The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has set aside key aspects of a TDS demand raised against Vaayu Infrastructure LLP for fresh verification, holding that tax deducted at source (TDS) already deposited with the Government cannot continue to be recovered as principal liability under Section 201(1) of the Income-tax Act, 1961.
However, the bench of Challa Nagendra Prasad (Judicial Member) and Makarand Vasant Mahadeokar (Accountant Member) clarified that delayed payment can still attract interest under Section 201(1A) for the period during which the statutory default continued.
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The proceedings originated from a spot verification conducted at the assessee’s premises on August 6, 2018 under Section 133B(2) of the Income-tax Act. Subsequently, proceedings were initiated under Sections 201(1) and 201(1A).
During examination of the Tax Audit Report in Form 3CD and head-wise expenditure details, the Assessing Officer noted that TDS aggregating to Rs. 3,51,134 had allegedly been deducted from various payments but had not been deposited into the Government Treasury. The Assessing Officer also alleged that TDS of Rs. 3,123 had not been deducted on REC registration charges of Rs. 31,231.
Consequently, the assessee was treated as an assessee in default under Section 201(1). The principal liability was determined at Rs. 3,54,257, consisting of Rs. 3,51,134 relating to TDS allegedly deducted but not deposited and Rs. 3,123 relating to the REC registration charges.
Interest under Section 201(1A) was separately calculated at Rs. 3,13,001, comprising Rs. 3,10,753 on the alleged non-deposit of deducted TDS and Rs. 2,248 in relation to the REC registration charges. The total demand therefore stood at Rs. 6,67,258.
Before the Commissioner of Income Tax (Appeals), the assessee contended that the TDS amounts had in fact been deposited into the Government Treasury and that no corresponding principal TDS liability remained outstanding.
The assessee furnished challans in support of its claim. It stated that TDS of Rs. 14,523 under Section 194H had been deposited on April 1, 2024, while TDS of Rs. 1,04,810 under Section 194C had also been deposited on the same date.
With regard to payments made to Talati & Talati, the assessee disputed the amount considered by the Assessing Officer. While the Assessing Officer had adopted a payment figure of Rs. 2,31,801, the assessee claimed that the relevant payment was only Rs. 2,10,000 and that TDS of Rs. 21,000 had been deducted and deposited on March 3, 2021.
The CIT(A) took note of the challans and directed the jurisdictional TDS Assessing Officer to verify them and delete the Section 201(1) liability to the extent the remittances were established. However, the appellate authority held that interest under Section 201(1A) would continue to be payable for the period of delay.
The CIT(A) also confirmed the Rs. 3,123 TDS liability and corresponding Rs. 2,248 interest relating to REC registration charges because supporting documents had not been furnished to establish the nature of the payment.
The Tribunal identified three principal questions for consideration: whether the principal liability under Section 201(1) continued after the TDS had been deposited, the period for which interest under Section 201(1A) could be charged, and whether TDS provisions applied to the REC registration charges.
The Bench observed that the assessee had produced challans before the CIT(A), who had already directed verification of those documents. However, the Tribunal noted a factual discrepancy concerning the Talati & Talati payment, particularly regarding the amount of payment and corresponding TDS.
According to the Tribunal, the correctness of the amount, date of deduction, date of deposit and correlation with the relevant transaction would have to be verified from the Tax Audit Report, ledger account, TDS return and challan.
The Tribunal observed that once deducted TDS has been deposited into the Government Treasury, the same amount cannot continue to remain recoverable as principal liability under Section 201(1).
The Tribunal drew a distinction between the principal tax liability and statutory interest. It held that merely depositing the principal amount does not automatically extinguish the liability to interest under Section 201(1A).
Interest can continue to arise for the period during which the statutory default existed. However, such interest must be calculated only up to the actual date on which the deducted tax was deposited with the Government Treasury.
Thus, the Tribunal rejected the possibility of simultaneously maintaining the principal TDS liability after the corresponding tax had actually been deposited, while preserving the statutory consequence of delayed remittance through interest.
The ITAT directed the jurisdictional TDS Assessing Officer to undertake a detailed verification of each challan furnished by the assessee.
The verification must establish the corresponding payment, deductee, applicable TDS provision, amount of tax deducted and relevant financial year. Where the deducted tax is found to have been deposited into the Government Treasury, the corresponding principal liability under Section 201(1) must be deleted.
The Assessing Officer must thereafter recompute interest under Section 201(1A) only for the legally applicable period, beginning from the relevant statutory date and ending on the actual date of deposit.
The Tribunal also specifically directed the Assessing Officer to examine the assessee’s contention concerning the Talati & Talati transaction and determine the correct amount of TDS on the basis of primary records.
The second significant issue concerned REC registration charges of Rs. 31,231, on which the assessee had allegedly failed to deduct TDS of Rs. 3,123.
The assessee’s case was that the payment represented statutory or registration fees for registration of Renewable Energy Certificate units for trading with the concerned authority. According to the assessee, such statutory or registration fees did not attract TDS provisions.
The CIT(A) had confirmed the demand because the assessee had not produced adequate supporting documents establishing the character of the payment.
The ITAT, however, considered it appropriate to restore the issue to the jurisdictional TDS Assessing Officer for limited factual verification.
The Assessing Officer has been directed to examine the nature of the payment, identity and legal character of the recipient, relevant invoice or demand and the statutory provision under which the registration charges were collected.
If the verification establishes that the amount was in the nature of statutory or registration fees not liable to TDS, the Tribunal directed that the Rs. 3,123 principal demand and consequential Rs. 2,248 interest be deleted.
If, on the other hand, the payment is found to be subject to TDS, the liability must be determined in accordance with law, after giving credit for any tax subsequently paid, with interest calculated only for the applicable period.
The Tribunal directed the assessee to furnish the relevant challans, TDS returns, ledger accounts, invoices and other documents necessary for the verification.
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