2014 (8) TMI 726 - AT - Income Tax

Low or Non-deduction of Tax at source certificate u/s 197 Assessee in default u/s 201(1) - advance tax was paid by the deductee Held that - There was a short deduction of tax u/s 194C of the Act, but the deductee has also paid advance tax in different quarters relying upon Jagran Prakashan Ltd. v. Deputy Commissioner of Income-tax (TDS) 2012 (5) TMI 488 - ALLAHABAD HIGH COURT and Hindustan Coca Cola Beverage P. Ltd. vs. CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA and also CBDT Circular No.275/201/95-IT(B) dated 29.1.1997 - when tax was paid by the deductee, the assessee shall not be held to be in default, but the interest u/s 201(1A) of the Act is mandatory and is to be calculated from the date tax was deductible at source till payment by the payee by way of advance tax or any other mode - CIT(A) has passed a just and proper order by directing the AO to compute the interest chargeable u/s 201(1A) of the Act Decided against assessee. Charging of interest on short deduction Held that - In Hindustan Coca Cola Beverage P. Ltd. vs. CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA and CBDT Circular no. 275/201/95-IT(B), dated 29th January, 1997 it has been clearly held that interest u/s 201(1A) of the Act till the payment of taxes will be applicable - it will be against the very context of levy of interest that the interest is compensatory in nature - as charging of interest u/s 201(1 A) is mandatory and there is short deduction as the certificate for lower deduction of tax has been held to be not applicable to the assessee, the AO is directed to re-compute the short deduction of TDS for various dates of payments by the deductor to the deductee and charge interest u/s 201(1A) from the date the TDS was deductible to the date on which such tax is actually paid by the deductee by way of payment of advance tax to the extent of including this liability for the respective quarter after the assessee furnishes evidence for date wise payment of taxes by the deductee - The AO is directed to re-compute the interest u/s 201(1A) Decided partly in favour of Assessee.

Issues Involved:
1. Non-deduction or lower deduction of tax at source certificate under Section 197 of the Income Tax Act, 1961.
2. Applicability of the certificate issued by DCIT, Circle II(4), Bangalore to AO (DAD), Lucknow.
3. Historical acceptance of similar certificates by the Income Tax Department.
4. Technical validity of the certificate issued without TAN.
5. Computation of interest under Section 201(1A) of the Income Tax Act, 1961.
6. Opportunity to produce evidence of advance tax paid by the deductee.
7. Principles of natural justice.

Detailed Analysis:

1. Non-deduction or Lower Deduction of Tax at Source Certificate Under Section 197:
The appellant contended that the learned first appellate authority erred in upholding the action of the Assessing Officer (AO) in disregarding the lower deduction or non-deduction of tax at source certificate issued under Section 197 by the Deputy Commissioner of Income Tax, Circle II(4), Bangalore. The appellant argued that the certificate was valid and should have been considered.

2. Applicability of the Certificate Issued by DCIT, Circle II(4), Bangalore to AO (DAD), Lucknow:
The appellant argued that the certificate issued by DCIT, Circle II(4), Bangalore, which named the Controller of Defense Accounts (DAD), Bangalore, should also apply to AO (DAD), Lucknow, as it is a sub-office of CDA, Bangalore. The appellant maintained that the certificate's applicability should extend to the sub-offices.

3. Historical Acceptance of Similar Certificates by the Income Tax Department:
The appellant highlighted that in previous instances, AO (DAD), Lucknow, had acted on similar certificates issued under Section 197 without any objections from the Income Tax Department. This historical acceptance was presented as a reason for the validity of the current certificate.

4. Technical Validity of the Certificate Issued Without TAN:
The appellant contended that the certificate issued by the learned DCIT, Circle II(4), Bangalore, did not mention any TAN, as the practice of mentioning TAN in such certificates started only from the Financial Year 2010-11. The appellant argued that rejecting the certificate based on the absence of TAN was erroneous, as the prevalent practice at the time of issuance was different.

5. Computation of Interest Under Section 201(1A) of the Income Tax Act, 1961:
The appellant argued that since the deductee had paid advance tax in the second and fourth quarters, the assessee should not be held in default under Section 201(1) of the Income Tax Act, 1961, and interest under Section 201(1A) should not be charged. The appellant relied on the judgments of the Hon'ble jurisdictional High Court in Jagran Prakashan Ltd. v. Deputy Commissioner of Income-tax (TDS) and the Hon'ble Supreme Court in Hindustan Coca Cola Beverage P. Ltd. vs. CIT, along with CBDT Circular No.275/201/95-IT(B) dated 29.1.1997.

The Tribunal found that although there was a short deduction of tax under Section 194C, the deductee had paid advance tax in different quarters. The Tribunal upheld the CIT(A)'s direction to recompute the interest chargeable under Section 201(1A) from the date the tax was deductible at source until the date of payment by the deductee by way of advance tax or any other mode.

6. Opportunity to Produce Evidence of Advance Tax Paid by the Deductee:
The appellant argued that the learned first appellate authority did not allow sufficient opportunity to produce evidence of advance tax paid by the deductee. The Tribunal noted that the CIT(A) had directed the AO to recompute the interest based on the date-wise payment of taxes by the deductee, thus providing an opportunity for the appellant to present the necessary evidence.

7. Principles of Natural Justice:
The appellant contended that the order appealed against was contrary to facts, law, and principles of natural justice. The Tribunal, however, found that the CIT(A) had passed a just and proper order in accordance with the law, and therefore, confirmed the same.

Conclusion:
The Tribunal dismissed all appeals of the assessee, upholding the CIT(A)'s directions to recompute the interest under Section 201(1A) of the Income Tax Act, 1961, based on the advance tax payments made by the deductee. The Tribunal found no merit in the appellant's arguments regarding the applicability and validity of the Section 197 certificate and the computation of interest. The order pronounced in the open court on 21.8.2014 confirmed the CIT(A)'s findings and directions.

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