Order u/s. 201(1) passed beyond prescribed time limit untenable: ITAT Delhi

DCIT Vs Turner General Entertainment Net works India Limited (ITAT Delhi)

ITAT Delhi held that assessment order passed under section 201(1) of the Income Tax Act beyond the prescribed time limit is liable to be set aside. Accordingly, appeal filed by the revenue dismissed.

Facts- The assessee is a domestic/resident company principally engaged in the business of broadcasting general entertainment television channel imagine TV (formerly known as NDTV imagine). AO has completed the assessment u/s 201(1)/ (1A) of the Act, holding that the assessee company in default to deduct tax for amount of Rs 5,00,40,103/- which was required to be deducted under various TDS sections but was not deducted.

CIT(A) allowed the appeal. Being aggrieved, revenue has preferred the present appeal.

Conclusion- Held that in the instant case the time limit for passing order u/s 201(1) of the Act pertaining to financial year 2010-11 where a statement u/s 200 of the Act has been filed was two years from the end of the financial year in which such statement was filed. It is evident from the order of the AO that the tax statement in the relevant form i.e. Form 26Q for F.Y. 2010-11 was filed by the assessee on 13-05-2011. The time limit for passing an order u/s 201(1) of the Act was up to 31-03-2014.The assessment order was completed on 28-03-2018 by the AO beyond the prescribed time limit. The sub-section (3) of the Section 201 of the Act does not applicable in this case.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the revenue is directed against the order of the Commissioner of Income Tax (Appeals)-11,NFAC Delhi, [hereinafter referred to as “CIT(A)”], vide order dated 07.12.2023 pertaining to A.Y. 2011-12 and arises out of the order passed by the Assessing Officer dated 28.03.2018 under Section 201 of the Income Tax Act, 1961 [hereinafter referred as ‘the Act’].

2. The revenue has raised the following grounds of appeal :-

1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was justified in not appreciating the fact that the order under section 201(1)/201(14) of the Act has been passed well within the time limit prescribed thereof.

2. Whether on the facts and in circumstances of the case and in law, the CIT(A) was justified in not appreciating the fact that sub section 3 of S. 201 prescribes two types of limitations. First clause is applicable for cases where statement referred to in S. 200 has been filed whereas Ind is for the cases other than those specified in clause I of S. 201(3). In the instant case, limitation would be hit by clause 2 of S. 201(3) i.e. 7 years from the end of the relevant financial year, therefore, date of limitation in this case would be 31.03.2018. Hence, order is not barred by limitation.

3. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was justified in not appreciating the fact that no specific period of limitation has been prescribed for issuance of notice of verification u/s 201 and 201(1A) of the Act, rather sub­section (3) of section 201 of the Act provides time limit for passing of order u/s 201(1) of the Act.

4. That the order of the CIT(A) being erroneous in law and on facts and needs to be vacated.

5. That the appellant craves leave to add or amend any one or more of the grounds of the appeal as stated above as and when need for doing so may arise.

3. Brief fact of the case are that the assessee is a domestic/resident company principally engaged in the business of broadcasting general entertainment television channel imagine TV (formerly known as NDTV imagine). The assessee has filed its return of income declaring total loss of Rs 262.04 crore for the A.Y. 2011-12 on 30-11-2011. The jurisdictional AO has found that the assessee company has failed to deduct tax at source as reflected by Tax Auditor in his report. The jurisdictional AO has intimated this default to the joint commissioner of Income Tax Range 76 New Delhi for initiating penalty proceedings u/s 271C of the Act. A notice u/s 201(1) /201(1A) of the Act along with questionnaire was issued on 26­02-2018. The Ld AR of the assessee has attended the proceedings. According to AO the assessee has failed to deduct TDS on the expenses incurred during this year. The amount of TDS required to be deducted on the incurred expenses as per details as under;

4. The assessing officer has completed the assessment u/s 201(1)/ (1A) of the Act, holding that the assessee company in default to deduct tax for amount of Rs 5,00,40,103/- which was required to be deducted under various TDS sections but was not deducted.

5. Aggrieved the order of the AO the assessee company has filed the appeal before the Ld CIT(A) who vide his order dated 07-12-2023 allowed the appeal. Aggrieved the order of the Ld CIT(A) the revenue is in appeal before us.

