Case Law Details

Case Name : Reebok India Company Vs J.C.I.T (ITAT Delhi)
Appeal Number : ITA No. 319/DEL/2021
Date of Judgement/Order : 15/11/2022
Related Assessment Year : 2011-12

Reebok India Company Vs J.C.I.T (ITAT Delhi)

ITAT Delhi held that the limitation period is four years for passing assessment order in case of TDS statement not filed. Limitation period substituted to six years effective only from 01/10/2014.

Facts- The assessee is engaged in the business of distribution of foot wear and apparels and sell its merchandise in India directly to independent retailers, often under distribution or franchise agreement. Based on the survey proceedings conducted u/s. 133A of the Income-tax Act, 1961 on the Ambience Group who are the owners and operators of malls where assessee’s stores are situated.

AO noted that the mall owners have collected/recovered expenses in the form of Common Area Maintenance charges on which the deductors/tenants have deducted tax at source @ 2% considering the same to be covered under the provisions of Section 194C of the Act.
AO was of the firm belief that these payments are directly relatable to and being a part of rental activity, tax should have been deducted as per the provisions of section 194I of the Act @ 10% as against 2% being made by the deductor/tenant. Based on this view, order u/s 201(1)/1A of the Act was framed and accordingly, the assessee was directed to pay TDS amount and interest.

Order was challenged before the ld. CIT(A) on the ground that the impugned order is barred by limitation. However, CIT(A) rejected the contention.

Conclusion- Section 201(3) of the Act as amended by Finance Act, 2012 amended on 28/5/2012 was specifically made applicable retrospectively w.e.f. 1/14/2012, whereby limitation period was substituted from four years to six years for passing orders where TDS Statement had not been filed. However, section 201(3) of the Act as amended by Finance Act No.2 of 2014, is stated to have effect from 1st October, 2014.

The said amendment will take effect from 1/10/2014. In the present cases, limitations provided for passing order under section 201(1) of the Act for A.Y. 2011-12 had already been expired on 31/3/2014 i.e. prior to section 201(3) came to be amended by Finance Act No. 2 of 2014.
We have no hesitation to hold that the assessment order dated 30.03.2018 is barred by limitation.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the assessee is preferred against the order of the ld. CIT(A) – 38, New Delhi dated 29.01.2020 pertaining to A.Y. 2011-12.

2. Grievances of the assessee read as under:

“1. On the facts and in the circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeals) – 38 (‘CIT(A)’) erred in upholding the addition made by the the Assistant Commissioner of Income-tax, Circle 78(1), Delhi (‘the Ld. AO’) which is bad in law, contrary to the facts and must be quashed.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in ignoring that the Ld. AO passed an order after the expiry of 2 years from the end of financial year in which the TDS statement was filed. The Ld. AO has erred in given retrospective effect to the amendment in sub-section (3) of Section 201 of the Act which extended the time-limit to 7 years with effect from October 01, 2014.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in interpreting the amended provisions sub-section (3) of Section 201 of the Act as per which the only change which was effected from the earlier provision was the limitation period of four years in case of a deductor not filing TDS statement was extended to six years from four years. Whereas, in case of a person/deductor filing TDS statement, the limitation period of two years remained unchanged.

4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in alleging that the payment for maintenance of common area of a mall is in the nature of rent and thereby subject to TDS under section 194I of the Act.

5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has ignored the judgement of the Hon’ble Mumbai High Court wherein the common area maintenance charges were held to be business receipts and not in the nature of rental income.

6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the assessee to be in default for deduction of tax at a lower rate and ignoring the fact that the primary liability to pay the taxes is on the recipient.

7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in ignoring that the Ld. AO revisited the order passed u/s addendum with additional demand on account of common area maintenance charges paid iu other parties.

8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has grossly erred in upholding that the Ld. AO held the assessee as assessee in default and incorrectly charging interest u/s 20i(iA) of the Act.

9. Without prejudice to the above, the assessment made is highly excessive and contrary to facts, law and principles of natural justice and fair play.

The above grounds are without prejudice to each other.

That the Appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal.”

