Gokul distributors Vs ITO (ITAT Pune)
Section 234E Fee Cannot Travel Back Through a Machinery Provision: No Levy u/s 200A for TDS Period Before 01-06-2015
The Pune Bench of the ITAT has held that late-filing fee u/s 234E could not be computed and demanded through an intimation u/s 200A for TDS statements relating to a period before 01-06-2015. Following the Karnataka High Court’s decision in Fatehraj Singhvi v. Union of India, the Tribunal deleted late fees of ₹12,078 & ₹6,000 levied for delayed filing of Forms 26Q for the second and fourth quarters of FY 2012-13.
The assessee, M/s Gokul Distributors, filed its quarterly TDS statements in Form No. 26Q for Q2 & Q4 of FY 2012-13 after the prescribed time. It subsequently filed correction statements. While processing the statements and passing intimations u/s 154 read with section 200A on 21-08-2021, the Department levied late fees u/s 234E amounting to ₹12,078 for Q2 and ₹6,000 for Q4.
The assessee challenged the levy before the CIT(A), contending that although section 234E had been introduced earlier, the statutory power enabling computation of such fee while processing a TDS statement u/s 200A was inserted only with effect from 01-06-2015. Since the impugned TDS statements related to FY 2012-13, the fee could not be raised through the processing mechanism u/s 200A.
The CIT(A) rejected the contention and confirmed the levy. The assessee therefore filed two appeals before the Tribunal.
Before the ITAT, the assessee reiterated that clauses (c) to (f) of section 200A(1), which authorised computation and adjustment of fee payable u/s 234E during processing of a TDS statement, were inserted only from 01-06-2015. Those provisions conferred a substantive power upon the processing authority and could not be retrospectively applied to statements relating to an earlier period.
The Revenue relied upon the orders of the lower authorities and contended that the late-filing fee was validly charged.
The Tribunal noticed that conflicting decisions of different High Courts existed on the issue. It therefore invoked the principle laid down by the Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) that where two reasonable constructions of a taxing provision are possible, the construction favourable to the assessee should be adopted.
The ITAT relied principally upon the Karnataka High Court’s judgment in Fatehraj Singhvi v. Union of India [2016] 289 CTR 602 (Karnataka). In that case, the High Court drew a distinction between the creation of a fee liability under section 234E and the power to compute and recover that fee through an intimation issued u/s 200A.
When section 234E was introduced, section 200A did not authorise the processing authority to make an adjustment towards late-filing fee. Clauses (c) to (f) were inserted into section 200A(1) with effect from 01-06-2015 to provide the required mechanism for computing the fee and raising a consequential demand.
The Karnataka High Court held that these clauses could not be characterised as a mere procedural or regulatory amendment having retrospective operation. They conferred a substantive power upon the authority to compute and demand the fee while processing TDS statements. In the absence of express retrospective language, the amendment had to operate prospectively.
Consequently, an intimation u/s 200A demanding section 234E fee for a TDS period prior to 01-06-2015 was considered to be without authority of law. The High Court clarified that its decision concerned the validity of computation and demand through section 200A and did not require adjudication upon the constitutional validity of section 234E itself.
Applying this principle, the Pune Bench observed that both the disputed quarters fell in FY 2012-13, much before the amendment to section 200A became effective. Therefore, the processing authority could not invoke the subsequently introduced machinery provision to compute and demand late fees for those quarters.
The Tribunal accordingly set aside the orders of the CIT(A) and directed the AO to delete the late fees of ₹12,078 & ₹6,000. Both appeals filed by the assessee were allowed.
Author’s Comments
The precise controversy is not whether section 234E appeared in the statute before 01-06-2015. Section 234E was introduced with effect from 01-07-2012. The controversy concerns whether, before the amendment effective from 01-06-2015, the Department possessed the statutory machinery under section 200A to compute that fee while processing a TDS statement and issue a consequential demand.
Fatehraj Singhvi answered this question in favour of the deductor by holding that the amendment to section 200A conferred substantive authority and was prospective. Accordingly, an automated adjustment for a pre-01-06-2015 TDS period was beyond the scope of the unamended section 200A.
There is, however, contrary authority. In Rajesh Kourani v. Union of India, the Gujarat High Court took a different view on the operation and enforceability of section 234E. The Pune Tribunal acknowledged the existence of conflicting High Court views and applied the Supreme Court’s rule in Vegetable Products to adopt the interpretation beneficial to the assessee.
The relief is therefore closely connected with three factors: the TDS statement related to a period before 01-06-2015; the demand was created through processing u/s 200A; and the assessee challenged the levy instead of accepting it as final.
