Section 234E Late fee cannot be levied without machinery provision of section 200A

Kooud Software Pvt. Ltd. Vs DCIT (ITAT Bangalore)

Facts- The assessee is a private limited company. AO has passed the orders u/s 200A(1) the Act levying late fee towards the delay in filing the TDS returns u/s 234(E) of the Act for the A.Y. 2013-14 & 2014-15.

Conclusion- On the basis of the decision of hon’ble Karnataka High Court in the case of Shri Fatheraj Singhvi Vs. Union of India, it was held that fee u/s 234E cannot be levied without machinery provision of section 200A.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

The assessee has filed these appeals challenging the order of the CIT(A) NFAC dated 13/08/2021 for the asst. year 2013-14 and 2014­15. All these appeals were bunched together, heard together and hence they are being disposed of by this common order for the sake of convenience.

2. There is a delay in filing these appeals before the Tribunal and the assessee has filed condonation petition in this regard. The order of the CIT(A) was received on 13/08/2021 and the assessee filed the appeal before the Tribunal on 05/01/2022 whereby there is a delay by 84 days in filing the appeal before the Tribunal. We have considered this matter and have taken the materials on record to admit the petition filed for condonation of delay. The Hon’ble Supreme Court suo moto writ petition No.03/2020 along with M.P 21/2022 has held that the period from 15/3/2020 till 28/02/2022 shall stand excluded for the purpose of period of limitation as may be prescribed under any general or special laws in respect of quasi judicial and judicial proceedings. The period of delay (from 12/10/2021 to 05/01/2022) in assessee’s case is covered by the exclusion of period of limitation as per the order of the Hon’ble Supreme Court. Hence we hold that there is no delay to be condoned in filing these appeals and the appeals are deemed to be filed in time for further adjudication.

3. Brief facts of the case are that the assessee is a private limited company. The DCIT, CPC, Bangalore (AO) has passed the orders u/s 200A(1) the Act levying late fee towards the delay in filing the TDS returns u/s 234(E) of the Act for the asst. year 2013-14 & 2014-15. The details of the orders passed by the AO for the above asst. years are as given below:-

4. Aggrieved by the orders of the AO, the assessee filed an appeal before the CIT(A) contending that prior to 1^st June, 2015, there was no enabling provision for payment and levy of fee u/s 234E of the Act. The CIT(A) confirmed the orders of the AO by relying on the judgment of the Gujarat High Court in the case of Rajesh Kourani Vs. Union of India (2017) 85 com 13,7 wherein the Hon’ble High Court has held that sec. 234E is a charging provision creating a charge for levying fee for certain defaults in filing statements and the fee would be levied even without a regulatory provision being found in sec. 200A for computation of fees.

5. Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal.

6. The ld.AR submitted that the lower authorities have ignored the fact that prior to 1^st June, 2015, there was no enabling provision for payment and levy of fee u/s 234E of the Act. The ld.AR also submitted that Sec.200A which on the relevant point of time permitted computation of amount recoverable from or payable to the tax deductor after making the following adjustments :-

1) Adjustment on account of arithmetic error or for correct claims apparent from information in the statement

2) Adjustment of sums taxable as computed in the statement.

The ld.AR further submitted that no other adjustment in the amount refundable to or recoverable from the tax deducted were permissible to in accordance with the law as it existed prior to 1^st June, 2015 thereby the enabling provision for levy of fees u/s 234E cannot be used without the machinery provision (sec. 200A).

8. The ld.DR supported the decisions of the lower authorities.

9. We have heard rival submissions and perused the materials on record. We noticed that the Hon’ble Karnataka High Court in the case of Shri Fatheraj Singhvi Vs. Union of India citation has dealt with similar issue wherein the Hon’ble High Court has allowed the appeal in favour of the assessee. The Hon’ble High Court while rendering the decision held that

