2014 (9) TMI 364 - HC - Income Tax

Assessee in default - failure to comply with TDS provisions - Order u/s 201(1) r.w.s.201(1A) Principles of natural justice Held that - The assessee was served with three notices dated 13-12-2011, 16-12-2011 and 21-12- 2011 claiming amounts mentioned therein and calling upon the assessee to show cause why the assessee should not be treated as an assessee in default u/s 201(1) of the Act - the assessee was also requested to furnish the above details month wise in the format mentioned in the said notice to enable the office to verify the TDS compliance and calculations of interest under Section 201(1A) - the assessee never complained of violation of principles of natural justice, on the contrary the liability was admitted and their difficulties in making the payment was expressed - They wanted to make payments in installments and a part of the amount was also paid - if assessee wanted an opportunity to produce statement, nothing prevented the assessee from producing them along with the appeal or file an application to the FAA requesting them to take note of the same and then frame an order of assessment - The Tribunal has proceeded on the assumption that the assessee has been denied a reasonable opportunity by the AO and therefore, the order requires to be set aside - The approach of the Tribunal is not in accordance with law and it has not borne in mind the distinction between the jurisdiction of the FAA in taxation laws as compared to other jurisdiction - The powers of the FAA are co-extensive with that of the AO - the order of the Tribunal cannot be sustained and accordingly, it is set aside. If an assessee who is required to deduct any sum in accordance with the provisions of the Act does not deduct or does not pay or after so deducting fails to pay the whole or any part of the tax as required by or under the Act, then such person shall be deemed to be an assessee in default in respect of such tax - not only the AO is competent to declare an assessee in default, by virtue of Section 221 which empowers an AO to impose penalty payable when tax is in default, authorizes the Assessing Authority also to impose penalty for failure to comply with Section 200 - order passed u/s 201 of the Act by the Assessing Authority is a valid order and Assessing Authority is the competent person to pass such orders - Assessing Authority shall take note of all these payments and if he is convinced about the said payments, give credit to the payments - If such payment do not discharge the entire amount due by the assessee, then recover the balance in accordance with law Decided in favour of revenue.

Summary

Issues Involved:

1. Whether the Tribunal was correct in setting aside the order under Section 201(1) read with Section 201(1A) of the Act to give the assessee an opportunity of hearing.
2. Whether the Tribunal was correct in holding that Section 201(1) read with Section 201(1A) of the Act was penal in nature.
3. Whether the Tribunal was correct in holding that the notice had not been served, the assessee was not heard, and no sufficient opportunity was granted.
4. Whether the Tribunal was correct in holding that sufficient opportunity should be granted to repay the amount in installments.
5. Whether the Tribunal was correct in remanding the matter back to the Assessing Officer when the order under Section 201 read with Section 201(1A) of the Act suffers from inherent lack of jurisdiction.
6. Whether the Tribunal committed a grave error of law in not appreciating that the DGIT (Systems) is the competent authority for making an order under Section 201 of the Act.
7. Whether the Tribunal was correct in not appreciating that the power exercisable under Section 201 has to be read in conjunction with Section 200(3) and Section 200A of the Act.

Detailed Analysis:

1. Opportunity of Hearing:
The Tribunal set aside the orders passed by the authorities and remanded the matter to the assessing authority for fresh adjudication, stating that the assessee was not given a proper opportunity of being heard. The High Court found that the assessee was served with notices and had ample opportunity to respond but failed to do so. The assessee's claim of not being given a reasonable opportunity was not substantiated with evidence. The High Court held that the Tribunal misdirected itself and failed to consider the conduct of the assessee, who admitted the liability and sought time for payment.

2. Penal Nature of Section 201(1) read with Section 201(1A):
The Tribunal's view that Section 201(1) read with Section 201(1A) was penal was rejected by the High Court. The High Court clarified that the scheme to deduct tax at source vests the deductor with a fiduciary obligation to pass on the deducted tax to the Central Government, and the interest levied is compensatory in nature, not penal.

3. Service of Notice and Opportunity:
The High Court examined the service of notices and found that the notices were duly served, and the assessee had the opportunity to respond but chose not to. The High Court held that there was no violation of principles of natural justice as the assessee was given sufficient opportunity to present its case but failed to utilize it.

4. Financial Difficulties and Installments:
The Tribunal's decision to grant the assessee an opportunity to repay the amount in installments was found to be based on the assessee's admission of liability and financial difficulties. The High Court noted that the assessee had admitted the liability and sought time for payment in various correspondences, and therefore, the Tribunal's finding was not based on imaginary grounds.

5. Jurisdiction of Assessing Officer:
The High Court addressed the issue of jurisdiction and held that the Assessing Officer is the competent authority to pass orders under Section 201 of the Act. The argument that the DGIT (Systems) is the only competent authority was rejected. The High Court clarified that after deducting and paying the tax, the statement is processed by the DGIT (Systems), but if no deduction or payment is made, the Assessing Officer has the jurisdiction to declare the assessee in default.

6. Legislative Scheme and Competent Authority:
The High Court emphasized that the legislative scheme of the Act, read with the Rules, makes it clear that the Assessing Officer has the jurisdiction to pass orders under Section 201. The Tribunal's failure to appreciate this legislative scheme was a grave error of law.

7. Processing of Statements under Section 200A:
The High Court explained that Section 200A provides for the processing of statements of tax deducted at source, and the DGIT (Systems) is responsible for this processing. However, if the statements are not filed, the Assessing Officer has the authority to declare the assessee in default under Section 201.

Conclusion:
The High Court allowed the appeals filed by the Revenue and dismissed the appeals filed by the assessee. The High Court directed the assessee to produce all payments made subsequent to the order of the Assessing Authority and any receipts showing payments prior to the order. The Assessing Authority was instructed to take note of these payments and give credit accordingly. If any balance amount remains, the Authorities were to proceed to recover it in accordance with the law. The assessee was given four months to produce the necessary documents.