M/S. GREEN LINE (PUNJAB),NEW DELHI vs. ITO (TDS), NEW DELHI

The only identical issue to be decided in these appeals is as to whether the ld.CIT(A) was justified in imposing interest and recovering TDS from the hands of the assessee in the facts and circumstances of the case. The interconnected issue involved is whether the order passed u/s 201(1)/201(1A) of the Act by the ld. TDS Officer in the case of different assessees are barred by limitation.

Let us take up the appeal of the assessee in the case of Green Line (Punjab) in for AY 2002-03.

We have heard the rival submissions and perused the material available on record. A survey operation u/s 133A of the Act was carried out on 17.03.2002 at the business premises of the assessee firm, Green Line (Punjab) situated at I-25, Lajpat Nagar-III, New Delhi – 110 024 to verify the compliance of TDS provisions. During the course of survey operation, the statement of Accountant of the company was recorded on oath. Subsequently, on verification of the TDS returns furnished by the assessee, the ld. TDS Officer came to the conclusion that the assessee firm had committed defaults on certain contractual payments u/s 194C of the Act and on certain cases payments u/s 194H of the Act, pursuant to which an order u/s 201(1)/201(1A) of the Act was framed in the hands of the assessee, Green Line (Punjab) on 29.03.2011 treating the assessee as an ‘assessee in default’ for not deducting tax at source on certain payments and also levying interest u/s 201(1A) of the Act for the delayed remittance.

This question, after the amendment to Section 201 of the Act brought about by the Finance (No. 2) Act, 2009 with effect from 1st April, 2010 came up for consideration by this Court in CIT (TDS)-I v. C.J. International Hotels (P.) Ltd. [2015] 372 ITR 684/231 Taxman 818/56 taxmann.com 458 (Delhi). One of the questions addressed by the Court in the said case in its judgment dated 9th February, 2015 concerned the initiation of proceedings against the Assessee for declaring an Assessee to be an Assessee in default. The discussion in the said judgement on this issue is contained in paras 6 to 10, which read as under: '6. It is evident from the above discussion that the assessee was sought to be proceeded against Section 201 as one in default, after the period of four years. This Court is conscious that the text of the provision nowhere limits the exercise of powers. Equally, there are several provisions of enactment, i.e., Sections 143(2), 147, 148 and 263, and even through introduction of specific provisions in Section 153 of the Act, where the time limit is specifically prescribed. At the same time, this Court in NHK Japan (supra) was of the opinion that the power to treat someone as assessee in default is too drastic, vague and oppressive since it is conditioned by some measure of limitation. In these circumstances, the Court had insisted that for the purpose of initiation of proceedings under Section 201, the AO has to act within four years. In NHK Japan, the Court did take note of the judgment in State of Punjab v. Bhatinda District Co-op Milk Producers Union Ltd. [2007] 9 RC 637.

The judgment in NHK Japan to a certain extent was limited by the amendment to Section 201 by substitution of Section 201(3) w.e.f. 1.4.2010 by Finance Act No. 2/2009. This substitution was in turn amended w.e.f. 1.10.2014 – by Finance Act No. 2/2014. As a result, the provision which exists as on date is as follows:— 6

Secondly, Section 201 itself was amended by introduction of sub-section 1(A) - with retrospective effect, from 1.4.1966. The provision underwent legislative changes on different occasions. The decision in NHK Japan was rendered on 23.04.2008. The Revenue's appeal was rejected on 3.7.2014. Although, the Supreme Court had granted special leave and has apparently stated in its final order rejecting the Revenue's appeal that the question is left open, the mere circumstance that the Parliament did not spell out any time limit before it did eventually in 2009 - and subsequently in 2014 – would not lead to the sequitur that this Court's ruling in NHK Japan requires consideration. In that judgment, the Division Bench had given various reasons, including the application of the rationale in Bhatinda District (supra). In NHK Japan, the Court had noticed that the facts in Bhatinda District (supra) judgment concern exercise of jurisdiction by a statutory authority in the absence of specific period of limitation. The Court in Bhatinda District (supra) held as follows: "17. It is trite that if no period of limitation has been prescribed, statutory authority must exercise its jurisdiction within a reasonable period. What, however, shall be the reasonable period would depend upon the nature of the statute, rights and liabilities thereunder and other relevant factors.

More recently in Commissioner of Income Tax-III v. Calcutta Knitwears, Ludhiana [2014] 362 ITR 673 (SC), the Supreme Court had the occasion to deal with the correct position in law as to the initiation of income tax proceedings. Although, the context of the dispute was in respect of recording of a satisfaction note as to the initiation of proceedings against third parties under erstwhile Section 158BD of the Act which did not prescribe the period of limitation and left it to the discretion of the AO to decide on being satisfied that such proceedings were required to be initiated, the Court limited such discretion in the following terms: "44. In the result, we hold that for the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under Section 158BC of the Act; (b) along with the assessment proceedings under Section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person."

Circular 5 of 2010 of CBDT clarifying that the proviso to Section 201(3) of the Act was meant to expand the time limit for completing the proceedings and passing orders in relation to 'pending cases'. The said proviso cannot be interpreted, as is sought to be done by the Department, to enable it to initiate proceedings for declaring an Assessee to be an Assessee in default under Section 201 of the Act for a period earlier than four years prior to 31st March, 2011.