“17. The examination of the aforesaid contentions show that, Section 234E has come into force on 1.7.2012. Therefore, one may at the first blush say that, since Section 234E is a charging section of fee, the liability was generated or had accrued, if there was failure to deliver or cause to be delivered the statement/s of TDS within the prescribed time. But, in our view, Section 234E cannot be read in isolation and is required to be read with the mechanism and the mode provided for its enforcement. As observed by us hereinabove, when Section 234E was inserted in the Act simultaneously, Section 271H was also inserted in the Act providing for the penalty for failure of furnishing of statements etc. Therefore, if there was failure to submit the statement for TDS as per Section 234E, the fee payable is provided but the mechanism provided was that if there was failure to furnish statements within the prescribed date, the penalty under Section 271H (1) and (2) could be imposed. However, under sub-section (3) of Section 271H, the exception is provided that no penalty shall be levied for the failure referred to under clause (a) of sub­section (1) if the person proves that after paying TDS with the fee and interest the amount is credited and he had delivered or caused to deliver the statement within one year from the time prescribed for submission of the said statement. To put it in other words, for failure to submit the statements, the penalty provided under Section 271(1)(a) cannot he imposed if the deductor complies with the requirement of sub-section (3) of Section 271H. Hence, it can be said that the fee provided under Section 234E would take out from the rigors of penalty under Section 271H but of course subject to the outer limit of one year as prescribed under sub-section (3) of Section 271H. It can also be said that when the Parliament intended to insert the provisions of Section 234E providing for fee simultaneously the utility of such fee was for conferring the privilege to the defaulter deductor to come out from the rigors of penal provision of Section 271H. Be it recorded that, prior to Section 271H of the Act inserted in the statute book, the enforceability of requirement to file return under Section 200(3) and Section 206C(3) was by virtue of Section 272A(2)(k) of the Act which provided for the penalty of Rs. 100/ – per day for each day of default in filing TDS statements. But, when Section 234E was inserted with effect from 17.2012 simultaneously, a second proviso was added under Section 272A(2) with effect from 1.7.20 12 as under:

“Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc.

272A. (1) xxxx

(2) If any person fails—

(a) to comply with a notice issued under sub-section (6) of section 94; or

(b) to give the notice of discontinuance of his business or profession as required by sub-section (3) of section 176; or

(c) to furnish in due time any of the returns, statements or particulars mentioned in section 133 or section 206 or section 206C or section 28513; or

(d) to allow inspection of any register referred to in section 134 or of any entry in such register or to allow copies of such register or of any entry therein to be taken; or

(e) to furnish the return of income which he is required to furnish under sub-section (4A) or sub-section (4C) of section 139 or to furnish it within the time allowed and in the manner required under those sub-sections; or

(f) to deliver or cause to be delivered in due time a copy of the declaration mentioned in section 197A; or

(g) to furnish a certificate as required by section 203 or section 206C; or

(h) to deduct and pay tax as required by sub-section (2) of section 226;

(i) to furnish a statement as required by sub-section (2C) of section 192;

(j) to deliver or cause to be delivered in due time a copy of the declaration referred to in sub-section (1A) of section 206C;

(k) to deliver or cause to be delivered a copy of the statement within the time specified in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C;

(1) to deliver or cause to be delivered the statements within the time specified in sub-section(1) of section 206A;

[(m) to deliver or cause to be delivered a statement within the time as may be prescribed under sub-section (2A) of section 200 or sub-section (3A) of section 206C,] he shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues:

Provided that the amount of penalty for failures in relation to a declaration mentioned in section 197A, a certificate as required by section 203 and returns under sections 206 and 206C and 71 [statements under sub-section (2A) or subsection (3) of section 200 or the proviso to sub­section (3) or under sub-section (3A) of section 206C] shall not exceed the amount of tax deductible or collectible, as the case may be:

Provided further that no penalty shall be levied under this section for the failure referred to in clause (k), if such failure relates to a statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012.

Xxxxxxxxxx”

18. The aforesaid shows that in the clause (k) if the said failure relates to a statement referred to in sub-section (3) of Section 200 or the sub-section (3) of Section 206C, no penalty shall be imposed for TDS after, 101.0 7.2012.

19. Hence, it can he said that, the mechanism provided for enforceability of Section 200(3) or 206C (3) for filing of the statement by making it penal under Section 272A (2) (k) is done away in view of the insertion of Section 271H providing for penal provision for such failure to submit return. When the Parliament has simultaneously brought about Section 234E, Section 271H and the aforesaid proviso to Section 272A(2), it can be said that, the fee provided under Section 234E is contemplated to give a privilege to the defaulter to come out from the rigors of penalty provision under Section 271H (1) (a) if he pays the fee within one year and complies with the requirement of sub-section (3) of Section 271H.

20. 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.

21 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 1.6.20 15 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 3ecticn. 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.

22. It is hardly required to be stated that, as per the well established principles of interpretation of stature, 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 (1) of sub-section (1) of Section 200A can be read as having prospective effect and not having retroactive character of 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.

23. 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 he said as illegal and invalid.

24. 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 respondent-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. “

10. We respectfully following the binding decision of the jurisdictional High Court in the case of Shri Fatheraj Singhvi (Supra) hold that the fee u/s. 234E cannot be levied without machinery provision of sec. 200A. The appeal therefore is allowed in favour of the assessee.

11. In the result, appeal of the assessee is allowed.

Order pronounced in court on 25^th day of March, 2022