2018 (3) TMI 577 - AT - Income Tax

Assessee in default for not making timely TDS and on the rates prescribed - Demand u/s 201(1) and 201(1A) - Held that - As per section 202 of the Act, deduction of tax at source is only one mode of recovery. In the present case, as observed by the ld. CIT(A) herself, due taxes, including interest, have been, in fact, recovered. The fault in deduction stands rectified and also accepted by the Department, in as much as the outstanding demand now amounts to a total of ₹ 2,460/-. The rest of the demand no longer survives. Recovery of taxes was made. As such, the Department has accepted the assessee s stand that it was not a case of no PANs, but that of mismatch of PANs. That being so, the assessee cannot be treated as an assessee in default. It is basic and trite that during the progress of proceedings from the taxing Authority to the Appellate Authority, in order to make the right or remedy claimed by the assessee just and meaningful, the Appellate Authority itself, subject to all just exceptions, must examine and evaluate events and developments, if any occurring subsequent to the institution of the proceedings, and mould the relief accordingly. In the present case, clearly, this has not been done. Though the ld. CIT(A) has noted the assessee having, post the passing of the AO s order, furnished the quarterly statements and paid requisite taxes, in spite thereof, the assessee has been held not absolved of being treated as an assessee in default. - Decided in favour of assessee.

Summary

Issues:
Assessee treated as an assessee in default for not making timely TDS and on prescribed rates.

Analysis:

1. The appeal was filed by the assessee against the CIT(A)'s order upholding the AO's action in treating the assessee as an assessee in default for not making timely TDS and on the prescribed rates, resulting in a demand of ?4,17,508 under sections 201(1) and 201(1A) of the Income Tax Act for Assessment Year 2012-13.

2. The AO observed that the deductor, a government construction division, failed to deduct and deposit TDS under section 194C of the Act amounting to ?3,27,460 during the financial year 2011-12. Additionally, the deductor did not file quarterly statements of 24Q and 26Q, rendering itself liable to be treated as an assessee in default under section 201(1) of the Act.

3. The CIT(A) held that although the assessee had deducted TDS at a rate of 2.25% by treating the contractors as having PANs, the AO insisted that TDS should have been deducted at 20% due to the unavailability of PANs for the contractors. The CIT(A) agreed with the AO's decision to treat the assessee as an assessee in default and confirmed the demand of ?4,17,508.

4. The assessee contended that the short deduction was due to a PAN mismatch, not the absence of PANs. After correcting the PANs, the demand was revised to ?2,460 from ?4,17,508. The CIT(A) upheld the decision of treating the assessee as an assessee in default.

5. However, the Tribunal reversed the decision, stating that the assessee had rectified the PAN mismatch and paid the due taxes. As per section 202 of the Act, the recovery of taxes, including interest, was completed, and the fault in deduction was rectified. The Tribunal held that subsequent events must be considered in the appeal process, and since the demand was reduced to ?2,460, the assessee could not be treated as an assessee in default.

6. The Tribunal emphasized that the Appellate Authority must evaluate events and developments occurring after the institution of proceedings to provide meaningful relief to the assessee. As the assessee rectified the fault in deduction and paid the due taxes, the Tribunal absolved the assessee of being treated as an assessee in default, cancelling the demand of ?4,17,508.

7. Consequently, the Tribunal allowed the appeal, reversing the impugned order and reducing the demand to ?2,460, thereby absolving the assessee of default status.