3. Briefly stated, the facts of the case are that the assessee is engaged in the business of distribution of foot wear and apparels and sells its merchandise in India directly to independent retailers, often under distribution or franchise agreement.

4. As a consequence of the survey proceedings conducted u/s 133A of the Income-tax Act, 1961 [hereinafter referred to as ‘The Act’] on the Ambience Group who are the owners and operators of malls where assessee’s stores are situated.

5. It came to the notice of the Assessing Officer that the mall owners have collected/recovered expenses in the form of Common Area Maintenance charges on which the deductors/tenants have deducted tax at source @ 2% considering the same to be covered under the provisions of Section 194C of the Act.

6. The Assessing Officer was of the firm belief that these collections/payments are directly relatable to and being a part of rental activity, tax should have been deducted as per the provisions of section 194I of the Act @ 10% as against 2% being made by the deductor/tenant. Based on this view, order u/s 201(1)/1A of the Act was framed on 30.03.2018 and accordingly, the assessee was directed to pay TDS amount of Rs. 26,76,475/– and interest thereon amounting to Rs. 23,96,645/–.

7. Order was challenged before the ld. CIT(A) on the ground that the impugned order is barred by limitation. It was strongly contended that the assessee has filed form 26Q for 4 quarters as under:

Sl. Type Date of Acknowledgment FY ending Limitation
No. of
Form
filing no for passing an order
1 26Q1 19.07.2010 020010200121085 31.03.2011 31.03.2013
2 26Q2 20.10.2010 050910100318722 31.03.2011 31.03.2013
3 26Q3 19.01.2011 050910300075036 31.03.2011 31.03.2013
4 26Q4 18.05.2011 00010200157592 31.03.2012 31.03.2014

8. In light of the above, it was strongly contended that the period of limitation for framing the assessment order expired on 31.03.2014 whereas the order was framed on 30.03.2018. The ld. CIT(A) was not convinced with the explanation of the assessee who was of the firm belief that amendment brought by Finance Act 2014 w.e.f 1.10.2014 has a retrospective effect and referring to the memorandum to the Finance Bill explaining the amendment, the ld. CIT(A) concluded that the assessment order is not barred by limitation.

9. Before us, the ld. counsel for the assessee reiterated what has been stated before the ld. CIT(A) and once again drew our attention to the relevant provisions of section 201 read with several amendments made therein and once again contended that the assessment order dated 30.03.2018 is barred by limitation in light of quarterly TDS returns filed in form 26Q.

10. Per contra, the ld. DR strongly supported the findings of the ld. CIT(A) and read the operative part.

11. We have given thoughtful consideration to the orders of the authorities below. The moot question which needs adjudication is whether amendment in section 201(3) by the Finance Act 2014 is not made expressly w.r.e. but as per plain language of amended section, it was to take effect from 01.10.2014 and if the answer to this question is YES, then whether the increased limitation period of 7 years u/s 201(3) as amended by the Finance (No. 2) Act, 2014 w.e.f 01.10.2014 shall not apply retrospectively to orders which had become time barred under old-time limit set by unamended section 201(3) of the Act and no order u/s 201(1) deeming deductor to be assessee in default could have been passed if limitation had already expired as on 01.10.2014.

12. In so far as quarterly TDS return in Form 26Q is concerned, there is no dispute. 26Q1 was filed on 19.07.2010, 26Q2 was filed on 20.10.2010, 26Q3 was filed on 19.01.2011 and 26Q4 was filed on 18.05.2011. As per unamended provisions of the Act where the TDS has been filed, period of limitation was two years from the end of FY in which the TDS return has been filed and 26Q4 falls in FY 2011–12. Therefore, order u/s 201(3) of the Act should have been passed on or before 31.03.2014 whereas the impugned assessment order is dated 30.03.2018.

13. It would be pertinent to understand the provisions of section 201(3) of the Act.

14. At this stage, it is required to be noted that subsection (3)(i) of section 201 came to be introduced by Finance Act No.2 of 2009 which provided that such order for a financial year commencing on or before the 1st day of April 2007 may be passed at any time on or before 31st day of March, 2011. As per Memorandum of Finance Bill No.2 of 2009, in respect F.Y.2007-08 and earlier years only proceedings that were pending could be completed by 31/3/2011 and as such no fresh proceedings could be commenced for the said period.