6. In the ground no. one the revenue has challenged the order passed under section 201(1) and 201(1A) of the Act to be within time. This issue raised by the revenue is purely legal and jurisdictional issue going to the root of the matter, we proceed to deal with it at the very outset.

7. We have heard the parties and perused the material available on record.

8. The Ld.DR vehemently supported the order of the Assessing-officer and submitted that the AO passed the order u/s 201(1)/201(1A) of the Act within prescribed time limit.

9. The Ld AR has submitted that the order passed by the AO was time barred by limitation. He has submitted that section 201(3) of the Act provides the time limit within which an order u/s 201(1) of the Act can be made. He has also submitted that the assessee has filed the TDS statement within time so the time limit for assessment is two years. The Ld. CIT (A) has rightly allowed the appeal by holding that the impugned order was time barred. He has relied upon the following judicial decisions ;

1. S.S. Gadgil Vs. Lal &Co. [1964 53 ITR 231(SC)

2. M. Sharma Vs. Income-tax-Officer [2002] 122 Taxman 426 (SC)

3. National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India [ 2003] 128 Taxman 361 (SC)

4. Tata Teleservices v. Union of India [2016] 385 ITR 497 (Gujarat)

5. Troikaa Pharmaceuticals Ltd. v. Union of India ( 68 com 229) [2016] (Gujarat)

6. Sodexo SVC India Pvt. Ltd. v. DCIT [ 2018] 92 com 260 (Mumbai-Trib.) Section 201 of the Act reads as under :-

Section 201 of the Act provides for consequences of failure to deduct or pay taxes at source. Section 201(3) of the Act provides for time limit within which an order under Section 201(1) of the act can be made. Section 201(3) and Section 201(4) of the Act were inserted by Finance Act, 2009, wherein w.e.f. April 1, 2010 period of limitation of two years from the end of financial year in a case in which withholding tax statement is filed and four years from the end of financial year for other cases, was prescribed. The relevant provisions of Section 201 am reproduced below for Your Honor’s reference :

“The following sub-sections (3) and (4) shall be inserted after sub-section (2) of section 201 by the Finance (No. 2) Act, 2009, w.ef 1-4-2010

(3) No order shall be made under sub-section (1) deeming a person to an assessee in default for failure to deduct whole or any part of the tax from any person resident in India, at any time after the expiry of-

(i) Two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed;

(ii) Four years from the end of the financial year in which payment is made or credit is given, in any other case;

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 the 31st day of March, 2011.

(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 sub­section (3).”

Section 201(3) of the Act was then amended by Finance Act, 2012 with retrospective effect from April 1, 2010 whereby the limitation was substituted from four years to six years for passing the order where withholding tax statement had not been filed and the limitation of two years continued in cases where the statement is filed. The relevant provisions of Section 201(3) of the Act post amendment by Finance Act, 2012 is reproduced below for Your Honor’s ease of reference: “….(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-

(i) Two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed,

(ii) [six] 1years from the end of the financial year in which payment is made or credit is given, in an other case: Provided that the 1st day of April, 2007 may be passed at any time on or before the 31st day of March 2011-substantial

Vide Finance Act, 2014, there was substantial overhauling of provision of Section 201 (3) of the Act, where the period of two years and six years provided earlier, was substituted and a uniform period of limitation of seven years was adopted irrespective whether the Statements were filed or not. The new Sub section (3) to Section 201, was explicity made applicable from October 1, 201was earlier, was substitute Section 201(3) of the Act (as ay made applicable from October filed or not. The provisions as per Section 201(3) of the Act (as amended vide Finance AC 2014) is reproduced below for your Honor’s ease of reference :

3) No order shall be made under sub-section (1) deeming a person be an failure to deduct the whole or any part of the tax from a person resident in India assessee in default for expiry of seven years from the end of the financial year in which payment is made or credit is given.”

