2025 (7) TMI 513 - AT - Income Tax

Default u/s 234E - late fees are due but not deposited along with the TDS statement - Scope of provisions of section 200A(2) - words tax payable or refund due appearing in sub-section (2) of section 200A - Power of CPC to levy fee and interest in case of Centralised Processing of returns HELD THAT - Section 143(1A) provides for determining the tax payable or refund due but in the scheme of Centralised processing of returns 2011 at clause 8(1)(a) use the words the sum payable to or the amount of refund due . It means that in section 143(1A) the words mentioned is determining the tax payable but in the scheme it is mentioned the sum payable to . Therefore in the income-tax returns processed by CPC interest is also charged. Now in the scheme for processing of TDS returns by CPC Point No.5 relates to processing of statements. It only talks about the manner specified in sub-section (1) of section 200A and it has not used the words either tax payable or sum payable . In sofaras the income-tax returns processed by CPC are concerned in the scheme itself the words mentioned are the sum payable to . Therefore the sum includes tax as well as interest but in the case of TDS returns processed by CPC firstly in the scheme it did not use the words either tax payable or refund due but only refers to sub-section (1) of section 200A which provides for any sum payable by the assessee which may include the short deposit of TDS non deposit of TDS any arithmetical error or incorrect claim interest if any for delay in deposit of TDS and levy of fee u/s. 234E of the Act for delay in filing the TDS return. Assessee has harped upon the words tax payable appearing in section 200A(2) of the Act and has again and again stressed upon that if the words sum payable has been mentioned in place of the word of tax payable then CPC would have been empowered to levy fee u/s. 234E and interest u/s. 201. Referring to Rashmikant Kundalia vs Union of India 2015 (2) TMI 412 - BOMBAY HIGH COURT and going through the provisions of section 200A in totality we find that so far as subsection (1) of section 200A of the Act there is no dispute as it provides the mechanism for processing the TDS returns/statements. Sub-section (2) of section 200A gives the powers to Board to make a Scheme for Centralised Processing of statements. For online processing the statements of TDS by CPC the intent is that the work which the Assessing Officers were previously carrying out to process the TDS returns having jurisdiction over the particular Circle/Ward can be carried out by the Centralised Processing Cell in a more fast and effective manner and for such ease of processing the TDS statements subsection (2) of section 200A gives the power to the Board to frame the Scheme for Centralised Processing of statements. Since specific sub-section is already introduced in the Act i.e. section 200A(2) and the CPC formed by Board is required to process the return as per section 200A(1) of the Act the words tax payable actually connotes sum payable and therefore CPC is well within its jurisdiction to levy late fee u/s. 234E for the delay in filing the quarterly returns of TDS by the assessee as well as interest u/s. 201 of the Act and therefore the legal issue raised in the grounds of appeal raised by the assessee stands dismissed.

Summary

The core legal questions considered by the Tribunal revolve around the validity and scope of the levy of late fees under section 234E of the Income Tax Act, 1961 ("the Act") in the context of processing Tax Deducted at Source (TDS) returns by the Centralised Processing Cell (CPC) under section 200A of the Act. Specifically, the issues include: (1) whether the CPC has jurisdiction under section 200A(2) to determine and levy late fees and interest for delay in filing TDS returns; (2) the interpretation of the phrase "tax payable or refund due" in section 200A(2) and whether it encompasses interest and late fees; (3) the legality of recovery of late fees after acceptance of TDS statements without such fees; (4) whether a deductor can be treated as an assessee in default under section 201(1) for non-payment of late fees; (5) the constitutional validity of section 234E and the scheme framed under section 200A(2); and (6) the condonation of delay in filing appeals by the appellants.

The Tribunal first addressed the procedural issue of condonation of delay in filing appeals. Both appellants had delayed filing their appeals by 160 days and 75 days respectively, citing compassionate grounds such as the illness and demise of their respective consultants. The Departmental Representative opposed condonation, but the Tribunal, relying on Supreme Court precedents, adopted a liberal approach emphasizing that justice is better served by deciding cases on merits rather than on technical grounds of limitation. The Tribunal found the reasons for delay bona fide and unintentional, and accordingly condoned the delays, admitting the appeals for adjudication.

Turning to the substantive issues, the appellants challenged the jurisdiction of the CPC to levy late fees and interest under section 234E while processing TDS returns under section 200A. The appellants' primary contention was that section 200A(2) empowers the Central Board of Direct Taxes (CBDT) only to formulate a scheme for centralized processing of statements to determine "tax payable or refund due," and that the terms "tax" and "interest/late fees" are distinct and separate under the Act. They argued that since the scheme framed under section 200A(2) is limited to tax determination, the CPC cannot be empowered to impose late fees or interest, which are not part of "tax." They relied on the legal maxim "Nemo dat quod non habet" (no one can give what they do not have) to assert that CBDT cannot delegate powers it does not possess. The appellants cited various judicial precedents distinguishing tax from interest and fees, and contended that the levy of late fees under section 234E must be made by the jurisdictional Assessing Officer and not by the CPC. They also submitted that the acceptance of TDS statements without late fees precludes recovery of such fees later, and that a deductor cannot be treated as an assessee in default under section 201(1) for non-payment of late fees. Further, they contended that the scheme framed under section 200A(2) does not explicitly empower the CPC to levy late fees or interest, and hence any demand based on such justification reports is without jurisdiction and liable to be quashed.

