2014 (1) TMI 706 - AT - Income Tax

Tribunal directs remand for fair hearing on tax deduction appeal, clarifies recovery provisions

ICICI Bank Ltd Versus Deputy Commissioner of Income Tax

The tribunal allowed the appeal for statistical purposes and directed remand to the Assessing Officer for fresh adjudication. It emphasized the necessity ... Short deduction of TDS – Payment of interest to a society - Liability on late deposit f TDS u/s 194A of the Act r.w. Rule 30(1)(b)(i)(1) of the Rules – Held that:- The lapse on account of non-deduction of tax at source is to be visited with three different consequences – penal provisions, interest provisions and recovery provisions - The penal provisions in respect of such a lapse are set out in Section 271 C - So far as penal provisions are concerned, the penalty is for lapse on the part of the assessee and it has nothing to do with whether or not the taxes were ultimately recovered through other means - The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1A) - These provisions provide that for any delay in recovery of such taxes is to be compensated by the levy of interest. As far as recovery provisions are concerned, these provisions are set out in Section 201(1) which seeks to make good any loss to revenue on account of lapse by the assessee tax deductor - the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient of income has not paid tax - recovery provisions under section 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes. In the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same - The provisions to make good the short fall in collection of taxes may thus end up being invoked even when there is no shortfall in fact - once assessee furnishes the requisite basic information, the Assessing Officer can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income. Levy of Interest u/s 201(1A) of the Act – Held that:- The interest is a compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes - Following Bennett Coleman & Co Ltd Vs ITO [1984 (11) TMI 58 - BOMBAY High Court] - levy of interest under section 201(1A) is applicable whether or not the assessee was at fault - it is only compensatory in nature it is applicable for the period of the date on which tax was required to be deducted till the date when tax was eventually paid – the matter remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Issues:Challenge to correctness of CIT (A)'s order on demand raised u/s 201(1A) r.w.s.194A of the Income Tax Act 1961.Analysis:The appellant challenged the correctness of the CIT (A)'s order regarding the demand raised under section 201(1A) of the Income Tax Act. The issue revolved around the short deduction of tax at source while making payments of interest to various entities. The Assessing Officer contended that the tax deduction rate should have been higher than what the appellant had deducted. The appellant conceded the issue of short deduction of tax, leading to the rejection of the appeal by the CIT (A).The appellant, now in second appeal, did not appear during the proceedings. The tribunal considered the arguments presented by the Departmental Representative and reviewed the case records. It was established that there was indeed a short deduction of tax at source as the interest payment exceeded Rs.10 lakhs, necessitating a surcharge in addition to the prescribed tax rate.The tribunal emphasized the legal position that a short deduction of tax at source does not automatically result in a legally sustainable demand under sections 201(1) and 201(1A). Citing relevant judgments, including the Supreme Court's decision in Hindustan Coca Cola Beverage Pvt. Ltd. vs. CIT, it was clarified that the recovery liability can only be invoked if the primary liability to pay tax directly by the recipient of income is not fulfilled. The onus is on the revenue to demonstrate the non-recovery of taxes from the primary taxpayer before invoking recovery provisions.Regarding the consequences of non-deduction of tax at source, the tribunal highlighted the penal, interest, and recovery provisions under the Income Tax Act. The penal provisions under Section 271C are applicable irrespective of the actual recovery of taxes. Interest provisions under Section 201(1A) aim to compensate for delays in tax realization. Recovery provisions under Section 201(1) can only be invoked when a loss to revenue is established, contingent upon the recipient of income not paying due taxes.The tribunal directed the matter to be remanded to the Assessing Officer for fresh adjudication in line with the legal principles discussed. It emphasized the importance of providing a fair hearing to the appellant and issuing a detailed order. The appeal was allowed for statistical purposes, setting the stage for a comprehensive review by the Assessing Officer.