15. The reasons for amendment so stated in the memorandum to the Finance Bill No.2 of 2009 reads as under:

“Providing time limits for passing of orders u/s. 201(1) holding a person to be an assessee in default.

Currently, the Income Tax Act does not provide for any limitation of time for passing an order u/s. 201(1) holding a person to be an assessee in default. In the absence of such a time limit, disputes arise when these proceedings are taken up or completed after substantial time has elapsed.

In order to bring certainty on this issue, it is proposed to provide for express time limits in the Act within which specified order u/s. 201 (1) will be passed.

It is proposed that an order u/s 201(1) for failure to deduct the whole or any part of the tax as required under this Act, if the deductee is a resident taxpayer shall be passed within two years from the end of the financial year in which the statement of tax deduction at source is filed by the deductor. Where no such statement is filed, such order can be passed up till four years from the end of the financial year in which the payment is made or credit is given. To provide sufficient time for pending cases, it is proposed to provide that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 31st March, 2011.

However, no time-limits have been prescribed for order under subsection (1) of section 201 where-

(a) the deductor has deducted but not deposited the tax deducted at source, as this would be a case of defalcation of government dues;

(b) the employer has failed to pay the tax wholly or partly, under sub-section (1A) of section 192, as the employee would not have paid tax on such perquisites;

(c) the deductee is a non-resident as it may not be administratively possible to recover the tax from the non­resident.

16. It is proposed to make these amendments effective from 1st April, 2010. Accordingly it will apply to such orders passed on or after the 1st April, 20I0. From the aforesaid chronological events, it appears that section 201(3)(ii) of the Act came to be further amended by Finance Act of 2012, however, with retrospective effect from 1/4/2010 whereby in sub-section (3) in clause (ii), further words “four years” came to be substituted by words “six years”. Thus, period for passing order in respect of cases where statement referred to in section 200 of the Act were not filed, was extended from four years to six years.

17. It is also required to be noted that other provisions of section 201(3) clause (1) and proviso thereof remain same including last date for passing order for F.Y. 2007-08. At this stage, it is required to be noted that in the present cases, limitation for passing orders as per the provisions prevailing at the relevant time and even as provided under section 201(3)(i) as amended by Finance Act of 2012 had already expired on 31/3/2011 and 31/3/2012, respectively. 12.11. That thereafter, section 201(3) of the Act has been further amended by Finance Act No.2 of 2014 w.e.f. 1/10/2014, by which, time limit provided under section 201(3)(ii) of the Act for passing order under section 201(1) of the Act came to be extended by one year and it also provides that no orders shall be made under sub-section (1) holding a person to be in default for failure to deduct whole or part of the tax from a person resident in India at any time after expiry of seven years from the end of the financial year in which payment is made or credit is given.

18. By Finance Act No.2 of 2012, even distinction between the cases, statement has been filed and where such statement was not filed also has been removed and the amendment prescribes a common period of limitation i.e. seven years from the end of the financial year in which payment was made.

19. The reasons for amendment in section 201(3) so stated in the memorandum to the Finance Bill No.2 of 2014 reads as under:

“Tax Deduction at Source :

Under Chapter X VII-B of the Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. The person deducting tax (“the detductor”) is required to ‘file a quarterly statement of tax deduction at source (TDS) containing the prescribed details of deduction of tax made during the quarter by the prescribed due date.

Currently, a deductor is allowed to file correction statement for rectification / updation of the information furnished in the origina l TDS statement as per the Centralized Processing of Statements of Tax Deducted at Source Scheme, 2013 notified vide Notification No.03/2013 dated 15th January, 2013. However, there does not exist any express provision in the Act for enabling a deductor to file correction statement. In order to bring clarity in the matter relating to filing of correction statement, it is proposed to amend section 200 of the Act to allow the deductor to file correction statements. Consequently, it is also proposed to amend provisions of section 200A of the Act for enabling processing of correction statement filed.

