Advocate Akhilesh Kumar Sah
Vodafone Cellular recent appeal: No order under section 201(1) of the Act shall be passed after expiry of the limitation period treating assessee-in-default for non-deduction of tax at source
In Vodafone Cellular Ltd., (Formerly known as Vodafone Essar Cellular Ltd.) vs. DCIT [ITA No.1961/PUN/2013 A.Y. 2009-10, decided on 12.03.2018], one ground was raised that on the facts and circumstances of the case and in law, the order passed by the TDS Officer for F.Y. 2008-09, is bad in law and void-ab-initio since the order has been passed beyond the limitation period specified under section 201(3) of the Income Tax Act, 1961(the Act), for passing an order treating a person as an assessee-in-default for non-deduction of tax at source under the Act.
Briefly, in the facts of the case, survey under section 133A of the Act was conducted on 23.04.2008 for verification of compliance of TDS provisions for A.Y.s 2007-08 and 2008-09. The order under section 201(1) and 201(1A) of the Act was passed creating demand in the aforesaid assessment years. In assessment years 2009-10 and 2010-11, the said issue was taken up for verification. The assessee was engaged in business of providing cellular mobile phone services for Maharashtra and Goa Circles excluding Mumbai. The assessee was providing both prepaid and postpaid services. During the course of verification, it was noted that the assessee was paying commission to all dealers except distributors. The explanation of assessee was that sale to the distributors was at MRP less trading margin and there was no commission being paid. The Assessing Officer(AO) however, held the assessee to be in default for not deducting tax at source out of discount allowed to the distributors, which fell within provisions of section 194H of the Act. The AO raised demand under section 201(1) of the Act and also charged interest under section 201(1A) of the Act, which was confirmed by the CIT(A).
On appeal before ITAT, Pune, the learned Members heard the rival contentions and perused the record. It was observed that the assessee is aggrieved by the order passed under section 201(1) of the Act and interest charged under section 201(1A) of the Act by the AO in respect of first three quarters falling within F.Y. 2008-09. The case of assessee is that the said order had to be passed upto 31.03.2011 but has been passed on 15.03.2012 and is beyond the limit prescribed in section 201(3) of the Act at the relevant time. The order for the fourth quarter was also passed on 15.03.2012 but the assessee has no grievance against the same.
At the relevant period in question, under the provisions of section 201(1) of the Act, it was provided that where any person who is required to deduct any sum in accordance with the provisions of the Act or being an employer referred to in sub-section (1A) of section 192 of the Act, does not deduct or does not pay or after so deducting fails to pay, the whole or any part of tax as required under the Act; then such person is deemed to be the assessee in default in respect of such tax. Section 201(3) of the Act provides the time limit within which the order deeming the person to be an assessee in default has to be passed. At the relevant time, sub-section (3) as amended by the Finance Act, 2012 with retrospective effect from 01.04.2010 read 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 filed;
(ii) six 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.”
The scheme of the Act provided that no order under section 201(1) of the Act shall be passed after expiry of two years from the end of financial year in which TDS statement had been filed. The assessee in the present case had filed the first TDS return for the first quarter on 19.07.2008, for the second quarter on 15.09.2008 and for the third quarter on 15.01.2009 i.e. returns were filed in the F.Y. 2008-09, hence the order under section 201(1) of the Act had to be passed upto 31.03.2011. However, the AO passed order on 15.03.2012 i.e. beyond the period prescribed in section 201(3) of the Act at the relevant time. The said section has been amended by Finance (No.2) Act, 2014 w.e.f. 01.10.2014 and the time limit provided in section 201(3) of the Act is now increased to seven years. The Memo explaining the provisions relating to Direct Taxes has clarified the earlier position of section 201(3) of the Act and it is provided that clause (1) of section 201(3) of the Act provided that no order under section 201(1) of the Act shall be passed after the expiry of two years from the end of financial year in which TDS statement had been filed. Then, it refers to processing of TDS statement and the computerized environment and TDS defaults in respect of transactions not reported in TDS statements and hence, it was proposed to omit clause (1) of section 201(3) of the Act, which provided time limit of two years for passing the order under section 201(1) of the Act for cases in which TDS statements had been filed. The present section 201(3) of the Act provides the limit for passing the order to be within seven years from the end of financial year in which the payment was made or credit was given. The learned Members of the Pune, ITAT held that the order passed by the AO raising the demand under section 201(1) of the Act is beyond the limit provided in sub-section (3) of the Act for quarter Nos.1 to 3. However, the return for quarter No.4 was filed on 15.06.2009 i.e. in F.Y. 2009-10 and the order raising the demand under section 201(1) of the Act is passed on 15.03.2012 i.e. before expiry of two years from the end of financial year in which TDS return was filed and hence, the same has been filed within time. Direction was given to the AO to delete the demand raised for quarter Nos.1 to 3 and sustain the demand for quarter No.4. However, under section 201(3) of the Act, no limit was provided for passing order charging interest under section 201(1A) of the Act, hence the assessee was liable to pay interest under section 201(1A) of the Act and the said order of AO was upheld. The appeal was partly allowed.