Municipal Corporation Jaipur Vs DCIT (TDS) (ITAT Jaipur)
Extended TDS Limitation Cannot Revive a Time-Barred Case: ITAT Quashes Section 201 Demand
Background of the dispute
The assessee, a local authority providing civic facilities in Jaipur, underwent a TDS spot verification on 20 October 2015. Proceedings under sections 201(1) and 201(1A) for FY 2009–10 were initiated on 1 December 2016.
By an order dated 30 March 2017, the AO held that tax had been short-deducted on advertisement contracts of ₹1,61,76,589, at approximately 1.1% instead of 2%.
The AO also alleged non-deduction on contingency and agreement payments of ₹1,77,59,802 and development-work payments of ₹90,43,588.
The Corporation was treated as an assessee in default, and a total demand of approximately ₹13.20 lakh, comprising tax and interest, was raised.
First appeal provided only partial relief
The CIT(A) recorded that the limitation ground was not pressed. On merits, he sustained demands concerning advertisement expenditure and payments to ex-servicemen welfare societies.
Documents concerning other payees were not examined because the Corporation had not filed a formal application under Rule 46A. However, the demand concerning interest paid to HUDCO was deleted by applying section 194A(3)(iii)(f).
Before the Tribunal, the Corporation challenged both the surviving demand and its jurisdictional foundation. The Tribunal first condoned a one-day delay in filing the appeal, accepting the explanation supported by an affidavit.
Filed TDS statements attracted the earlier two-year limit
The Corporation produced acknowledgements and copies of quarterly TDS statements for all four quarters of FY 2009–10. The final-quarter statement had been filed on 30 May 2010, during FY 2010–11.
Under section 201(3)(i), as applicable before 1 October 2014, an order treating a deductor as an assessee in default could not be passed after two years from the end of the financial year in which the section 200 statement was filed.
For other cases, the then provision prescribed six years from the end of the financial year of payment or credit.
Since the Corporation had filed the relevant statements, the Tribunal held that its case fell under the two-year rule. The filing particulars were supported by acknowledgements and were not controverted by the Department.
Accordingly, the limitation for passing the section 201(1) order expired on 31 March 2013.
Revenue relied on the subsequently introduced seven-year period
The Finance (No. 2) Act, 2014 substituted section 201(3) with effect from 1 October 2014, prescribing seven years from the end of the financial year in which payment was made or credit given.
The Revenue argued that the order dated 30 March 2017 was within seven years from the end of FY 2009–10. It contended that the provision in force when the order was passed governed the proceedings.
The Tribunal identified the decisive question differently: could a later extension revive a case whose earlier limitation had already expired?
By 1 October 2014, the applicable two-year period had been exhausted for more than a year. The Department’s argument therefore required revival of an already time-barred jurisdiction.
Tata Teleservices prevented revival of expired limitation
The Tribunal followed Tata Teleservices v. Union of India [2016] 385 ITR 497 (Guj.).
That judgment considered cases where TDS statements had been filed and the two-year limitation expired before the 2014 amendment. The Gujarat High Court distinguished the expressly retrospective 2012 amendment from the 2014 substitution, which operated from 1 October 2014.
The later provision could not retrospectively reopen cases already barred under the earlier law.
Applying that reasoning, the Tribunal held that a right to plead limitation had accrued to the Corporation on 31 March 2013. The substituted provision contained neither express language nor a necessary implication reviving that expired period.
Although the Revenue also noted that limitation had been given up before the CIT(A), the Tribunal adjudicated the jurisdictional objection and accepted it.
Default order quashed; consequential interest fell with it
The Tribunal held that the 30 March 2017 order was time-barred and without jurisdiction. It quashed the section 201(1) order and set aside the appellate order to the extent it sustained the demand.
The section 201(1A) interest imposed through the impugned order was treated as consequential and could not survive after the default order was quashed.
The Rule 46A controversy and merits of the section 194C demands became academic. No opinion was expressed on those issues. The appeal was allowed outright.
Author’s comments
The decision underscores that extending limitation and reviving expired limitation are different legislative acts. A longer period introduced later cannot automatically restore jurisdiction already lost.
For older TDS disputes, statement-filing acknowledgements may therefore be decisive. The relevant inquiry is not simply whether an order falls within the subsequently prescribed period, but whether the earlier limitation had expired before that amendment commenced.
