2018 (11) TMI 40 - AT - Income Tax

Time limit of completing the proceedings - non deduction of TDS u/s 194C - Assessee in default u/s 201(1) - Period of limitation - Held that - Such an amendment brought by the Finance (No.2) Bill 2009 was clarified by CBDT vide Circular No. 5 of 2011 explaining the said amendment which came into effect w.e.f 1st April, 2010. The amendment as well as the said CBDT circular had come up for consideration of Vodafone Essar Mobile Services vs. Union of India (2016 (8) TMI 509 - DELHI HIGH COURT) wherein after detailed discussion referring to the catena of judgments held that CBDT Circular No. 5 of 2011, clarifying that the proviso to section 201(3) which was made to extend the time limit of completing the proceedings and passing orders in relation to the pending cases cannot be interpreted so as to enable the department to initiate proceedings for declaring assessee to be assessee in default u/s 201 of the Act for a period earlier than four years prior to 31st March, 2011. Accordingly, their lordship held that the barred limit of four years which was earlier held by the Courts to be applicable in such cases cannot be extended by said amendment. Thus, respectfully following the ratio laid down Hon ble High Court, we hold that the initiation of proceedings u/s 201(1) - Decided in favour of assessee.

Summary

Issues:
Challenge to tax liability u/s 201(1) and interest u/s 201(1A) for financial years 2001-02 & 2002-03. Barred by limitation as proceedings u/s 201 initiated beyond 4 years.

Analysis:
The appeal was filed against the order passed by Ld. CIT(Appeals) related to tax liability and interest for the assessment years 2002-03 and 2003-04. The counsel for the assessee challenged the tax liability and interest, arguing that the proceedings initiated under section 201 were beyond the 4-year limitation period. The counsel relied on the decision of the Hon'ble Delhi High Court in the case of Vodafone Essar Mobile Services vs. Union of India, emphasizing that any levy of tax liability and interest beyond four years is time-barred.

The facts revealed that a survey operation was conducted at the assessee's premises in 2003, where discrepancies in tax deductions were noted. The Assessing Officer treated the default amount under section 201 as well as interest. The order under section 201(1)/201(1A) was passed almost seven years after the relevant assessment year. The assessee contended that the proceedings were time-barred, but the Ld. CIT(A) rejected the plea, stating that the notice for proceedings was issued during the relevant financial year, allowing the AO to pass the order in that year.

The High Court's previous judgments in cases like CIT vs. NHK Japan Broadcasting Corporation and CIT vs. Idea Cellular Ltd. established that action under section 201(1) must be initiated within a reasonable period, generally considered to be four years. An amendment to section 201 allowed orders for financial years up to April 1, 2007, to be passed by March 31, 2011. However, the CBDT circular clarifying this amendment was interpreted by the High Court in Vodafone Essar Mobile Services vs. Union of India, stating that the time limit for initiating proceedings cannot be extended beyond four years. Therefore, the initiation of proceedings and the subsequent order in this case were held to be time-barred, leading to the quashing of tax liability and interest.

In conclusion, the appeal of the assessee was allowed, and the tax liability along with interest was quashed as the initiation of proceedings and the order passed were found to be beyond the limitation period.