would not apply to the cases of non-payment or failure to pay the whole or any part of the tax. The provisions of Sec 201(1) cover the case of non-deduction, non-payment or non-payment after deduction;

++ a perusal of the order passed u/s 201(1)/(1A) would show that the AO has raised demand for short deduction of tax as well as for non-payment of tax after its deduction. We notice that the CIT(A) has wrongly applied the provisions of sec. 201(3) for the case of non-payment of tax after its deduction. We notice that there is no discussion about the same. Hence, the issue relating to non-payment of tax after its deduction should be adjudicated afresh by CIT(A) as the provisions of Sec 201(3) shall not apply to the same. Accordingly, while upholding the order of CIT(A) for the issue relating to short deduction of tax at source, we restore the issue relating to non-payment of tax after its deduction to his file for adjudicating the same afresh after hearing the assessee.

(See 2018-TIOL-854-ITAT-MUM)