TMI Blog2007 (12) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 worke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A)-XL, Kolkata dated 1-5-2007. As common issue is involved in both these appeals, these appeals were heard together and disposed off by this common order. 2. In these cross appeals, the only issue raised is with regard to holding the assessee to be in default under section 201(1) for non-deduction of tax and consequential interest charged under section 201(1A) of the Income-tax Act. 3. The facts of the case are that the assessee is a Non-Banking Financial Co. (NBFC). For the financial year 1993-94, the ITO (TDS) vide order dated 24-6-1996 held the assessee to be in default in not deducting tax from the interest paid to deposit-holders. As per ITO (TDS), the total amount of interest paid which was liable to TDS under section 194A was Rs. 13,09,54,590 on which the tax which was required to be deducted was Rs. 1,46,66,910. The assessee was held to be in default under section 201(1) for the above amount of Rs. 1,46,66,910. The interest under section 201(1A) amounting to Rs. 58,66,760 was also charged. When the matter reached to the I.T.A.T. E Bench, Kolkata in ITA No. 1429 (Kol.)/1999 vide order dated 5-1-2005 set aside the matter back to the file of the ITO (TDS) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kolkata has no jurisdiction to hold the assessee to be in default in respect of the interest paid or credited by the various branches of the assessee-company which are located outside his territorial jurisdiction. ( iii )That the assessee is a NBFC accepting deposits from large number of public at large. As per various schemes floated by the assessee-company, no specific interest is paid but as per scheme the deposit holders are required to make investment either in lump sum or on monthly/daily basis and at the end of the period of deposit, the deposit holders are paid a lump sum amount payable on the maturity of such deposit. The difference between the amount actually received by the assessee and paid on the maturity of the deposit has been treated as interest by the revenue. However, such interest accrued to the deposit holders from year to year i.e., from the year in which deposit is made and up to the year the deposit is matured. The assessee is following the mercantile system of accounting. Therefore, the liability of TDS would arise if the interest accrued to the account of any deposit holder in a year exceeds the limit prescribed under section 194A. He stated that normal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal, the assessee cannot challenge the legality of the order on the ground that before the amendment in section 201(1) by the Finance Act, 2002, the ITO (TDS) cannot treat the assessee to be in default even if the assessee has failed to deduct the tax. No such plea was raised when the appeal was filed in the first round against the order of ITO (TDS). Therefore, in the set aside proceedings the validity of the order of the ITO (TDS) cannot be challenged on the ground not raised in the first round of appeal. He further stated that the assessee did not furnish the required information despite several opportunities allowed by the ITO (TDS). When the information is in the specific knowledge of the assessee and the assessee is deliberately withholding the same, the ITO (TDS) had no option but to draw an adverse inference and work out the TDS on estimated basis which the assessee ought to have deducted from the interest paid by it. He. therefore, stated that the order of the ITO (TDS) should be sustained. He also submitted that in alternate, the matter may be set aside again to the file of the ITO (TDS) with the direction to the assessee to furnish the complete details before him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the ground by arguing that the financial year under consideration is prior to 1-6-2002 and hence even if the assessee is in default in deducting the tax, the assessee cannot be directed to pay the same under section 201(1) along with interest under section 201(1A). Therefore, now the question is whether this new ground can be taken up for the first time in set aside proceeding before the Tribunal. We find that the issue regarding the right of the assessee to challenge the legal validity of the order in the second round of litigation was considered by the Hon ble Gujarat High Court in the case of P.V. Doshi v. CIT [1978] 113 ITR 22. In that case, a reassessment order under section 147 was passed by the Assessing Officer and in an appeal before the AAC against that reassessment order, the assessee gave up the contention regarding the validity of the notice of reassessment. The AAC dismissed the assessee s appeal on merits. On further appeal, the Tribunal remanded the case to the Assessing Officer with directions to cross-examine a witness. On second round of appeal before the AAC from the order passed on remand, the assessee contended that the reassessment proceedings were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax : Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the [Assessing] Officer is satisfied that such person or principal officer or company, as the case may be, has [without good and sufficient reasons] failed to deduct and pay the tax." The above section has been modified by Finance Act, 2002 with effect from 1-6-2002 whereby the words "referred to in section 200" were inserted. After the amendment, the said section reads as under : "201.(1) If any such person [referred to in section 200] and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct [the whole or any part of the tax] or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer, so designated by the Chief Commissioner or Commissioner of Income-tax, within whose area of jurisdiction, the office of the person responsible for deducting tax under Chapter XVII-B is situated; or ( ii )in any other case, to the Assessing Officer within whose area of jurisdiction, the office of the person responsible for deducting tax under Chapter XVII-B is situated." From the above it is evident that the Chief Commissioner or Commissioner of Income-tax within whose area of jurisdiction the office of the person responsible for deducting the tax is situated, will designate the Assessing Officer with whom the assessee has to furnish the return. It was pointed out by the learned counsel that since in the case of the assessee there were several persons responsible for making the payment from which tax has to be deducted, there are several designated authorities under Rule 36A. The assessee has already been allotted TAN No. by those TDS Officers. Therefore, 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. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1) to the account of, or to, the payee, does not exceed two thousand five hundred rupees:] 9.1 From the above it is evident that the assessee is required to deduct TDS from interest other than interest on securities at the time of ( i ) credit of such interest to the account of payee or ( ii ) at the time of payment of interest. As per Explanation where the interest is credited to any account whether interest payable account or suspense account in the books of account of the assessee, such credit shall also be deemed to be credit of such income to the account of the payee and provisions of TDS under section 194A would be applicable. As per sub-section (3) no TDS is required to be deducted, if the credit/payment does not exceed Rs. 2,500. Thus, the assessee is liable to deduct tax at source if payment/credit of interest to any person in a year exceeded Rs. 2,500. In this case we find that there is no factual finding by the Assessing Officer about the violation of provision of section 194A. On the other hand, it was the case of the assessee that mostly the interest accrued to each deposit holder in each year was below the limit prescribed under section 194A and whenever it e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in the original order. (III)Revised total demand based on the above : Tax under section 201(1) as per original order Rs. 1,46,66,910 Less: Excess TDS now to be subtracted Rs. 12,22,788 Balance payable Rs. 1,34,44,122 Add: Interest under section 201(1A) for 42 months Rs. 70,58,153 Total of tax and interest Rs.2,05,02,275 Less: Amount paid on 27-3-1997Rs.2,05,33,670 Balance Refundable Rs. 31,395" 9.2 As per section 194A, the assessee is required to deduct the tax if the credit or payment of interest to any person exceeded Rs. 2,500 in a year. Therefore, the Assessing Officer has to give the specific finding giving the name of the person and the amount of interest paid to him. 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. Departmental Representative that the assessee has not furnished the required particulars despite number of opport ..... X X X X Extracts X X X X X X X X Extracts X X X X
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