2007 (12) TMI 309 - AT - Income Tax

Assessee in default u/s 201(1)/201(1A) - TDS deduction liability u/s 194A - Non-Banking Financial Co. (NBFC) - Jurisdiction while passing the order under section 201(1)/201(1A) - HELD THAT - We are unable to agree with this contention of the learned counsel. As per section 201(1) before amendment by Finance Act 2002 if any such person fails to deduct or after deducting fails to pay the tax as required by Income-tax Act he shall be deemed to be an assessee in default in respect of the tax. Any such person means the person who is required to deduct the tax at source as per the provisions of sections 192 to 196D of the Act. Therefore in our opinion even prior to amendment by Finance Act 2002 in section 201(1) if the assessee fails to deduct the tax as required by the Income-tax Act or after deducting fails to pay the tax as required by section 200 of the Act he can be treated to be the assessee in default in respect of such tax under section 201(1) of the Act. In our opinion the jurisdiction of each TDS authority is restricted to the territorial area allotted to him by the Chief Commissioner or the Commissioner of Income-tax who has designated him the TDS Officer. Thus the second limb of argument of the assessee s counsel is accepted and the order of the ITO (TDS) Kolkata so far it pertained to payments made outside his territorial jurisdiction is vacated . Failure to deduct TDS - We find that the ITO (TDS) in the order under consideration has not given a specific finding based on material particulars about the violation of section 194A. His finding is based upon presumption. He has not given the names of the persons and the interest paid to them on which the assessee has failed to deduct the tax. In this case originally the ITO (TDS) vide his order dated 24-6-1996 held the assessee to be in default for not deducting the tax from interest paid to deposit holders on presumption and worked out assessee s liability on estimated basis. The matter was set aside by the ITAT. However in the order giving effect to the order of the ITAT again the ITO (TDS) has worked out the assessee s liability of TDS on the basis of estimate and presumption. Without giving the particulars with regard to the name of the person and the interest paid to him in our opinion the assessee cannot be held to have violated the provisions of section 194A merely on the basis of presumption and suspicion. It has been contended by the Ld. DR that the assessee has not furnished the required particulars despite number of opportunities having been allowed by the ITO (TDS). In contrast it has been explained by the assessee s learned counsel that the complete particulars relating to Head Office and 7 branches falling within the territorial jurisdiction of the concerned ITO (TDS) have been furnished. Without going to the controversy whether the assessee has furnished the required particulars or not in our opinion even if the assessee has not furnished the details or necessary particulars the ITO (TDS) can take necessary steps to ensure the furnishing of particulars and can also penalize the assessee in accordance with law if the assessee failed to comply with the notices issued by him. However the absence of particulars will not authorize him to presume the default of the assessee under section 194A so as to entitle him to take action under section 201(1) and 201(1A) of the Act. The assessment year involved is 1994-95 ( i.e. relating to financial year 1993-94) which is more than 13 years old. Thus in our considered opinion there is no justification for setting aside the matter again to the file of the ITO (TDS) for second time. Considering the totality of the facts and circumstances of the case we hold that ITO (TDS) was not justified in holding the assessee to be in default under section 201(1) of the Act for financial year 1993-94 i.e. relating to AY 1994-95. Accordingly the order passed under section 201(1) for AY 1994-95 is cancelled. Consequentially the order levying interest thereon under section 201(1A) of the Act is also cancelled. In the result appeal by the assessee is allowed and that by the revenue is dismissed.

Summary

Issues Involved:
1. Non-deduction of tax at source (TDS) under section 201(1).
2. Consequential interest charged under section 201(1A).
3. Jurisdiction of the Income Tax Officer (TDS) over various branches of the assessee.
4. Validity of the order in the second round of litigation.
5. Specificity of the default instances under section 194A.

Detailed Analysis:

1. Non-deduction of Tax at Source (TDS) under Section 201(1):
The primary issue in these cross appeals is whether the assessee is in default under section 201(1) for not deducting tax from the interest paid to deposit-holders. The Income Tax Officer (TDS) initially held the assessee liable for a TDS amount of Rs. 1,46,66,910 and consequential interest of Rs. 58,66,760. Upon reassessment, the liability was revised to Rs. 1,34,44,122 with interest of Rs. 70,58,153.

2. Consequential Interest Charged under Section 201(1A):
The CIT(A) upheld the order of the ITO (TDS) under section 201(1) but reduced the interest period from 42 months to 36 months. Both parties appealed against this decision.

3. Jurisdiction of the Income Tax Officer (TDS) Over Various Branches of the Assessee:
The assessee argued that the ITO (TDS), Kolkata, only had jurisdiction over the Head Office and seven branches within his territorial jurisdiction. The ITO (TDS) could not hold the assessee in default for interest payments made by branches outside his jurisdiction. The Tribunal accepted this argument, stating that the ITO (TDS), Kolkata, should restrict his order to the transactions within his jurisdiction.

4. Validity of the Order in the Second Round of Litigation:
The assessee raised a new ground in the second round of appeal, arguing that since the financial year under consideration was prior to 1-6-2002, the assessee could not be directed to pay the TDS under section 201(1) along with interest under section 201(1A). The Tribunal allowed this new ground, referencing the Hon'ble Gujarat High Court's decision in P.V. Doshi v. CIT, which permits raising jurisdictional issues in the second round of litigation.

5. Specificity of the Default Instances under Section 194A:
The assessee contended that the ITO (TDS) had not identified any specific instances where the interest paid exceeded the limit prescribed under section 194A. The ITO (TDS) had presumed the default and estimated the TDS liability without providing specific details. The Tribunal agreed with the assessee, stating that without specific findings and names of the persons to whom interest was paid, the assessee could not be held in default based on presumptions.

Conclusion:
The Tribunal concluded that the ITO (TDS) was not justified in holding the assessee in default under section 201(1) for the financial year 1993-94. Consequently, the order under section 201(1) and the interest levied under section 201(1A) were cancelled. The appeal by the assessee was allowed, and the appeal by the revenue was dismissed.