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Facts
The assessee, a Government Treasury office, was found to have short-deducted tax on salaries and pensions. An order u/s 201(1) and 201(1A) was passed for AY 2016-17. The assessee contended that tax had been paid by pensioners and the delay in initiating proceedings was beyond the limitation period.
Held
The Tribunal held that the initiation of proceedings u/s 201(1) was beyond the four-year limitation period as established by the Delhi High Court in NHK Japan Broadcasting Corporation. Therefore, the order passed was invalid and set aside.
Key Issues
Whether the action for short deduction of tax was initiated within the prescribed limitation period. Whether the assessee can be held in default when the deductee has already paid the tax.
Sections Cited
201(1), 201(1A), 133A(2A)
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Income Tax Appellate Tribunal, DELHI ‘E’ BENCH,
Before: SHRI CHALLA NAGENDRA PRASAD, & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the Addl. JCIT(A)-3 Mumbai/NFAC dated 21.03.2025 pertaining to A.Y. 2015- 16. ld. CIT(A) erred in treating the assessee in default within the provisions of section 201(1) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'.
None appeared on behalf of the assessee. We decided to proceed with the assistance of the ld DR and material on record.
Briefly stated, the facts of the case are that the assessee is a Government Organization under the name and style of Treasury Office Cum PDO, Sector-1, Room No. 9, Mini Secretariat, Panchkula, Haryana. The assessee is fully Governed by Haryana Government and being a Treasury office of district Panchkula, salary and pension of district Govt. employees was disbursed from this office.
A survey/inspection u/s 133A(2A) of the Act was carried out at the office premises on 04.02.2020 by the Income Tax Department. Based on the inspection findings, the Assessing Officer passed an order dated 11.03.2022 u/s 201(1) and 201(1A) of the Act for A.Y 2016-17, raising a demand of Rs. 13,21,894/- comprising Rs. 7,49,749/- towards alleged short deduction of tax under Section 201(1) and 26,17,555/- as interest under Section 201(1A) of the Act.
After considering facts and submission, the ld. CIT(A) dismissed the appeal of the assessee.
Now the further aggrieved assessee is in appeal before us.
Before us, the contention of the assessee is the alleged default arose due to systemic and automated processing via state government software, which minimizes human error, and that tax was deducted as per prescribed norms. However, the pensioners whose deductions are in question have already filed their returns and paid tax on the income received. Hence, there is no loss to the Revenue.
The assessee contended that the ld. CIT(A) issued a notice dated 29.07.2022 erroneously reflecting the A.Y as 2015-16, although the appeal was filed for the assessment year 2016-17. The CIT(A), without affording proper opportunity of being heard to the assessee, disregarded the issuance of incorrect notices reflecting the wrong assessment year. This oversight was neither acknowledged nor rectified and stands in violation of the principles of natural justice. The assessee had duly submitted a written reply along with supporting evidentiary documents in response to the notice dated 15.08.2022. However, these submissions were not considered or examined by the ld. CIT(A). The ld. counsel for the assessee relied upon Page 3 of 6 Cola Beverage Pvt Ltd 293 ITR 226 [Supreme Court] for the proposition that when deductee has paid its tax, the deductor cannot be held to be in default.
Per contra, the ld. DR relied on the orders of the authorities below.
We have heard the ld DR, gone through the submissions of the assessee and have perused the relevant material on record. We find that the order u/s 201(1)/201(1A) of the Act was passed on 11.03.2022 for A.Y 2016-17. We note that the initiation of action u/s 201(1) of the Act is contrary to the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of NHK Japan Broadcasting Corporation reported in [2008] 172 taxmann.com 230 [Del] which held that the power to initiate Section 201 proceedings is drastic and therefore requires a reasonable time limit. The court established a four-year reasonable period for initiating such proceedings, a finding that was based on Supreme Court precedents like the State of Punjab v. Bhatinda District Co-op Milk Producers Union Ltd case. This decision meant that any proceedings under Section 201 that were initiated more than four years after the default occurred were considered time-barred and could be set aside. The Hon’ble Delhi High
Page 4 of 6 exercising jurisdiction so far as provisions of the Act are concerned.
In accordance with the above referred decision of the Hon'ble Delhi High Court, any action u/s 201(1) of the Act should have been made within 4 years of the infringement of the provisions of section 201 of the Act.
In that view of the matter, the order u/s 201(1) of the Act is considered as passed beyond the limitation period as defined by the Hon'ble Delhi High Court, rendering the same as invalid and not permissible in law and is accordingly, set aside. The Assessing Officer is directed to delete the addition made. Grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee in is allowed.
The order is pronounced in the open court on 19.11.2025.