CA Pratik Anand
These days TDS has become a nightmare both for the assessee as well as the tax professional with notices being issued by the CPC (TDS) immediately on filing of the Quarterly TDS Statements.
Let us examine in depth the recent amendments in the relevant provisions of the Income Tax Act’1961 under which notices are issued and which are also relevant to Tax Audit and scrutiny assessments:
Section 201 of the Income Tax Act’1961 states as follows:
Consequences of failure to deduct or pay.
1. [(1) Where any person, including the principal officer of a company,—
(a) who is required to deduct any sum in accordance with the provisions of this Act; or
(b) referred to in sub-section (1A) of section 192, being an employer,
does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:
provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident—
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income,
and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed (Inserted VIDE Finance Act’2012)
Vide Notification No. 37/2012 [f.no. 142/18/2012-so(tpl)] dated 12-9-2012, the CBDT has inserted Rule 31ACB and Form No. 26A to prescribe the format in which the CA’s certificate should be obtained by the payee.
Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.]
[(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct [the whole or any part of the tax] or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at [one per cent for every month or part of a month] on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid [and such interest shall be paid before furnishing [the statement] in accordance with the provisions of sub-section (3) of section 200.
(2) Where the tax has not been paid as aforesaid after it is deducted,[the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A)] shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).
(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of seven years from the end of the financial year in which payment is made or credit is given”.(Inserted by Finance Act, 2014 w.e.f 01.10.2014)
(4) The provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may, apply to the time limit prescribed in sub-section (3)”
Here there are two or three points worth noting which have been amended recently and are of much importance:
1) The first line says ‘Any person who is required to deduct any sum in accordance with the provisions of the Act.’
Here any sum also includes amount paid by way of salary by the employer to the employee on which TDS was required to be deducted.
Here there was a mismatch in the Act, wherein the Employer could be deemed to be an assessee in default for Non deduction or Non-payment of Tax at Source on Salary paid to Employee but his expenditure on salary debited in the P&L A/c would not be disallowed as Section 40a (ia) did not include payments by way of Salary.
This has now been amended by the Finance Act’2014 wherein similar wording has been used wherein any sum on which tax is deductible at source has been added.
It means that w.e.f AY 15-16, An assessee will not only be deemed as an ‘Assessee in default’ for failure to Deduct Tax At Source on payment of Salary to Employees but also 30% of his expenditure on Salary will be also be disallowed.
2) The first proviso inserted by Finance Act’2012 is of much importance as it states that:
A person cannot be treated as an assessee in default for failure to deduct tax at source, if the person to whom he has made the payment has:
1) Furnished the return of income
2) Taken the amount paid by such person in his return of income.
3) Paid tax on such amount.
4) A certificate in this regard is furnished by a Chartered Accountant.
1) The certificate from the accountant is with regard to the examination of the books of account of the payee by the Chartered Accountant.
2) Form No. 26A has to be furnished by the payer and the certificate by the accountant is also to be taken the payer.
3) Certificate by the Chartered Accountant is an annexure to Form 26A.
4) This clause is only relevant to Non-deduction or short deduction of Tax and not relevant to cases of Non-payment or part payment of Tax once deducted.
3) Another interesting amendment is the amendment to Sub Section (3), wherein the time limit for deeming a person as an ‘Assessee in Default’ has been increased to Seven Years from the end of the Financial Year in which the payment is made or credit is given to the payee.
This time Limit has been synchronised with the time limits prescribed Under Section 148 wherein cases of the Last 6 years from the end of the Assessment Year could be opened.
This could give rise to the Following situation:
Suppose the assessment of an assessee is made U/s 148, wherein the A.O finds some payments on which TDS has not been deducted for the Financial Year 2008-09.
In such a case the A.O can not only disallow the expenditure on which TDS has not been deducted but also deem the assessee as an ‘Assessee in Default’ U/s 201 of the Act and charge interest and penalty on him for TDS default.
1) Another Observation which in my opinion is worth a look is the date from which the time limit for deeming a person as Assessee in Default is increased.
This amendment is made effective from 1st October, 2014.
This could give rise to the following situation:
Suppose the A.O finds that the assessee has not deducted Tax at Source worth Rs. 1 lac for the Financial Year 2009-10 on September’2014.
Now as per the existing law he could not issue an order deeming the person as an assessee in default for FY 2009-10 if such person has furnished Quarterly TDS statement in FY 2009-10 or FY 2010-11(for the last Qtr of FY 2009-10) after 31.3.2014.
Now since the amendment is with respect to a procedural aspect of the Law. in my opinion the assessing officer Could wait for 01st October ‘2014 and then issue notice for FY 2009-10 from 01.10.2014 whereas he could not do so till 30th September,2014.
Hope you find the above information relevant and useful in your daily practice
(The author is a CA in practice at Delhi and can be contacted at: E-mail: email@example.com, Mobile: +91-9953199493)