Fees under Section 234E cannot be levied for periods before June 1, 2015, tribunal rules in favor of assessee

ITAT Chennai held that fees under section 234E cannot be levied for periods prior to 01/06/2015. The tribunal followed favorable precedents from Kerala HC in United Metals and Sarala Memorial Hospital cases, and Chennai ITAT's decision in DRG Rexine Inc. Applying the SC principle from Vegetable Products Ltd that ambiguous taxing statutes should favor the assessee, the tribunal deleted fees levied for FY 2013-14 and 2014-15, directing CPC/AO to recompute outstanding demand. Appeal decided in favor of assessee.

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Issues Involved:
1. Levy of fees under Section 234E for late filing of quarterly TDS returns.
2. Applicability of Section 200A for computation of fees under Section 234E prior to 01/06/2015.

Issue-wise Detailed Analysis:

1. Levy of fees under Section 234E for late filing of quarterly TDS returns:
The sole grievance of the assessee was the levy of fees under Section 234E for the late filing of quarterly TDS returns for the quarters of the financial year 2014-15. The Centralized Processing Center (CPC) levied these fees, and the Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the same, stating that the intimation was issued after 01/06/2015, thus empowering CPC to make such adjustments. The assessee appealed against this decision.

2. Applicability of Section 200A for computation of fees under Section 234E prior to 01/06/2015:
The Tribunal noted that Section 234E, inserted by the Finance Act 2012 effective from 01/07/2012, envisages a fee of Rs. 200 per day for default in delivering the TDS statement within the prescribed time. Section 200A, which deals with processing TDS statements, was amended by the Finance Act 2015 effective from 01/06/2015 to include the computation of fees under Section 234E.

The assessee argued that since the amendment to Section 200A was effective only from 01/06/2015, no fees under Section 234E should be payable for any period before this date. This argument was supported by the Karnataka High Court in the case of Fatehraj Singhvi vs. Union of India, which held that the amendment to Section 200A was prospective and not retrospective.

Conversely, the Gujarat High Court in Rajesh Kourani vs. Union of India held that Section 234E is a charging section generating liability to pay fees, and the amendment to Section 200A was merely a regulatory mechanism. Therefore, fees under Section 234E could be levied for periods before 01/06/2015.

The Tribunal observed that the Kerala High Court and the Chennai Tribunal had taken a view favorable to the assessee, holding that the levy of fees under Section 234E for periods prior to 01/06/2015 was not sustainable. The Tribunal followed the principle established by the Supreme Court in CIT vs. Vegetable Products Ltd., which states that in case of two reasonable constructions of a taxing statute, the one that favors the assessee should be adopted.

Conclusion:
The Tribunal concluded that the levy of fees under Section 234E for any period before 01/06/2015 was not sustainable. Consequently, the fees levied by the TDS officer for the financial years 2013-14 and 2014-15 were deleted, and the appeals of the assessee were allowed. The CPC and the Assessing Officer were directed to delete the impugned fees and re-compute the outstanding demand against the assessee. The appeal was thus allowed in favor of the assessee.

Order Pronounced:
The order was pronounced on 26th October 2022, allowing the appeal and directing the deletion of fees levied under Section 234E for the relevant quarters.

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