10. As could be seen from a reading of the aforesaid provision, 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. The aforesaid sub section (3) of section 201 was again amended by Finance Act, 2014 w.e.f ^1st October 2014 by substituting the earlier provision and earlier provision with a uniform limitation period of seven years from the end of relevant financial year wherein payments made or credit given was made applicable. If the legislature intended to apply the amendment provision of sub-section (3) retrospective it would definitely have provided such retrospective effect expressing in clear terms while making such amendment. In the case of Sodexo AVC India (P) Ltd. Vs Deputy Commissioner of Income Tax (TDS) 2(2) Mumbai [2018] 92 taxmann.com 260(Mumbai) the coordinate Bench held as under :-

6. We have heard the rival submissions and perused materials available on record in the light of the decisions cited. So far as fled statements of the issue is concerned, there is no dispute that in terms of Section 200(3), the assessee has field statements of TDS before the Department within the prescribed time. In fact, in the assessee has TDS before the Department within the prescribed time. In fact in the submissions made by the assessee as reproduced in Para 5.2 of the impugned order of the learned Commissioner (Appeals) the fact of filing of TDS statements by the assessee has been clearly brought out. Therefore, we have to proceed on the basis that in assessee’s case, the statements of TDS have been filed. Keeping the aforesaid factual position in view it is necessary to examine the relevant statutory provisions. Section 201 which lays down the consequences of failure to deduct tax at source or having deducted not remitted to the Government account, in its original form, did not provide any time limit for passing the order under sub­section (1) of section 201. Looking at the dispute arising out of proceedings being taken up and completed after lapse of substantial time in the absence of a time limit, the legislature through Finance Act, 2009, introduced sub­section (3) to section 201 providing limitation period of two years for passing the order under section 201(1) from the end of the financial year in which statement of TDS is filed by the deductor and in a case where no statement is filed the limitation was extended therefore expiry of four years from the end of financial year in which the payment was made or credit given. The aforesaid amendment was made effective from 1st April 2010. Subsequently, by Finance Act, 2012, sub-section (3) of section 201 was again amended with retrospective effect from 1st April 2010. The aforesaid amended provision reads as under:-

“(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—-

(i) Two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been field;

(ii) Six years from the end of the financial year in which payment is made or credit is given, in any other case :

8. As could be seen from a reading period aforesaid provision, the only change which was effected from the 8. As could be seen 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 of a person/deductor filing TDS statement, the limitation period of two years remained unchanged. The aforesaid sub-section (3) of section 201 was again amended by Finance Act, 2014 w.e.f. 1st October 2014 by substituting the earlier provision with the following :-

“(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 of it 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.”

9. Thus, as could be seen from the aforesaid amended provision a uniform limitation period of seven years from the end of relevant financial year wherein payments made or credit given was made applicable. The issue before us is, whether the un-amended sub-section (3) which existed before introduction of amended sub- section (3) by Finance Act, 2014, will apply to assessee’s case or not. It is the case of the assessee that, since, clause (1) of sub-section (3) of section 201 is applicable to the assessee and the limitation period of two years has expired by the time the provision was amended by Finance Act, 2014, the extended period of limitation of seven years as per the amended provision will not apply. Whereas, it is the case of the Department that the amended sub-section (3) brought into the statute by Finance Act, 2014, will apply retrospectively, hence, the impugned order passed by the Assessing Officer within the period of seven years is valid. It is a fact on record that by the time the amended provisions of sub-section (3) was introduced by Finance Act, 2014, the limitation period of two years as per clause (1) of sub-section (3) of section 201 (the un-amended provision) has already expired. The learned Commissioner (Appeals) has applied the amended provision of sub­section (3) of section 201 by referring to the objects for making such amendment and on the reasoning that the said provision being a machinery provision will apply retrospectively. However, on a careful perusal of the objects for introduction of the amended provision of sub­section (3), we do not find any material to hold that the legislature intended to bring such amendment with retrospective effect. If the legislature intended to apply the amended provision of sub-section (3) retrospectively it would definitely have provided such retrospective effect expressing in clear terms while making such amendment. This view gets support from the fact that while amending sub-section (3) of section 201 by Finance Act, 2012, by extending the period of limitation under sub-clause (ii) to six years, the legislature has given it retrospective effect from 1st April 2010. Since, no such retrospective effect was given by the legislature while amending sub-section (3) by Finance Act, 2014, it has to be construed that the legislature intended the amendment made to sub-section (3) to take effect from 1st October 2014, only and not prior to that. The Hon’ble Supreme Court in Vatika Township Pvt. Ltd. (supra) while examining the principle concerning retrospectivity of an amendment brought to the statutory provisions has observed that unless a contrary intention appears, a legislation is presumed not to be intended to have retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. The Hon’ble Court observed, legislations which modified accrued rights or which impose obligations or imposes new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. It was observed, if a provision is not for the benefit of a community, but, imposes some burden or liability the presumption would be it will apply prospectively. The rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Similar view has been expressed in the case of Reliance Jute and Industries Ltd. (supra) as well as Shah Sadiq & Sons (surpa). In case of Toto Teleservices (supra), which is directly on the issue of retrospective application of the amended sub-section (3) of section 201, the Hon’ble Gujarat High Court, after extensively dealing on the issue of retrospective applicability of the provisions and applying the principles laid down by the Hon’ble Supreme Court in a number of cases, held as under :-

