2017 (10) TMI 526 - AT - Income Tax

Non deduct tax at source u/s 194A on the interest on Flexi Fixed Deposit Schemes - Proceedings u/s 201(1) and 201(1A)- Held that - On the perusal of the order of the Assessing Officer as well as the Learned CIT(Appeals) nowhere it is borne out how the Assessing Officer had satisfied himself as to whether the deductee/payee has failed to pay taxes directly. It is only when a finding is arrived in the case of the deductee/payee that he has failed to pay tax directly then only deductor i.e. the present assessee can be deemed to be the assessee-in-default in respect of such tax and then only proceedings u/s 201(1) and 201(1A) can be initiated. Assessing Officer has nowhere given any finding that the deductee/assessee has failed to pay taxes directly and without such finding the Assessing Officer cannot treat the deductor that is the present assessee as assessee-in-default. The proceedings u/s 201(1)/201(1A) has not been validly initiated and therefore the impugned order u/s 201(1) read with section 201(1A) is bad in law and same is quashed. In the result the appeal of the assessee is allowed.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Assumption of jurisdiction under section 201(1) and 201(1A) without issuing a show cause notice.
3. Holding the assessee in default in the absence of action against payees.
4. Validity of proceedings under section 201(1)/201(1A) in light of payees' tax payments.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee argued that the CIT (Appeals) should have condoned the delay in filing the appeal due to sufficient cause. The CIT (Appeals) dismissed the appeal due to the delay but proceeded to decide the appeal on merits. The Tribunal noted that if the appeal was decided on merits, it implied that the delay was implicitly condoned. Therefore, the Tribunal confined itself to the merits of the case.

2. Assumption of Jurisdiction under Section 201(1) and 201(1A) Without Show Cause Notice:
The assessee contended that the assumption of jurisdiction to pass the order under section 201(1)/201(1A) without issuing a show cause notice was bad in law. The Tribunal observed that the Assessing Officer had obtained information under section 133(6) and treated the assessee as in default without issuing any show cause notice or conducting proceedings against the deductee-assessees.

3. Holding the Assessee in Default in the Absence of Action Against Payees:
The assessee argued that in the absence of any action against the payees or evidence of any demand legally recoverable from them, holding the assessee as in default was arbitrary and unjust. The Tribunal emphasized that the Assessing Officer had not provided any finding that the deductee/payee had failed to pay taxes directly. According to the Hon'ble Jurisdictional High Court in Jagran Prakashan Ltd. vs. DCIT (TDS) (2012) 345 ITR 288 (All), a deductor can only be deemed an assessee-in-default if the payee has failed to pay tax directly.

4. Validity of Proceedings under Section 201(1)/201(1A) in Light of Payees' Tax Payments:
The Tribunal noted that the Assessing Officer had not demonstrated that the payees had failed to pay taxes directly. The Tribunal cited the Allahabad High Court's ruling in Jagran Prakashan Ltd., which established that the onus is on the revenue to show that taxes have not been recovered from the payees. The Tribunal concluded that the Assessing Officer had not satisfied this requirement, rendering the initiation of proceedings under section 201(1)/201(1A) invalid.

Conclusion:
The Tribunal quashed the proceedings under section 201(1)/201(1A) due to the lack of evidence that the payees had failed to pay taxes directly. Consequently, the impugned order was deemed invalid, and the appeal of the assessee was allowed. The findings were applied mutatis mutandis to all the appeals, resulting in all appeals filed by the assessee being allowed. The order was pronounced in open court on 13th September 2017.

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