Validity of Section 234E Fees of Rs. 200 per day for delay prior to 01st June 2015

Background-:

1 You would be aware of section 234E, whereby a fee is payable at the rate of Rs. 200 per day of delay in filing of return of TDS.

2 Honourable Bombay High Court, in the case of Rashmikant Kundalia and another [1] dated February 2015, has upheld the constitutional validity of the said section.

3 Recently, two ITAT judgements have been pronounced on the operational part of section 234E

–Sibia Healthcare Private Limited v DCIT [2] – referred to as Amritsar ITAT

-Smt. G. Indhirani v DCIT [3] referred to as Chennai ITAT

4 After these judgements, there were discussions on operational efficiency of the section 234E, and some people believe that, any fees u/s 234E is payable only after a period of 1-Jun-2015.

Why This Article-:

5 Let’s see the precise question before the benches and what they have answered.

6 This article is based on information / updation upto July 15, 2015.

Issue before the ITAT

7 The controversy before the benches was somewhat same.

Chennai ITAT

8 The only issue arises for consideration is with regard to levy of fee under Section 234E of the ITA, 1961 while processing the statement furnished by the assessees under Section 200A of the Act.

Amritsar ITAT

9 By way of this appeal, the assessee has called into question correctness of the order dated 13th October 2014 passed by the learned CIT(A) upholding levy of fees, under section 234 E of the Income Tax Act, 1961, on the assessee and by way of intimation dated 11th January 2014 issued under section 200A in respect of processing of TDS statements the third quarter of the financial year 2012-13.

10 If one reads carefully, the issue was revolving around recovery of fee u/s 234E by operation of section 200A. There is no mention of any other section for recovery of fee u/s 234E.

Answer

11 The fee can be recovered by passing an order u/s 200(3) before 1-Jun-2015 and under 200(3) or u/s 200A on or after 1-Jun-2015

Relevant sections-:

12 Amritsar Bench has, in para 5 to 7 re-produced the relevant sections in a para phrased manner and including the journey of respective sections i.e. how the section has been evolved over a period of time.

5. We may produce, for ready reference, section 234E of the Act, which was inserted by the Finance Act 2012 and was brought into effect from 1st July 2012.

This statutory provision is as follows:

234E. Fee for defaults in furnishing statements

(1) Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of section 200 or the proviso to subsection (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues.

(2) The amount of fee referred to in sub-section (1) shall not exceed the amount of tax deductible or collectible, as the case may be.

(3) The amount of fee referred to in sub-section (1) shall be paid before delivering or causing to be delivered a statement in accordance with sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C.

(4) The provisions of this section shall apply 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

6 . We may also reproduce the Section 200A which was inserted by the Finance Act 2009 with effect from 1st April 2010. This statutory provision, as it stood at the relevant point of time, was as follows:

200A: Processing of statements of tax deducted at source

(1) Where a statement of tax deduction at source, or a correction statement, has been made by a person deducting any sum (hereafter referred to in this section as deductor) under section 200, such statement shall be processed in the following manner, namely:—

(a) the sums deductible under this Chapter shall be computed after making the following adjustments, namely:—

(i) any arithmetical error in the statement; or

(ii) an incorrect claim, apparent from any information in the statement;

(b) the interest, if any, shall be computed on the basis of the sums deductible as computed in the statement;

(c) the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of amount computed under clause (b) against any amount paid under section 200 and section 201, and any amount paid otherwise by way of tax or interest;

(d) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (c); and

(e) the amount of refund due to the deductor in pursuance of the determination under clause (c) shall be granted to the deductor:

Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed.

Explanation : For the purposes of this sub-section, “an incorrect claim apparent from any information in the statement” shall mean a claim, on the basis of an entry, in the statement—

(i) of an item, which is inconsistent with another entry of the same or some other item in such statement;

(ii) in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of this Act;

(2) For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of statements of tax deducted at source to expeditiously determine the tax payable by, or the refund due to, the deductor as required under the said subsection.

7. By way of Finance Act 2015, and with effect from 1st June 2015, there is an amendment in Section 200A and this amendment, as stated in the Finance Act 2015, is as follows:

In section 200A of the Income-tax Act, in sub-section (1), for clauses (c) to (e), the following clauses shall be substituted with effect from the 1st day of June, 2015, namely:—

“(c) the fee, if any, shall be computed in accordance with the provisions of section 234E;

(d) the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of the amount computed under clause (b) and clause (c) against any amount paid under section 200 or section 201 or section 234E and any amount paid otherwise by way of tax or interest or fee;

(e) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (d); and (f) the amount of refund due to the deductor in pursuance of the determination under clause (d) shall be granted to the deductor.