“15.00 Considering the law laid down by the Hon’ble Supreme Court in the aforesaid decisions, to the facts of the case on hand and more particularly considering the fact that while amending section 201 by Finance Act, 2014, it has been specifically mentioned that the same shall be applicable w.e.f. 1/10/2014 and even considering the fact that proceedings for F.Y. 2007-08 and 2008-09 had become time barred and/or for the aforesaid financial years, limitation under section 201(3)(1) of the Act had already expired on 31/3/2011 and 31/3/2012, respectively, much prior to the amendment in section 201 as amended by Finance Act, 2014 and therefore as such right has been accrued in favour of the assessee and considering the fact that wherever legislature wanted to give retrospective effect so specifically provided while amending section 201(3) (ii) of the Act as was amended by Finance Act, 2012 with retrospective effect from 1/4/2010, it is to be held that section 201(3), as amended by Finance Act No.2 of 2014 shall not be applicable retrospectively and therefore, no order under section 201(1) of the Act can be passed for which limitation had already expired prior to amended section 201(3) as amended by Finance Act No.2 of 2014. Under the circumstances, the impugned notices/summonses cannot be sustained and the same deserve to be quashed and set aside and writ of prohibition, as prayed for, deserves to be granted.”

10. Following the aforesaid decision of the Hon’ble Gujarat High Court in Troykaa Pharmaceuticals Ltd. (supro) again expressed the same view.

“7. Examining the facts of the present case in the light of the principles enunciated in the above decision, the present case relates to financial year 2008-2009. The petitioner had filed statements as required under section 200 of the Act. The limitation for initiating proceedings under section 201(1) of the Act would, therefore, be governed by section 201(3)(i) of the Act as it stood at the relevant time which provided for a period of limitation of two years from the end of the financial year in which statement was filed in a case where the statement referred to in section 200 has been filed. The limitation for initiating action under section 201(1) of the Act, therefore, elapsed on 31st March, 2012 whereas the amendment in section 201 of the Act as amended by Finance Act No. 2 of 2014 came into force with effect from 28th May, 2012. The impugned notice, therefore, is clearly barred by limitation and, therefore, cannot be sustained. For the detailed reasons recorded in the judgment and order dated 5th February, 2016 rendered in the case of Tata Teleservices v. Union of India (supra), this petition also deserves to be allowed.”

11. No contrary decision has been brought to our notice by the learned Departmental Representative. Therefore, considering the principle laid down by the Hon’ble Supreme Court in the decisions as well as the ratio laid down by the Hon’ble Gujarat High Court in the decisions referred to above which are directly on the- issue, we hold that the order passed under section 201(1) and 201(1A) having been passed after expiry of two years from the financial year wherein the TDS statements were filed by the assessee under section 200 of the Act, is barred by limitation, hence, has to be declared as null and void.

12. Before parting, we must put it on record that since we have decided the appeal on the issue of limitatior we have consciously restrained ourselves from touching upon the merits of the issue regarding applicability c section 194C of the Act which is left open to be decided if it arises in case of the assessee in any other assessment year.

13. In the result, assessee’s appeal is partly

11. In the instant case the time limit for passing order u/s 201(1) of the Act pertaining to financial year 2010-11 where a statement u/s 200 of the Act has been filed was two years from the end of the financial year in which such statement was filed. It is evident from the order of the AO that the tax statement in the relevant form i.e. Form 26Q for F.Y. 2010-11 was filed by the assessee on 13-05-2011. The time limit for passing an order u/s 201(1) of the Act was up to 31-03-2014.The assessment order was completed on 28-03-2018 by the AO beyond the prescribed time limit. The sub-section (3) of the Section 201 of the Act does not applicable in this case.

12. For the foregoing reasons we find that the assessment was made by the AO was time barred has no leg to stand and the Ld. CIT(A) has rightly allowed the appeal. The appeal of the revenue is liable to be dismissed.

13. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 14.11.2024.