The decision should also not be extended to delayed TDS statements relating to periods after 01-06-2015. For such later periods, section 200A expressly authorises computation of the section 234E fee.
The legal principle is neatly captured thus: a liability provision and its recovery machinery are not interchangeable. Even where the statute refers to a fee, the Department must possess valid authority under the machinery provision to compute and demand it through a particular proceeding. A power expressly inserted from a specified date cannot ordinarily be used to validate an earlier adjustment.
Cases Discussed
- CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC)
- Fatehraj Singhvi v. Union of India [2016] 289 CTR 602 (Karnataka)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, PUNE
The assessee has filed these two appeals against the separate orders of the CIT(A)/NFAC passed u/s 200A r.w.s154 and u/sec 250 of the Income Tax Act, 1961.
2. The sole ground of appeal is challenging the order of CIT(A) erred in confirming the order of Levy of Late Fee u/sec 234E of the Act for delay in filling the quarterly TDS Statement.
3. The Brief facts of the case are that, the assessee has filed the TDS statement in Form no 26 Q for the Quarter (Q) –Q2 & Q4 of financial year 2012-13(A.Y.2013-14) with the delay. The assessee has filed correction statement u/sec200A of the Act. The intimation u/sec 154 of the Act dated 21-08-2021 was passed with late fee U/sec234E of the Act (i) Q2 Rs.12,078/-(ii) Q4 Rs6000/-.Aggrieved by the Intimations u/sec 154 of the Act, the assessee has filed separate appeals with the CIT(A). Whereas, the CIT(A) has confirmed the levy of late fee and dismissed the assessee appeals. Aggrieved by the CIT(A) orders, the Assessee has filed the appeals with the Honble Tribunal.
4. At the time of Hearing, the Ld.AR of the assessee submitted that the CIT(A) has erred in confirming the levy of late fee u/sec234E of the Act. The late fee can be charged only after 1.06.2015 and not for the period prior to said date. The present financial year in these two Quarters is F.Y.2012-13 and hence no late fee is chargeable and substantiated the submissions with judicial decisions and prayed for deletion of late fee and allow the assessee appeals. Per Contra the Ld.DR relied on the order of CIT(A) and submissions.
5. We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue envisaged by the Ld.AR that the provisions of levy of late fee u/sec 234E of the Act is applicable W.e.f 01.06.2015. Whereas, the present F.Y. is 2012-13 and does not fall in the purview of applicability. Further the revenue has filed the submissions contravening the arguments of the Ld.AR. We find, when there are two conflicting decisions of various High Courts, the Hon‟ble Supreme Court in the case of CIT Vs Vegetable Products Ltd 88 ITR 192 (SC) had held that construction that is favorable to the assessee should be adopted and thus applying the ratio of the decision to the said impugned Financial Year, where the provision relates to levy of late fees, in the nature of penalty for delay in filling the TDS quarterly returns prior to 1.06.2015. .We find the Honble High Court of Karnataka in the case Fatehraj Singhvi Vs Union of india W.A 2663-2674/2015(I-IT)/ (289 C T R 0602) has observed and held as under:
“(i) In view of the aforesaid observations and discussion, two aspects may transpire one, for Section 234E providing for fee and given privilege to the defaulter if he pays the fee and hence, when a privilege is given for a particular purpose which in the present case is to come out from rigors of penal provision of Section 271H(1)(a), it cannot be said that the provisions of fee since creates a counter benefit or reciprocal benefit in favour of the defaulter in the rigors of the penal provision, the provisions of Section 234E would meet with the test of quid pro quo.
(ii) However, if Section 234E providing for fee was brought on the state book, keeping in view the aforesaid purpose and the intention then, the other mechanism provided for computation of fee and failure for payment of fee under Section 200A which has been brought about with effect from 1.6.2015 cannot be said as only by way of a regulatory mode or a regulatory mechanism but it can rather be termed as conferring substantive power upon the authority. It is true that, a regulatory mechanism by insertion of any provision made in the statute book, may have a retroactive character but, whether such provision provides for a mere regulatory mechanism or confers substantive power upon the authority would also be a aspect which may be required to be considered before such provisions is held to be retroactive in nature. Further, when any provision is inserted for liability to pay any tax or the fee by way of compensatory in nature or fee independently simultaneously mode and the manner of its enforceability is also required to be considered and examined. Not only that, but, if the mode and the manner is not expressly prescribed, the provisions may also be vulnerable. All such aspects will be required to be considered before one considers regulatory mechanism or provision for regulating the mode and the manner of recovery and its enforceability as retroactive. If at the time when the fee was provided under Section 234E, the Parliament also provided for its utility for giving privilege under Section 271H(3) that too by expressly put bar for penalty under Section 272A by insertion of proviso to Section 272A(2), it can be said that a particular set up for imposition and the payment of fee under Section 234E was provided but, it did not provide for making of demand of such fee under Section 200A payable under Section 234E. Hence, considering the aforesaid peculiar facts and circumstances, we are unable to accept the contention of the learned counsel for respondent-Revenue that insertion of clause (c) to (f) under Section 200A(1) should be treated as retroactive in character and not prospective.
