2018 (12) TMI 286 - AT - Income Tax

Tribunal rules in favor of assessee, cancels interest under Income Tax Act

Oil and Natural Gas Corporation Limited, Engineering Services Versus Deputy Commissioner of Inocme Tax, Centralized Processing Cell (TDS), Gaziabad

Oil and Natural Gas Corporation Limited, Engineering Services Versus Deputy Commissioner of Inocme Tax, Centralized Processing Cell (TDS), Gaziabad - TMI Issues Involved:1. Whether the assessee was rightfully treated as being in default for delayed deposit of TDS.2. Whether the interest levied under Section 201(1A) of the Income Tax Act, 1961, was justified.3. Whether the additional late payment interest and interest under Section 220(2) were valid.Detailed Analysis:1. Default for Delayed Deposit of TDS:The primary issue revolves around whether the assessee, a government public limited company, was correctly treated as being in default for the delayed deposit of TDS. The assessee had tendered cheques for TDS payment to the State Bank of India within the stipulated due dates. However, the bank delayed the remittance to the government account, leading to the levy of interest under Section 201(1A) by the DCIT, CPC-(TDS), Ghaziabad. The CIT(A) upheld this levy, treating the assessee as in default. The Tribunal, however, noted the CBDT Circular No. 261, dated 08.08.1979, which states that the date of tendering the cheque is deemed the date of payment if the cheque is honored. The Tribunal concluded that the assessee should not be held responsible for the bank's delay and thus should not be treated as in default.2. Interest Levied Under Section 201(1A):The Tribunal examined whether the interest levied under Section 201(1A) was justified. The assessee argued that the interest was wrongly levied as the cheques were tendered within the due dates, supported by the CBDT Circular No. 261 and Section 10 r.w.s. 82(c) of the Negotiable Instruments Act, 1881. The Tribunal agreed with the assessee, referencing various judicial pronouncements, including the Hon’ble Supreme Court's judgment in K. Kaplana Saraswathi Vs. P.S.S. Somasundram Chettiar, which held that payment by cheque is considered due payment if subsequently encashed. Consequently, the Tribunal set aside the interest levied under Section 201(1A).3. Additional Late Payment Interest and Interest Under Section 220(2):The Tribunal also addressed the additional late payment interest and interest under Section 220(2). Since the primary interest under Section 201(1A) was quashed, the consequential demands for additional late payment interest and interest under Section 220(2) were also vacated. This applied uniformly across all quarters of the financial year 2007-08, as the Tribunal's decision for the first quarter was applied mutatis mutandis to the subsequent quarters.Conclusion:The Tribunal allowed the appeals of the assessee, setting aside the orders of the CIT(A) and deleting the interest levied under Section 201(1A) of the Income Tax Act, 1961. The Tribunal held that the assessee should not be treated as in default for the delayed deposit of TDS due to the bank's delay in remittance, and consequently, additional late payment interest and interest under Section 220(2) were also vacated.