CBDT Lays Down Procedure For Launching Prosecution For TDS/ TCS Default

CBDT Lays Down Procedure For Launching Prosecution For TDS/ TCS Default

The CBDT has issued a document titled “Standard Operating Procedure For Prosecution In Cases Of TDS/ TCS Default“. The SOP sets out in a systematic manner the procedure for identification of cases of TDS/ TCS default, the procedure for launching prosecution and the time frame for completing the entire process. The role of the different TDS authorities in addressing the issue of prosecution and compounding of TDS cases is also set out in detail.

Bombay High Court grants stay against 234E notices

Rashmikant Kundalia vs. UOI (Bombay High Court)

S. 234E: High Court grants ad-interim stay against operation of notices levying fee for failure to file TDS statement

S. 234E of the Income-tax Act, 1961 inserted by the Finance Act, 2012 provides for levy of a fee of Rs. 200/- for each day’s delay in filing the statement of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS). A Writ Petition to challenge the validity of s. 234E has been filed in the Bombay High Court. The Petition claims that assessees who are deducting tax at source are discharging an administrative function of the department and that they are a “honorary agent” of the department. It is stated that this obligation is onerous in nature and that there are already numerous penalties prescribed for a default. It is stated that the fee now levied by s. 234E is “exponentially harsh and burdensome” and also “deceitful, atrocious and obnoxious“. It is also claimed that Parliament does not have the jurisdiction or competence to impose such a levy on tax-payers.

The Bombay High Court has, vide order dated 28.04.2014, granted ad-interim stay in terms of prayer clause (d) i.e. stayed the operation of the impugned notices levying the fee.

See also Narath Mapila LP School vs. UOI (Ker), Adithya Bizorp Solutions India vs. UOI (Kar) & Om Prakash Dhoot vs. UOI (Raj) where similar interim orders of stay have been passed.

Sec. 272B: High Court Explains Scope For Levy of Penalty For TDS Default

CIT vs. DHTC Logistics Ltd (Delhi High Court)

Sec. 272B penalty on deductor for wrong/ non-stating of PAN in TDS return is not applicable if information is not furnished by deductee. Penalty is Rs. 10,000 per deductor and not per wrong PAN


The assessee filed a TDS return in which the PAN of 30,706 deductees was either missing or was incorrectly stated. The AO held that as penalty of Rs. 10,000 u/s 272B was levaible for the non-mentioning of the PAN, the penalty had to be computed per PAN/deductee. He accordingly levied penalty of Rs. 30.70 crore at the rate of Rs. 10,000 per deductee. The CIT(A) restricted the penalty to Rs. 10,000 on the ground that as per the CBDT’s letter dated 05.08.2008 bearing No. 275/24/2007-IT(B), s. 272B penalty is linked to the person/ deductor and not with the number of defaults in the PAN quoted in the TDS return. The Tribunal upheld the view of the CIT(A) (order attached). On appeal by the department to the High Court HELD dismissing the appeal:

There are two reasons why the appeal cannot be entertained. Firstly, the AO in the penalty order u/s 272B has not specifically referred to any default or failure by the assessee mentioning PAN Number even when the said particulars and details were available. The stand taken by the assessee was that the PAN Numbers were not furnished by the truck owners and, therefore, they were not quoted by them or PAN Numbers as informed were quoted. In case, the PAN Numbers are not furnished by the deductees, the assessee cannot be penalized u/s 272B. S. 139A also imposes the obligation on the deductees to furnish PAN Number to the deductor. Secondly, the stand taken by the revenue is contrary to the stand taken by the CBDT. The AO had imposed penalty of Rs.10,000/- in each case where PAN Number was not provided by the deductee. However, the CBDT has in letter dated 5.8.2008 vide No.275/24/2007-IT(B) clarified that penalty of Rs.10,000 u/s 272B is linked to the person, i.e., the deductor who is responsible to deduct TDS, and not to the number of defaults regarding the PAN quoted in the TDS return. Therefore, regardless of the number of defaults in each return, maximum penalty of Rs.10,000/- can be imposed on the deductor. Penalty cannot be imposed by calculating the number of defective entries in each return and by multiplying them with Rs.10,000/-. This also appears to be a legislative intent, as in many cases, the TDS amount may be small or insignificant fraction of Rs.10,000. (Clarified that the Q whether penalty u/s 272B can be imposed if the deductor has not correctly recorded the details despite proper representation by the deductee is not decided)

 Source: itatonline.org

Subsequent circulars won’t create TDS obligation if circular applicable at time of payment exempted it

Where circular effective at relevant time exonerates an assessee from TDS obligation on payment to non-resident, subsequent circular would not create such an obligation retrospectively

In the instant case the assessee had paid commission to foreign agents on which it did not deduct tax in view of Circular Nos. 23 of 1969, 163 of 1975 and 786 of 2000. The revenue made disallowance of expenditure under section 40(a)(i) holding that it was mandatory for assessee to deduct tax as Circular No. 7 of 2009 had superseded earlier circulars.

The High Court held in favour of assessee as under:

1) The assessee’s assessment would be governed by Circular, which was operative at the relevant time (i.e., assessment year 2007-08) and which did not oblige the assessee to deduct tax at source;

2) The assessee was not entitled to deduct TDS. The department could not have taken different stand in subsequent years or assessment year 2007-08, when the circulars were operative and were not withdrawn;

3) Circular No. 7 of 2009, dated 22-10-2009 withdrawing earlier circulars became operative only from 22-10-2009;

4) The circulars in the relevant year were binding upon the department and assessee could challenge the affect of the Circular but that the Assessing Officer did not have any right to ignore the circulars and to disallow non-deduction of tax at source under sections 195 and 40(a)(i);

5) Thus, as assessment was governed by that circular which was operative at relevant time assessee was under no obligation to deduct tax at source – CIT v. Model Exims Kanpur (2013) 38 taxmann.com 319 (Allahabad)