(iii) It is hardly required to be stated that, as per the well established principles of interpretation of statute, unless it is expressly provided or impliedly demonstrated, any provision of statute is to be read as having prospective effect and not retrospective effect. Under the circumstances, we find that substitution made by clause (c) to (f) of sub-section (1) of Section 200A can be read as having prospective effect and not having retroactive character or effect. Resultantly, the demand under Section 200A for computation and intimation for the payment of fee under Section 234E could not be made in purported exercise of power under Section 200A by the respondent for the period of the respective assessment year prior to 1.6.2015. However, we make it clear that, if any deductor has already paid the fee after intimation received under Section 200A, the aforesaid view will not permit the deductor to reopen the said question unless he has made payment under protest.
(iv) In view of the aforesaid observation and discussion, since the impugned intimation given by the respondent- Department against all the appellants under Section 200A are so far as they are for the period prior to 1.6.2015 can be said as without any authority under law. Hence, the same can be said as illegal and invalid.
(v) If the facts of the present cases are examined in light of the aforesaid observation and discussion, it appears that in all matters, the intimation given in purported exercise of power under Section 200A are in respect of fees under Section 234E for the period prior to 1.6.2015. As such, it is on account of the intimation given making demand of the fees in purported exercise of power under Section 200A, the same has necessitated the appellant-original petitioner to challenge the validity of Section 234E of the Act. In view of the reasons recorded by us hereinabove, when the amendment made under Section 200A of the Act which has come into effect on 1.6.2015 is held to be having prospective effect, no computation of fee for the demand or the intimation for the fee under Section 234E could be made for the TDS deducted for the respective assessment year prior to 1.6.2015. Hence, the demand notices under Section 200A by the authority for intimation for payment of fee under Section 234E can be said as without any authority of law and the same are quashed and set aside to that extent.
(vi) As such, as recorded earlier, it is on account of the intimation received under Section 200A for making computation and demand of fees under Section 234E, the same has necessitated the appellant to challenge the constitutional validity of Section 234E. When the intimation of the demand notices under Section 200A is held to be without authority of law so far as it relates to computation and demand of fee under Section 234E, we find that the question of further scrutiny for testing the constitutional validity of Section 234E would be rendered as an academic exercise because there would not be any cause on the part of the petitioners to continue to maintain the challenge to constitutional validity under Section 234E of the Act. At this stage, we may also record that the learned counsels appearing for the appellant had also declared that if the impugned notices under Section 200A are set aside, so far as it relates to computation and intimation for payment of fee under Section 234E, the appellant-petitioners would not press the challenge to the constitutional validity of Section 234E of the Act. But, they submitted that the question of constitutional validity of Section 234E may be kept open to be considered by the Division Bench and the Judgment of the learned Single Judge may not conclude the constitutional validity of Section 234E of the Act.
(vii) Under these circumstances, we find that no further discussion would be required for examining the constitutional validity of Section 234E of the Act. Save and except to observe that the question of constitutional validity of Section 234E of the Act before the Division Bench of this Court shall remain open and shall not be treated as concluded.
(viii) In view of the aforesaid observations and discussion, the impugned notices under Section 200A of the Act for computation and intimation for payment of fee under Section 234E as they relate to for the period of the tax deducted prior to 1.6.2015 are set aside. It is clarified that the present judgment would not be interpreted to mean that even if the payment of the fees under Section 234E already made as per demand/intimation under Section 200A of the Act for the TDS for the period prior to 01.04.2015 is permitted to be reopened for claiming refund. The judgment will have prospective effect accordingly. It is further observed that the question of constitutional validity of Section 234E shall remain open to be considered by the Division Bench and shall not get concluded by the order of the learned Single Judge.”
6. We find as per the ratio of the Honble High Court decision, the provision of chargeability of late fee is w.e.f 1.06.2015. Therefore, the provisions of sec 234E of the Act on charging of late fee is not applicable to the A.Y 2013-14. We considering the facts, circumstances and provisions of law and the Hon’ble High Court decision set aside the order of the CIT(A) and direct the Assessing officer delete the levy of late fees U/sec234E of the act. And we allow the grounds of appeal in favour of the assessee
7. In the result, the two appeals filed by the assessee are allowed.
Order pronounced in the open court on 15th September 2026.
