2023 (8) TMI 222 - AT - Income Tax

Rectification u/s 154 - withholding tax on year end provisions - shortfall in TDS on year end provisions reported in Form 3CD of the assessee for FY 2012-13 - HELD THAT - As we are of the view that action of the Ld. AO to resort to the provisions of section 154 cannot be faulted. We also observe that no finding on merits of the case has been recorded by the Ld. CIT(A). We, therefore hold that in the interest of justice and fair play the issue needs to be restored to the file of the Ld. AO with a direction to him to decide the issue under consideration afresh in accordance with law after allowing reasonable opportunity to the assessee to explain its case. We order accordingly.

Summary

Issues Involved:
1. Applicability of TDS on year-end provisions.
2. Legality of proceedings u/s 154 of the Income Tax Act.
3. Correctness of the AO's action in holding the assessee in default for non-deduction of TDS.

Summary:

1. Applicability of TDS on Year-End Provisions:
The Ld. AO found that for FY 2012-13, the assessee failed to deduct TDS amounting to Rs. 15,59,44,667/- on gross amounts under various TDS provisions. The AO issued a notice u/s 154 to rectify the order passed u/s 201(1)/201(1A) raising a demand of Rs. 4,39,84,927/-. The assessee challenged the AO's action on the grounds that the year-end provisions are debatable and not mistakes apparent from the record. The CIT(A) quashed the AO's order, noting that the issue of TDS on year-end provisions is a subject of litigation and cannot be rectified u/s 154.

2. Legality of Proceedings u/s 154:
The CIT(A) observed that the AO's action to rectify the order u/s 154 was beyond jurisdiction as it involved debatable issues. The CIT(A) referenced judicial precedents supporting that debatable issues cannot be the subject matter of rectification u/s 154. The CIT(A) also noted that the substantive issue of TDS on year-end provisions was not taken up as the demand raised by the AO was beyond the scope of section 154 proceedings.

3. Correctness of AO's Action:
The CIT(A) found that the AO's order adding interest u/s 201(1)/201(1A) was consequential to the issue of year-end provisions. The CIT(A) quashed the AO's order, holding it unjustified. The Tribunal observed that the AO's action under section 154 was based on the shortfall in TDS reported in Form 3CD, and thus, could not be faulted. However, since the CIT(A) did not record any findings on the merits, the Tribunal restored the issue to the AO for fresh consideration in accordance with the law.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes, directing the AO to decide the issue afresh after providing a reasonable opportunity to the assessee to explain its case.