2018 (12) TMI 286 - AT - Income Tax

Levy of interest under Sec. 201(1A) - amount of TDS was deposited on 12.07.2007 i.e beyond the stipulated due date‟ of 07.07.2007 - A.O. rightly levied interest for the delay involved under Sec. 201(1A) - Held that - We are of the considered view that as the assessee had admittedly tendered the cheque with the bank i.e. State Bank of India, Branch Bandra Kurla Complex, Mumbai well within the stipulated due date‟, therefore, it cannot be held as being in default for the delay on the part of the bank or the clearing house in making the remittance of the said amount to the Government Account. We thus in the backdrop of our aforesaid deliberations, not being able to persuade ourselves to subscribe to the view taken by the lower authorities that the assessee was to be treated as being in default for delay in deposit of the amount of TDS, thus set aside the order of the CIT(A) and delete the interest levied by the A.O under Sec. 201(1A) of the Act. Whether CIT(A) is right in law and the facts of the case in treating the assessee as being in default for delay in deposit of TDS, though the cheques towards the amount of TDS were tendered by the assessee with the government bank within the stipulated time period, had been deliberated upon and adjudicated by us while disposing off the appeal of the assessee for the first quarter‟ for the year under consideration therefore, our order therein passed shall apply mutatis mutandis for disposing off the present appeal of the assessee for the first quarter‟. Before parting, we may herein observe that as we have quashed the interest levied by the A.O under Sec. 201(1A), therefore, the consequential demand raised by the A.O towards additional late payment interest and Interest under Sec. 220(2) shall also stand vacated.

Summary

Issues Involved:
1. Whether the assessee was rightfully treated as being in default for delayed deposit of TDS.
2. Whether the interest levied under Section 201(1A) of the Income Tax Act, 1961, was justified.
3. Whether the additional late payment interest and interest under Section 220(2) were valid.

Detailed Analysis:

1. Default for Delayed Deposit of TDS:
The primary issue revolves around whether the assessee, a government public limited company, was correctly treated as being in default for the delayed deposit of TDS. The assessee had tendered cheques for TDS payment to the State Bank of India within the stipulated due dates. However, the bank delayed the remittance to the government account, leading to the levy of interest under Section 201(1A) by the DCIT, CPC-(TDS), Ghaziabad. The CIT(A) upheld this levy, treating the assessee as in default. The Tribunal, however, noted the CBDT Circular No. 261, dated 08.08.1979, which states that the date of tendering the cheque is deemed the date of payment if the cheque is honored. The Tribunal concluded that the assessee should not be held responsible for the bank's delay and thus should not be treated as in default.

2. Interest Levied Under Section 201(1A):
The Tribunal examined whether the interest levied under Section 201(1A) was justified. The assessee argued that the interest was wrongly levied as the cheques were tendered within the due dates, supported by the CBDT Circular No. 261 and Section 10 r.w.s. 82(c) of the Negotiable Instruments Act, 1881. The Tribunal agreed with the assessee, referencing various judicial pronouncements, including the Hon’ble Supreme Court's judgment in K. Kaplana Saraswathi Vs. P.S.S. Somasundram Chettiar, which held that payment by cheque is considered due payment if subsequently encashed. Consequently, the Tribunal set aside the interest levied under Section 201(1A).

3. Additional Late Payment Interest and Interest Under Section 220(2):
The Tribunal also addressed the additional late payment interest and interest under Section 220(2). Since the primary interest under Section 201(1A) was quashed, the consequential demands for additional late payment interest and interest under Section 220(2) were also vacated. This applied uniformly across all quarters of the financial year 2007-08, as the Tribunal's decision for the first quarter was applied mutatis mutandis to the subsequent quarters.

Conclusion:
The Tribunal allowed the appeals of the assessee, setting aside the orders of the CIT(A) and deleting the interest levied under Section 201(1A) of the Income Tax Act, 1961. The Tribunal held that the assessee should not be treated as in default for the delayed deposit of TDS due to the bank's delay in remittance, and consequently, additional late payment interest and interest under Section 220(2) were also vacated.