– Section 200A(1)(a)

(a). after making adjustment on account of “arithmetical errors” and “incorrect claims apparent from any information in he statement”

– Section 200A(1)(b)

(b). after making adjustment for ‘interest, if any, computed on the basis of sums deductible as computed in the statement”.

13. Operating portion from Amritsar ITAT order.

10. In view of the above discussions, in our considered view, the adjustment in respect of levy of fees under section 234E was indeed beyond the scope of permissible adjustments contemplated under section 200A…………The issue is whether such a levy could be effected in the course of intimation under section 200A. The answer is clearly in negative. No other provision enabling a demand in respect of this levy has been pointed out to us and it is thus an admitted position that in the absence of the enabling provision under section 200A, no such levy could be effected. As intimation under section 200A, raising a demand or directing a refund to the tax deductor, can only be passed within one year from the end of the financial year within which the related TDS statement is filed, and as the related TDS statement was filed on 19th February 2014, such a levy could only have been made at best within 31st March 2015. That time has already elapsed and the defect is thus not curable even at this stage. In view of these discussions, bearing in mind entirety of the case, the impugned levy of fees under section 234E is unsustainable in law. We, therefore, uphold the grievance of the assessee and delete the impugned levy of fee under section 234E of the Act.

14. Operating portion from Chennai ITAT order- In para 7, the Chennai ITAT has come to the same conclusion in following words

Therefore, it is obvious that prior to 01.06.2015, there was no enabling provision in Section 200A of the Act for making adjustment in respect of the statement filed by the assessee with regard to tax deducted at source by levying fee under Section 234E of the Act.

First Conclusion

15. Both the ITAT has come to a conclusion that, recovery u/s 200A before 1-Jun-2015 of fee u/s 234E is not possible. This answer is to question u/s 200A.

Observations of Chennai ITAT regarding other modes of recovery-:

16 Para 8 contains following observation

When Section 234E clearly says that the assessee is liable to pay fee for the delay in delivery of the statement with regard to tax deducted at source, the assessee shall pay the fee as provided under Section 234E(1) of the Act before delivery of the statement under Section 200(3) of the Act. If the assessee fails to pay the fee for the periods of delay, then the assessing authority has all the powers to levy fee while processing the statement under Section 200A of the Act by making adjustment after 01.06.2015. However, prior to 01.06.2015, the Assessing Officer had every authority to pass an order separately levying fee under Section 234E of the Act. What is not permissible is that levy of fee under Section 234E of the Act while processing the statement of tax deducted at source and making adjustment before 01.06.2015. It does not mean that the Assessing Officer cannot pass a separate order under Section 234E of the Act levying fee for the delay in filing the statement as required under Section 200(3) of the Act.

17 In para 9, Chennai ITAT while explaining the above argument has compared sections 396 and 408 of the Indian Penal Code (!!!!)

18 Para 10 of the Chennai ITAT reads as follows

10. It is well known principle that the fine prescribed under the Indian Penal Code has to be levied by the concerned Magistrate or Sessions Judge who is trying the offence punishable under the Indian Penal Code. Therefore, the contention of the Ld.counsel that merely because the Parliament has used the language “he shall be liable to pay by way of fee”, the assessee has to pay the fee voluntarily and the Assessing Officer has no authority to levy fee could not be accepted. No one would come forward to pay the fee voluntarily unless there is a compulsion under the statutory provision. The Parliament welcomes the citizens to come forward and comply with the provisions of the Act by paying the prescribed fee before filing the statement under Section 200(3) of the Act. However, if the assessee fails to pay the fee before filing the statement under Section 200(3) of the Act, the assessing authority is well within his limit in passing a separate order levying such a fee in addition to processing the statement under Section 200A of the Act. In other words, before 01.06.2015, the assessing authority could pass a separate order under Section 234E levying fee for delay in filing the statement under Section 200(3) of the Act. However, after 01.06.2015, the assessing authority is well within his limit to levy fee under Section 234E of the Act even while processing the statement under Section 200A and making adjustment.

References

1. Bombay High Court in the case of Mr Rashmikant Kundalia and another v UOI WP No. 771 of 2014 dt 6-Feb-2015

2. ITAT, Amritsar in the case of Sibia Healthcare Private Limited v DCIT (TDS), Gaziabad I.T.A. No.90/Asr /2015 dated 9-Jun-2015

3. ITAT A Bench, Chennai in the case of Smt. G. Indhirani, M/s Rajaguru Spinning Mills Ltd., Shri A. Dhakshinamurthy, M/s Padma Textiles, M/s Murthy Lungi Company, on one side v DCIT, CPC, (TDS), Gaziabad dt 10-July-2015