With respect to Vodafone Essar Mobile Services Limited (VEMSL), Mr. Shivpuri sought to contend that in these cases the initiation of the proceedings was triggered by the order dated 12th August 2010 passed by the Supreme Court in Civil Appeal No. 6692 of 2010 which pertained to the AY 2002-2003. 30. As rightly pointed out by Mr. Syali while the Supreme Court had sent the matter back for further proceedings for AY 2002-2003, as far as the orders under challenge in these writ petitions are concerned, they pertain to AYs 2003-2004, 2004-2005 and 2005-2006 in respect of which no orders have been passed by the Supreme Court. These notices, therefore, sought to initiate proceedings for declaring VEMSL to be an Assessee in default earlier than four years prior to 31st March, 2011. 8

The Court agrees that the notices issued to VEMSL for the aforementioned AYs are not covered by the order of the Supreme Court for AY 2002-2003. Accordingly, insofar as the notices for AYs 2003-2004, 2004-2005 and 2005-2006 are concerned, they are held to be unsustainable in law on the interpretation of Section 201(3) of the Act by the Court.

In view of the above conclusion, the Court does not consider it necessary to address the question of constitutional validity of Section 201(3) of the Act or the proviso thereto. In any event, the Petitioners also did not press for that relief in view of the acceptance of their submission on the interpretation of the said provision by the Court. 33. Consequently, the notices impugned in the present petitions issued by the Department seeking to initiate proceedings against the Petitioners for declaring them to be Assessees in default under Section 201(3) of the Act are hereby quashed. 10. Prior to the amendment in section 201(3) by the Finance Act, 2012 w.r.e.f. 01.04.2010, there was no stipulation provided in the Act for passing an order u/s 201(1)/201(1A) holding a person to be an assessee in default. In fact, this fact is also explained by the CBDT Circular No.05/2010 dated 03.06.2010 which explains the amended provisions w.r.e.f. 01.04.2010 prescribing time limit for framing an order u/s 201 of the Act. In fact, the said Circular says that this amendment would be effective from 01st April, 2010 only and would apply to such orders passed on or after 1st April, 2010. We find that the ld. DR took shelter based on this CBDT Circular before us stating that since the order in the instant case was passed on 29.03.2011 which is after 01.04.2010, the said order is passed within the time limit prescribed in section 201(3) of the Act r.w. proviso thereto. We find that the very same issue was subject matter of consideration before the Hon’ble jurisdictional High Court in the case of Vodafone Essar Mobile Services Ltd. vs. Union of India, reported in 385 ITR 436 referred to supra. The Circular has to be interpreted in such a manner that the time limit stipulated in section 201(3) of the Act would apply only for those orders passed on or after 1.4.2007 and not earlier. 9

In view of the aforesaid observations and respectfully following the decision of Hon’ble Jurisdictional High Court referred supra, we hold that the order passed by the ld. TDS officer u/s 201 / 201 (1A) of the Act is barred by limitation. Hence the demand raised thereon is directed to be quashed. In view of this, the other grounds raised by the assessee on merits, need not be adjudicated upon as they would become academic in nature.

In the result, the appeal of the assessee in the case of Green Line (Punjab) is allowed.

Now, let us take up the appeal of the assessee in the case of Green Line (Delhi) in for AY 2003-04.

The only identical issue to be decided in these appeals is as to whether the ld.CIT(A) was justified in imposing interest and recovering TDS from the hands of the assessee in the facts and circumstances of the case. The interconnected issue involved is whether the order passed u/s 201(1)/201(1A) of the Act by the ld. TDS Officer in the case of different assessees are barred by limitation.

We find that the facts prevailing in the case of Green Line (Delhi) are identical with the facts in Green Line (Punjab) adjudicated, supra, save that in the case of Green Line (Delhi) the default committed by the assessee in the TDS provisions were in respect of payments made on account of commission, interest, contract payments and salary. An order has been passed by the ld. Income-tax Officer,

In view of the aforesaid observations and respectfully following the decision of Hon’ble Jurisdictional High Court referred supra, we hold that the order passed by the ld. TDS officer u/s 201 / 201 (1A) of the Act is barred by limitation. Hence the demand raised thereon is directed to be quashed. In view of this, the other grounds raised by the assessee on merits, need not be adjudicated upon as they would become academic in nature.

In the result, the appeal of the assessee in the case of Green Line (Delhi) in is allowed.

Now let us take up the appeal of the assessee Green Line Earth Ltd. in for AY 2002-03.

Since the ld.CIT(A) had adjudicated only the issue of order being passed by the ld. TDS Officer as not barred by limitation and the very same issue is also raised before us by the assessee, vide ground No.1, we find that the decision rendered by 12

In view of the aforesaid observations and respectfully following the decision of Hon’ble Jurisdictional High Court referred supra, we hold that the order passed by the ld. TDS officer u/s 201 / 201 (1A) of the Act is barred by limitation. Hence the demand raised thereon is directed to be quashed. In view of this, the other grounds raised by the assessee on merits, need not be adjudicated upon as they would become academic in nature.

In the result, the appeal of the assessee in Green Line Earth Ltd., in is allowed.