The interest relief should also be understood within this case: the Tribunal deleted the consequential demand accompanying the invalid default order. It did not decide every independent question concerning section 201(1A).
Finally, the Corporation succeeded on limitation, not on the correctness of its TDS rates or payment classifications. Those substantive questions remained open.
Cases Discussed
- Tata Teleservices v. Union of India, [2016] 385 ITR 497 (Gujarat High Court) — Followed. The Finance (No. 2) Act, 2014 amendment to section 201(3), effective from 01.10.2014, could not retrospectively revive TDS default proceedings whose limitation had already expired.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT JAIPUR
1. This appeal by the Assessee is directed against the order of the learned Additional/Joint Commissioner of Income Tax (Appeals), Faridabad [hereinafter referred to as “the learned CIT(A)”] dated 31.01.2026 passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), arising out of the order dated 30.03.2017 passed by the Deputy Commissioner of Income Tax (TDS), Jaipur (hereinafter referred to as “the AO”) under sections 201(1) and 201(1A) of the Act for the assessment year 2010-11.
2. There is a delay of 01 day in filing this appeal before us. The assessee has filed an application for condonation of delay supported by an affidavit explaining the reasons for the delay. Having considered the reasons set out in the application and the affidavit, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period and that the delay was neither intentional nor deliberate. Accordingly, the delay of 01 day is condoned and the appeal is admitted for hearing.
3. The grounds of appeal raised by the Assessee before us in the memorandum of appeal in Form No. 36 read as under:
1. That on the facts and in the circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) CIT(A) has erred in not considering the records and details furnished by the appellant during the appellate proceedings by rejecting the same on the technical ground that no formal application under Rule 46A of the Income-tax Rules 1962 was filed.
2. That on the facts and in the circumstances of the case and in law the Learned CIT(A) has erred in confirming the order passed by the Learned DCIT (TDS) Jaipur under section 201/201(1A) which is ex facie time barred and without jurisdiction.
3. That on the facts and in the circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) [CIT(A)] has grossly erred in upholding the action of the Learned DCIT (TDS) Jaipur in treating the appellant as an assessee in default under section 201(1) of the Income-tax Act 1961 on account of alleged short deduction of tax at source under section 194C.
4. That on the facts and in the circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) CIT(A) has grossly erred in confirming the demand created by the Learned DCIT (TDS) Jaipur without properly analyzing and appreciating the provisions of section 194C of the Income-tax Act 1961 in their correct perspective.
5. That the appellant respectfully craves leave to add alter amend modify or withdraw any ground of appeal either before or at the time of hearing as may be considered necessary.
6. The petitioner prays for justice and relief.
4. Briefly stated, the facts of the case are that the Assessee is a local authority of the Government of Rajasthan engaged in providing civic facilities in Jaipur. A TDS spot verification was conducted in the case of the Assessee on 20.10.2015. Proceedings under sections 201(1) and 201(1A) of the Act for the financial year 2009-10 were initiated by letter dated 01.12.2016. By the order dated 30.03.2017, the AO held that the Assessee had short deducted tax at source on advertisement contracts of Rs 1,61,76,589 by deducting tax at about 1.1% instead of 2%, and had not deducted tax at source on contingency and agreement payments of Rs 1,77,59,802 and on development work payments of Rs 90,43,588. The AO treated the Assessee as an assessee in default and raised a total demand of Rs 13,20,520, comprising tax of Rs 6,78,080 under section 201(1) of the Act and interest of Rs 6,42,436 under section 201(1A) of the Act.
5. In appeal, the learned CIT(A) recorded that the ground relating to limitation was not pressed. On merits, he sustained the demand relating to advertisement expenses and to payments made to ex-servicemen welfare societies, declined to look into the documentary evidence filed in respect of the other payees on the ground that no application under Rule 46A of the Income Tax Rules, 1962 had been filed, and deleted the demand relating to interest paid to HUDCO under section 194A(3)(iii)(f) of the Act. The appeal was partly allowed. Aggrieved, the Assessee is in appeal before us.