On the other hand, the Revenue defended the validity of the levy and the powers of the CPC. It was submitted that section 234E is a substantive charging provision imposing a fee for delay in furnishing TDS statements, and section 200A is a machinery provision enabling centralized processing and recovery of such fees. The Revenue contended that the scheme framed under section 200A(2) necessarily contemplates the computation of all sums payable, including interest and late fees, to correctly determine the net amount payable or refundable. The Revenue relied on judicial pronouncements upholding the constitutional validity of section 234E and the levy of fees by CPC, including decisions of the Hon'ble Bombay High Court and the Pune Bench of the ITAT. It was emphasized that the CPC (TDS) was established to streamline and expedite processing of TDS returns and related demands, and that the appellants' interpretation would render the scheme unworkable and frustrate legislative intent. The Revenue also highlighted that the scheme and relevant notifications explicitly authorize the CPC to compute interest and late fees under sections 201(1A) and 234E respectively, and that the term "tax payable" in section 200A(2) must be read in conjunction with subsection (1), which includes computation of interest and fees, thus encompassing all sums payable by the deductor.

The Tribunal examined the statutory provisions in detail. Section 200A(1) prescribes the manner of processing TDS statements, including the computation of sums deductible, interest, fees under section 234E, and determination of sums payable or refundable. Section 200A(2) empowers the CBDT to formulate a scheme for centralized processing to expeditiously determine the tax payable or refund due. The Tribunal noted that while subsection (2) mentions "tax payable or refund due," it expressly refers to processing as per subsection (1), which includes interest and fees. The Tribunal observed that the phrase "tax payable" in subsection (2) must be read in the context of the entire section and the scheme framed thereunder, which authorizes the CPC to compute all sums payable, including late fees and interest, to correctly determine the net liability or refund.

The Tribunal also considered the analogous scheme framed under section 143(1A) for centralized processing of income tax returns, where the scheme uses the phrase "sum payable or refund due," which clearly includes interest and other amounts beyond mere tax. The Tribunal found that the scheme under section 200A(2) for TDS statements similarly contemplates the CPC performing computations necessary for correct determination of sums payable, including late fees and interest. The Tribunal rejected the appellants' narrow interpretation that the CPC's powers are limited only to tax and refund, holding that such an interpretation would frustrate the legislative intent of efficient and centralized processing.

Regarding the contention that late fees under section 234E must be paid before filing the TDS statement and cannot be recovered subsequently, the Tribunal noted that the statutory provisions and judicial decisions have upheld the levy and recovery of late fees by CPC during processing. The Tribunal observed that section 234E is a charging provision creating a liability for delay in furnishing statements, and section 200A(1)(c) specifically provides for computation of fees under section 234E during processing. The Tribunal also referred to judicial precedents holding that the fee under section 234E is not punitive but compensatory for the extra work burden caused by late filing, and that the legislative scheme permits recovery through CPC processing.

The Tribunal further considered the constitutional validity of section 234E and the scheme framed under section 200A(2). It relied on authoritative High Court decisions upholding the constitutionality of section 234E as a valid legislative measure to ensure timely filing of TDS returns and to compensate the department for additional work caused by delay. The Tribunal emphasized the principle of judicial restraint in declaring statutes unconstitutional and noted that the statute relates to economic regulation, warranting a broader latitude to the legislature. The Tribunal found no merit in the constitutional challenge to the levy or the CPC's powers.

In conclusion, the Tribunal held that the CPC, constituted under the scheme framed by the CBDT under section 200A(2), is empowered to process TDS statements including determination and levy of late fees under section 234E and interest for delay in deposit of TDS. The words "tax payable or refund due" in section 200A(2) must be read in conjunction with subsection (1), which includes computation of interest and fees, thereby encompassing all sums payable by the deductor. The Tribunal dismissed the appellants' grounds challenging the jurisdiction of the CPC and upheld the levy and recovery of late fees and interest. The Tribunal also dismissed the grounds relating to recovery of late fees after acceptance of TDS statements and the treatment of deductors as assessee in default. The appeals filed by both appellants were accordingly dismissed.

Significant holdings include the following verbatim excerpts capturing the essence of the Tribunal's reasoning:

"...the words 'tax payable' actually connotes sum payable and therefore CPC is well within its jurisdiction to levy late fee u/s. 234E for the delay in filing the quarterly returns of TDS by the assessee as well as interest u/s. 201 of the Act..."

"Section 234E is a charging provision creating a charge for levying fee for certain defaults in filing statements, and fee prescribed under section 234E could be levied even without a regulatory provision being found in section 200A for computation of fee."

"The interpretation proposed by the assessee appellant shall make the whole scheme unworkable, thereby going against the legislative intention for its inception and accordingly requires to be rejected."

"It is now well settled that even though this Court exercising jurisdiction under article 226 of the Constitution has the power to declare a statute (or any provision thereof) as unconstitutional, it should exercise great restraint before exercising such a power... If two views are possible, one making the statute constitutional and the other making it unconstitutional, the former view must always be preferred."

"The fee sought to be levied under section 234E is not in the guise of a tax that is sought to be levied on the deductor... This fee is for the payment of the additional burden forced upon the department."

Ultimately, the Tribunal affirmed the validity of the levy of late fees under section 234E by the CPC during processing of TDS returns under section 200A, dismissed the legal challenges raised by the appellants, and condoned the delay in filing the appeals to allow adjudication on merits.