Assessee's Appeal Dismissed with Interest Modifications under Section 201(1A)

Drawing and Disbursing Officer Versus Assistant Commissioner of Income-tax

Drawing and Disbursing Officer Versus Assistant Commissioner of Income-tax - [2008] 306 ITR (A. T.) 293 Issues involved:
The issues involved in this case are the allowance of deductions under sections 80G and 80GGA for tax deduction at source, the competence of the Assessing Officer (TDS) to pass an order under section 201, the liability of the drawing and disbursing officer for shortfall of tax deductions, the impact of completed assessments of employees on additional demands under section 201, the chargeability of interest under section 201(1A) on short deductions, and the good faith of the drawing and disbursing officer in handling donation receipts.

Allowance of deductions under sections 80G and 80GGA:
The Assessing Officer found that deductions claimed under sections 80G and 80GGA based on donation receipts were inadmissible. Circulars clarified that such deductions are not admissible for determining tax deductible at source under section 192. The drawing and disbursing officer should have verified the genuineness of the receipts, especially when similar hefty donations were made by multiple employees. Therefore, the action of treating the officer as an assessee in default under section 201 for the shortfall related to these deductions was upheld.

Impact of completed assessments on additional demands under section 201:
Courts have held that if employees' assessments are completed, taxes paid, and short deductions included, the employer cannot be deemed an assessee in default. However, in this case, evidence of completed assessments and tax payments by employees was not provided. Therefore, the Assessing Officer's action in raising additional demand under section 201 was deemed appropriate, subject to modification upon submission of such evidence.

Chargeability of interest under section 201(1A) on short deductions:
The Kerala High Court ruled that interest under section 201(1A) is mandatory for failure to deduct tax at source, regardless of whether the payee ultimately owes tax. Interest is leviable from the date of tax deductibility until actual payment by employees. Previous tribunal decisions support this stance, emphasizing the importance of timely tax deduction.

Good faith of the drawing and disbursing officer:
The drawing and disbursing officer's claim of acting in good faith was rejected. Given the circumstances of multiple employees making substantial donations relative to their low salaries, it was expected that the officer would question the genuineness of the receipts. The donations appeared to be a scheme to claim tax exemptions, indicating a lack of diligence on the officer's part. Therefore, the officer's failure to address this issue was not considered in good faith.

In conclusion, the appeal filed by the assessee was dismissed, upholding the order of the Commissioner of Income-tax (Appeals) with modifications to the interest chargeable under section 201(1A). The Assessing Officer was directed to adjust the interest based on the date of tax deductibility and payment by recipients or completion of assessments.