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2017 (12) TMI 193 - AT - Income TaxTime limit for initiation of proceedings u/s 201(1) - treating the assessee as assessee in default - failure to deduct TDS - Held that - Financial year before us is 2007-08 i.e. commencing on 1.4.2007 relevant to the A.Y 2008- 09. The payment has been made to Shri Ramoji Rao (HUF) by the assessee on 28.02.008 falling within the financial year 2007-08 which ends on 31.3.2008. Therefore, as per the proviso to section 201(3), an order treating the assessee as an assessee in default has to be passed before 31st day of March, 2011. In the instant case, the show-cause notice for treating the assessee as assessee in default has been issued only on 15.12.2014 i.e. beyond 31.3.2011 and even beyond the period of 6 years even if the provision as amended by the Finance Act 2012 is taken into consideration. The period of 7 years has been brought in by the Finance Act, 2014 w.e.f. 1.10.2014 and therefore, cannot be applied to the case on hand as any amendment to the detriment of an assessee cannot be applied retrospectively. Therefore, in view of the proviso to sub-section 3 of section 201(1), which was in force till 1.10.2014, we are of the opinion that the order of the AO treating the assessee as an assessee in default is clearly barred by limitation and ground of appeal No.2 is allowed. Charging of interest u/s 201(1A) - Held that - The Hon ble Supreme Court in the case of Hindustan Coco Cola Beverages Ltd (2007 (8) TMI 12 - SUPREME COURT OF INDIA ) has clearly held that the interest u/s 201(1A) is compensatory in nature and that even if the payee has paid the tax on the receipt, the payer is liable to pay interest u/s 201(1A) of the Act from the date of deductibility to the date of payment of tax by the payee. It is therefore, held that the assessee is liable to pay the interest u/s 201(1A) of the Act TDS on non-compete fee - Held that - Except for an oral statement in the grounds of appeal, the assessee has not been able to produce any evidence in support of such a contention. In fact, the AO has clearly brought out on record that the recipient Shri Ramoji Rao (HUF) has taxable income, and that after taking into consideration the noncompete fee received by him, the assessee has been assessed to tax at ₹ 108,47,26,715. The learned Counsel for the assessee has not been able to rebut this finding of the AO except to state that the TDS was required to be effected on non-compete fee which is taxable as business income and in view of the carry forward business loss, nothing remains to be taxed. Therefore, we are not convinced with the argument of the assessee that the assessee under had a reasonable cause to deduct the tax at source. Penalty u/s 271C - non-deduction of tax at source u/s 194J - Held that - The requirement to make the payment and the genuineness of the payment of non-compete fee by the assessee to Shri Ramoji Rao (HUF) has been adjudicated by the Tribunal in the assessee s own case for A.Y 2008-09 and the contention of the assessee that the non-compete fee is the business expenditure of the assessee has been upheld. The assessee has always contended that it is its business expenditure and therefore, it was required to deduct the tax at source u/s 194J of the Act. For failure to deduct the tax inspite of being liable to do so, the penalty u/s 271C is clearly leviable.
Issues Involved:
1. Time limit for initiation of proceedings under Section 201(1) of the IT Act. 2. Charging of interest under Section 201(1A) of the IT Act. 3. Justification for non-deduction of tax at source on non-compete fee. 4. Confirmation of penalty under Section 271C of the IT Act. Detailed Analysis: 1. Time Limit for Initiation of Proceedings under Section 201(1) of the IT Act: The assessee contended that the notice issued by the AO on 15.12.2014 for treating the assessee as "an assessee in default" was time-barred. Under Section 201(3) of the IT Act, prior to 1.4.2010, the time limit was four years from the end of the financial year in which the payment was made. This period was extended to six years by the Finance Act of 2012, effective retrospectively from 1.4.2010, and later to seven years by the Finance Act of 2014, effective from 1.10.2014. The Tribunal held that the order treating the assessee as "an assessee in default" was barred by limitation since the show-cause notice was issued beyond the permissible period, even considering the extended time limits. The financial year in question was 2007-08, and the order should have been passed by 31.3.2011. Therefore, the ground of appeal regarding the time limit was allowed. 2. Charging of Interest under Section 201(1A) of the IT Act: The AO charged interest under Section 201(1A) of the Act, which the assessee disputed. The Tribunal noted that while the provisions of Section 201(3) do not apply to interest under Section 201(1A), the interest is compensatory in nature. Even though the payee had paid the tax on the receipt, the payer (assessee) is liable to pay interest from the date of deductibility to the date of payment of tax by the payee. The Tribunal upheld the AO's decision to charge interest, rejecting the assessee's contention regarding the period for which interest was payable. 3. Justification for Non-deduction of Tax at Source on Non-compete Fee: The assessee argued that the recipient of the non-compete fee did not have taxable income even after considering the non-compete fee, and therefore, it was justified in not deducting tax at source. However, the Tribunal found that this contention was not substantiated by evidence. The AO had established that the recipient had taxable income, including the non-compete fee, and the assessee failed to provide evidence to the contrary. Consequently, the Tribunal rejected this ground of appeal, concluding that the assessee did not have reasonable cause for not deducting tax at source. 4. Confirmation of Penalty under Section 271C of the IT Act: The assessee challenged the penalty under Section 271C for non-deduction of tax at source on the non-compete fee. The Tribunal noted that the genuineness and requirement of the non-compete fee payment had been upheld in the assessee's own case for A.Y 2008-09. Since the assessee treated the non-compete fee as business expenditure, it was required to deduct tax at source under Section 194J. The Tribunal found that the penalty under Section 271C was justified for failure to deduct tax despite being liable to do so. The Tribunal dismissed the appeal, affirming the penalty order. Conclusion: - ITA No.546/Hyd/2017: Partly allowed, confirming the time-barred nature of the order treating the assessee as "an assessee in default" but upholding the interest charged under Section 201(1A). - ITA No.547/Hyd/2017: Dismissed, confirming the penalty under Section 271C for non-deduction of tax at source.
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