The existing provisions of section 201(1) of the Act provide for passing of an order deeming a payer as assessee in default if he does not deduct or does not pay or after deduction fails to pay the whole or part of the tax as per the provisions of Chapter XVII-B of the Act. Section 201 (3) of the Act provides for time limit for passing of order under section 201(1) of the Act for deeming a payer as assessee in default for failure to deduct tax from payments made to a resident. Clause 201(3) of the Act provides that no order under section 201(1) of the Act shall be passed after expiry of two years from the end of the financial year in which TI’S statement has been filed.

Currently, the processing of TI’S statement is done in the computerized environment and mainly focuses on the transactions reported in the TI’S statement filed by the deductor. Therefore, there is no rationale for not treating the deductor as assessee in default in respect of the TI’S default after two years only on the basis that the deductor has filed TI’S statement as TI’S defaults are generally in respect of the transaction not reported in the TI’S statement. It is, therefore, proposed to omit clause (i) of sub­section (3) of section 201 of the Act which provides time limit of two years for passing order under section 201(1) of the Act for cases in which TI’S statement have been/filed.

Currently, clause (ii) of section 201(3) of the Act provides a time limit of six years from the end of the financial year in which payment / credit is made for passing of order under section 201(1) of the Act for cases in which TI’S statement has not been filed.

However, notice under section 148 of the Act may be issued for reassessment up to 6 years from the end of the assessment year for which the income has escaped assessment. Therefore, section 148 of the Act allows reopening of cases of one more preceding previous year than specified under section 201(3)(ii) of the Act.

Due to this, order under section 201(1) of the Act cannot be passed in respect of defaults relating to TDS which comes to the notice during search/reassessment proceeding in respect of previous year which is not covered under section 201(3)(ii) of the Act for passing order under section 201(1) of the Act shall be extended by one more year.

The existing provisions of section 271H of the Act provides for levy of penalty for failure to furnish TDS/TCS statements in certain cases or furnishing of incorrect information in TDS/ TCS statements. The existing provisions of section 271H of the Act do not specify the authority which would be competent to levy the penalty under the said section. Therefore, provisions of section 271H are proposed to be amended to provide that the penalty under section 271H of the Act shall be levied by the Assessing officer.”

20. At this stage, it is required to be noted that earlier section 201(3) of the Act as amended by Finance Act, 2012 amended on 28/5/2012 was specifically made applicable retrospectively w.e.f. 1/14/2012, whereby limitation period was substituted from four years to six years for passing orders where TDS Statement had not been filed. However, section 201(3) of the Act as amended by Finance Act No.2 of 2014, as mentioned in the memorandum of the Finance Bill No.2 of 2014 is stated to have effect from 1st October, 2014.

21. Thus, wherever the Parliament / Legislature wanted to make provisions applicable retrospectively, it has been so provided. 12.15. At this stage, it is required to be noted that while making amendment in section 201(3) of the Act by Finance Act No.2 of 2014, does not so specifically provide that the said amendment shall be made applicable retrospectively.

22. On the other-hand, it is specifically stated that the said amendment will take effect from 1/10/2014. As observed hereinabove, in the present cases, limitations provided for passing order under section 201(1) of the Act for A.Y. 2011-12 had already been expired on 31/3/2014 i.e. prior to section 201(3) came to be amended by Finance Act No.2 of 2014.

23. Similar view was taken by the Hon’ble High Court of Gujarat in the case of Tata Teleservices Vs. Union of India 385 ITR 497 and also by the Hon’ble High Court of Delhi in Oracle India Private Limited Vs. Deputy CIT 376 ITR 411 against which SLP filed before the Hon’ble Supreme Court was dismissed in 41 com 311.

24. Considering the facts of the case in light of the discussion hereinabove, we have no hesitation to hold that the assessment order dated 30.03.2018 is barred by limitation. Since we have held that the assessment order is barred by limitation, we do not find it necessary to dwell into the merits of the case.

25. In the result, the appeal of the assessee in ITA No. 319/DEL/2021 is allowed.

The order is pronounced in the open court on 15.11.2022.

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