2016 (3) TMI 1240 - AT - Income Tax

Initiation of proceedings u/s 201/201(1A) - assessee in default - Held that - AO has not made any exercise to ascertain whether the deductee / payee assessee has failed to pay taxes directly before initiation of proceedings u/s 201/201(1A) of the Act, thus assumption of jurisdiction itself stands vitiated and all subsequent proceedings are null in the eyes of law. Therefore, we quash the initiation of proceedings of the AO at the outset itself. The AO ought to have assumed jurisdiction only after satisfying the jurisdictional fact as laid by the Hon ble Jurisdictional High Court in M/s. Jagran Prakashan Ltd. 2012 (5) TMI 488 - ALLAHABAD HIGH COURT which as stated before is obviously absent. So, we quash the impugned assessments itself. Appeals of the assessee are allowed.

Summary

Issues:
Initiation of proceedings by the AO(TDS) u/s 201 and 201(1A) of the Income-tax Act, 1961 without satisfying the foundational and jurisdictional fact of whether the deductee/payee assessee failed to pay taxes directly.

Analysis:
The judgment pertains to three appeals by the assessee against a common order of the CIT (Appeals) for assessment years 2002-03, 2003-04, and 2004-05. The primary issue raised by the assessee was the initiation of proceedings by the AO(TDS) u/s 201 and 201(1A) of the Income-tax Act without first establishing whether the deductee/payee assessee had failed to pay taxes directly. The assessee contended that the deductor could only be deemed an assessee in default if it was found that the assessee had also failed to pay the tax directly. The judgment referred to a decision by the Hon'ble jurisdictional High Court which emphasized that the deductor cannot be treated as an assessee in default until it is established that the assessee has failed to pay the tax directly. The court highlighted that this foundational and jurisdictional fact must be satisfied before initiating proceedings under section 201/201(1A) of the Act.

The judgment further discussed a similar matter where the Agra Bench of the Tribunal reiterated that the onus was on the revenue to demonstrate that taxes had not been recovered from the person primarily liable to pay tax. The Tribunal emphasized that the Assessing Officer must ascertain whether taxes have been paid by the persons receiving the amounts from which taxes were not withheld. The judgment underscored that the provisions of Section 201(1) cannot be invoked until it is confirmed that the assessee has also failed to pay the tax directly, as per the ruling of the Hon'ble Allahabad High Court. The court emphasized that the Assessing Officer must verify the nonpayment of taxes by the recipient before invoking Section 201(1).

Ultimately, the judgment concluded that the AO had not made any effort to determine whether the deductee/payee assessee had failed to pay taxes directly before initiating proceedings under section 201/201(1A) of the Act. As a result, the assumption of jurisdiction by the AO was deemed vitiated, rendering all subsequent proceedings null and void. The court quashed the initiation of proceedings by the AO and the impugned assessments, emphasizing that the AO should have only assumed jurisdiction after satisfying the jurisdictional fact as established by the Hon'ble Jurisdictional High Court. Consequently, all three appeals of the assessee were allowed, and the order was pronounced on March 4, 2016.