6. The learned AR submitted that the Assessee had filed the quarterly statements of tax deducted at source for all the four quarters of the financial year 2009-10, the statement for the fourth quarter having been filed on 30.05.2010, and placed the list of the acknowledgements with numbers, and dates along with copies of the said statements before us. He submitted that under section 201(3)(i) of the Act, as it stood at the relevant time, no order under section 201(1) of the Act could be passed after the expiry of two years from the end of the financial year in which the statement was filed, so that the limitation expired on 31.03.2013. He submitted that the substitution of a period of seven years by the Finance (No. 2) Act, 2014 with effect from 01.10.2014 could not revive a limitation which had already expired, and relied on the judgment of the Hon’ble Gujarat High Court in Tata Teleservices v. Union of India [2016] 385 ITR 497 (Guj.). He further submitted that once the order under section 201(1) of the Act falls, the interest under section 201(1A) of the Act, being consequential, cannot survive.
7. The learned DR supported the orders of the authorities below. He submitted that the order dated 30.03.2017 was passed within seven years from the end of the financial year 2009-10 and was therefore within the time permitted by section 201(3) of the Act as substituted by the Finance (No. 2) Act, 2014, which was the provision in force on the date of the order. He also submitted that the plea of limitation had been given up before the learned CIT(A).
8. We have heard the learned AR and the learned DR, perused the material available on record and considered the orders of the authorities below. Sub-section (3) of section 201 of the Act was inserted by the Finance (No. 2) Act, 2009 with effect from 01.04.2010 and, as amended by the Finance Act, 2012 with retrospective effect from 01.04.2010, it 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.”
9. The Finance (No. 2) Act, 2014 substituted sub-section (3) with effect from 01.10.2014, and the substituted 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 seven years from the end of the financial year in which payment is made or credit is given.”
10. The payments in question were made in the financial year 2009-10. The Assessee filed the statements of tax deducted at source under section 200 of the Act for all the four quarters of that year, the last of them on 30.05.2010, that is, in the financial year 2010-11. This fact is borne out by the acknowledgements placed before us and was not controverted by the learned DR. The case of the Assessee therefore fell within clause (i) of section 201(3) of the Act as it stood before 01.10.2014, and the period for passing an order under section 201(1) of the Act expired on 31.03.2013. Even if the case were to be treated as one falling under clause (ii), the period of six years from the end of the financial year 2009-10 expired on 31.03.2016. The proceedings in the present case were initiated only on 01.12.2016 and the order was passed on 30.03.2017. On the date on which the substituted sub-section (3) came into force, namely 01.10.2014, the period of limitation available to the AO under the provision then in force had already expired.
11. The question, therefore, is whether the period of seven years introduced with effect from 01.10.2014 can be applied to a case in which the limitation under the earlier provision had already run out before that date. This precise question was considered by the Hon’ble Gujarat High Court in Tata Teleservices (supra) in the context of the financial years 2007-08 and 2008-09, in which the statements had been filed and the two-year limitation had expired on 31.03.2011 and 31.03.2012. The Hon’ble High Court noticed that when the Finance Act, 2012 extended the period under clause (ii) from four years to six years, the amendment was expressly made retrospective from 01.04.2010, whereas the Finance (No. 2) Act, 2014 was expressly made effective from 01.10.2014. It held, at paragraph 15, as under:
“15. 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)(i) 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 a 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(i) 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.”
12. The facts of the present case are on all fours with those before the Hon’ble Gujarat High Court. The limitation under section 201(3)(i) of the Act expired on 31.03.2013, well before the substituted provision came into force on 01.10.2014, and a right to plead the bar of limitation had by then accrued to the Assessee. The substituted provision does not, by express words or by necessary implication, reach back to revive a period which had already expired.
13. In view of the above, we hold that the order dated 30.03.2017 passed by the AO under section 201(1) of the Act for the financial year 2009-10 was passed after the expiry of the period of limitation prescribed under section 201(3) of the Act and is, therefore, without jurisdiction. The order is quashed. The interest charged under section 201(1A) of the Act is consequential upon the Assessee being deemed to be an assessee in default under section 201(1) of the Act and cannot survive once the order under section 201(1) of the Act is quashed. The order of the learned CIT(A), to the extent it sustains the demand, is set aside. Ground no. 2 is allowed.
14. Since the order under sections 201(1) and 201(1A) of the Act has been quashed on the ground of limitation, ground no. 1, relating to the refusal of the learned CIT(A) to consider the evidence filed before him for want of an application under Rule 46A of the Income Tax Rules, 1962, and grounds no. 3 and 4, relating to the merits of the demand under section 194C of the Act, have become academic. We express no opinion on them and leave all contentions of both sides on those grounds open. Grounds no. 5 and 6 are general in nature and require no adjudication.
15. In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open court on 08.10.2026
