2019 (9) TMI 307 - AT - Income Tax

Period of limitations for passing an order u/s 201(1) / 201 (1A) - Treating the assessee as assessee in default - TDS u/s 194 - failure to deduct TDS on an amount lent by it to its shareholders which are covered under the provisions of sec. 2(22)(e) - default u/s 201(1)/201(1A) - HELD THAT - The show-cause notice in the instant case was duly issued within the period of six years at which time the default in deduction of TDS was both committed as well as continuing and therefore the assessee, in our view, cannot seek immunity from the applicability of sec. 201(1) for alleged default where the order has been passed within seven years as provided in amended law. While holding so, we agree to the contentions raised on behalf of Revenue that CIT(A) has wrongly observed that the cause of action had ceased and the applicability of sec. 201(1) had already become time barred at the time of amendment and thus extended time limit could not be conferred on AO. The assessee has no where contended or demonstrated on facts that TDS return was filed and thus the case was not time barred as wrongly assumed. The reliance placed on behalf of assessee on the decision of Tata Teleservices 2016 (2) TMI 414 - GUJARAT HIGH COURT in totally misplaced as right of the Revenue to pass order has already become time barred at time of amendment by Finance (No. 2) Act 2014 in that case. Thus, with the lapse of time a substantive right had already accrued to the assessee which could not be taken away by a subsequent amendment. The limitation already barred could not be revived by later amendment. This is not the factual situation in the instant case as noted earlier. The other decisions relied upon by assessee are also clearly distinguishable as the issue in the instant case relates to law of limitation which is procedural one. The ratio of decision of Hon ble Supreme Court in Brij Mohan vs. CIT 1979 (8) TMI 2 - SUPREME COURT is also not applicable as no return has been filed by the assessee in the instant case and the default is not merely committed in this case but is also continuing. The issue is thus decided against the assessee and in favour of the Revenue. The order of the CIT(A) therefore requires to be set aside on this score. We however note in the same vain that the CIT(A) has not adjudicated the issue on merits. The matter is accordingly remanded back to the CIT(A) for adjudication for applicability of sec. 2(22)(e); sec. 194 and consequent application of sec. 201(1) and s. 201(1A) on merits in accordance with law after taking note of the relevant facts on record

Summary

Issues Involved:
1. Whether the order passed by the Assessing Officer (AO) under sections 201(1) and 201(1A) of the Income Tax Act, 1961, was time-barred.
2. Whether the AO was justified in holding the assessee as an 'assessee in default' for non-deduction of TDS on loans/advances to shareholders under section 2(22)(e) and section 194 of the Act.

Issue-wise Detailed Analysis:

1. Timeliness of the AO's Order under Sections 201(1) and 201(1A):
The AO observed that the assessee failed to deduct TDS on an amount lent to its shareholders, which was considered a deemed dividend under section 2(22)(e) and thus liable for TDS under section 194. Consequently, the AO issued a show-cause notice and held the assessee in default, imposing tax and interest under sections 201(1) and 201(1A).

The assessee appealed, arguing that the AO's order was time-barred as it was passed beyond six years from the financial year in which the default occurred, as per section 201(3). The CIT(A) agreed, quashing the AO's order on the grounds of limitation, referencing the Gujarat High Court's decision in Tata Teleservices, which held that the increased limitation period of seven years under section 201(3), as amended by the Finance Act, 2014, does not apply retrospectively.

The Revenue contended that no TDS return was filed by the assessee, and the show-cause notice was issued within six years from the end of the financial year in which the default occurred. The Revenue argued that the amended limitation period of seven years should apply as the default was continuing.

The Tribunal considered the principles laid down by the Supreme Court and the Madras High Court, noting that law of limitation is procedural and generally has retrospective effect unless stated otherwise. The Tribunal held that the amended period of seven years applies as the default was continuing and the show-cause notice was issued within the original six-year period. Thus, the CIT(A) erred in holding the AO's order as time-barred.

2. Justification of AO's Decision on Non-deduction of TDS:
The CIT(A) did not address the merits of the AO's decision regarding the applicability of section 2(22)(e) and section 194. The Tribunal remanded the matter back to the CIT(A) for adjudication on the merits of the case, including the applicability of sections 2(22)(e), 194, 201(1), and 201(1A).

Conclusion:
The Tribunal set aside the CIT(A)'s order on the grounds of limitation, allowing the Revenue's appeal for statistical purposes. The matter was remanded to the CIT(A) for a decision on the merits regarding the applicability of the relevant sections of the Income Tax Act.

Order Pronounced:
This Order was pronounced in Open Court on 04/09/2019.