2014 (8) TMI 599 - HC - Income Tax

Centralized processing of statements of tax deducted at source (TDS returns) u/s 200A which was filed u/s 200 Rectification of order u/s 154 - enhancing the demand - Reasonable opportunity u/s 154(3) of being heared - Held that - The Department has sought to achieve a comprehensive processing of statements filed under sub-section (3) of Section 200 of the Act, including rectification of a mistake in the statement u/a 154 of the Act - when once a Statement is filed under sub-section (3) of Section 200 of the Act, Clauses (4), (5) and (7) of the Scheme come into operation - The format of the application for rectification is as stipulated in sub-clause (2) - Sub-clause (3) is relevant for the purpose of the case, which states that, where a rectification has the effect of reducing the refund or increasing the liability of the deductor, an intimation to that effect shall be sent to the deductor electronically by the Cell and the reply of the deductor shall be furnished in the form and manner specified by the Director General - no doubt the intimations that are issued u/s 154 of the Act - But, when the scheme itself envisages that the intimation must be issued so as to call for a reply from the deductor then it cannot be in the form of a demand u/s 156 of the Act - what is envisaged is that before any order is passed under Clause (6) of the Scheme, an intimation has to be sent to the deductor, which is in the nature of a showcause notice and after receiving a reply from the deductor and considering the same, an order has to be passed, then it would be deemed to be a notice of demand under Section 156 of the Act. Instead of directing the respondents-authorities to re-initiate fresh proceedings u/s 154 of the Act, for the sake of convenience of the parties, the annexures could be construed as show cause notices or intimations as stated in sub-clause (3) of Clause (6) of the Scheme to which the petitioner is at liberty to reply within a period of three weeks from the date of receipt of a certified copy of this order and on receipt of the reply by the respondents- Authorities, the same shall be considered in accordance with law and a speaking order be passed thereon Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the intimations issued under Section 154 of the Income-tax Act, 1961.
2. Compliance with procedural requirements under Section 154(3) of the Act.
3. Validity of demands made under Section 156 of the Act without proper notice.

Detailed Analysis:

1. Legality of the Intimations Issued under Section 154 of the Income-tax Act, 1961:

The petitioner challenged the intimations (Annexures C1 & C2, F1 & F2, and G1 & G2) issued under Section 154 of the Income-tax Act, 1961. These intimations were related to the processing of statements filed under Section 200 of the Act. The petitioner contended that these intimations were effectively orders enhancing the demand and should be treated as notices of demand under Section 156 of the Act.

2. Compliance with Procedural Requirements under Section 154(3) of the Act:

The petitioner argued that the concerned authority failed to comply with Section 154(3), which mandates giving a reasonable opportunity of hearing to the assessee before making any rectification that increases the liability of the assessee. The impugned intimations were issued without following this mandatory procedure, thus violating the principles of natural justice.

The respondents countered that the intimations were issued in accordance with the 'Centralised Processing of Statements of Tax Deducted at Source' Scheme, 2013. This scheme, notified on 15.01.2013, outlines the procedures for processing and rectifying statements under Section 200-A and Section 154 of the Act. The respondents maintained that the scheme does not require personal appearance and complies with the relevant sections of the Act.

3. Validity of Demands Made under Section 156 of the Act without Proper Notice:

The court examined the scheme and relevant sections of the Act. It was noted that the scheme envisages that before any order is passed under Clause (6), an intimation must be sent to the deductor, which is essentially a show-cause notice. The petitioner should be given an opportunity to respond before any demand is made under Section 156. The impugned intimations were issued as demands under Section 156 without following this procedure, thereby bypassing the requirements of sub-clause (3) of Clause (6) of the Scheme and Section 154(3) of the Act.

The court concluded that the impugned intimations could not be deemed as notices of demand under Section 156 of the Act. Instead of directing the respondents to re-initiate fresh proceedings, the court construed the impugned annexures as show-cause notices under sub-clause (3) of Clause (6) of the Scheme. The petitioner was given three weeks to reply to these notices, and the respondents were directed to consider the reply and pass a speaking order in accordance with the law. No coercive action was to be taken by the respondents until the process was completed.

Conclusion:

The writ petitions were disposed of with the direction that the impugned annexures be treated as show-cause notices, allowing the petitioner to respond within three weeks. The respondents were instructed to consider the reply and issue a speaking order, ensuring compliance with the procedural requirements under the Act and the Scheme.