Late fee under section 234E for not filing a TDS return is applicable only since June 1, 2015

Facts and Issues of the Case

The assessee filed statement of tax deducted at source (TDS) for various quarters in Form No.26Q for AY 2013-14 to 2015-16 (Financial Years 2012-13 to 2015-16) in respect of its various branches set out in the annexure to this order. The statement was processed by the respondent. There was a delay in filing the above TDS statement and therefore the AO by intimation u/s. 200A of the Income-Tax Act, 1961 levied late fee u/s. 234E of the Income- Tax Act, 1961. Under Sec.234E of the Act, if there is a delay in filing statement of TDS within the prescribed time then the person responsible for making payment and filing return of TDS is liable to pay by way of fee a sum of Rs.200/- per day during which the failure continues.

Aggrieved by the aforesaid orders, the assessee filed appeals before the NFAC /CIT(A). The assessee’s contention before CIT(A) was that the provisions of section 234E of the Act was inserted by the Finance Act, 2012 w.e.f. 1.7.2012. Section 200A of the Act is a provision which deals with how a return of TDS filed u/s.200(3) of the Act has to be processed .

Clause (c) to (f) of section 200A(1) was substituted by the Finance Act, 2015 w.e.f. 1.6.2015. The assessee contended before NFAC (CIT(A)/first appellate authority) that AO could levy fee u/s.234E of the Act while processing a return of TDS filed u/s.200(3) of the Act only by virtue of the provisions of Sec.200A(1)(c), (d) & (f) of the Act and those provisions came into force only from 1.6.2015 and therefore the authority issuing intimation u/s. 200A of the Act while processing return of TDS filed u/s.200(3) of the Act, could not levy fee u/s. 234E of the Act in respect of statement of TDS filed prior to 1.6.2015. The assessee, thus, challenged the validity of charging of fee u/s. 234E of the Act. The assessee relied on the decision of the Hon’ble High Court of Karnataka in the case of wherein the Hon’ble Karnataka High Court held that amendment made u/s. 200A providing that fee u/s. 234E of the Act could be computed at the time of processing of return and issue of intimation has come into effect only from 1.6.2015 and had only prospective effect and therefore, no computation of fee u/s.234E of the Act for delayed filing of return of TDS while processing a return of TDS u/s.234E of the Act could have been made for tax deducted at source for the assessment years prior to 1.6.2015.

The NFAC/CIT(Appeals) agreed with the contention that the issue has been decided by the Hon’ble Karnataka High Court in favour of the Assessee in the case of Fatehraj Singhvi . The NFAC/CIT(A) however found that the Hon’ble Gujarat High Court in the case of Rajesh Kourani Vs. UOI and Hon’ble Rajasthan High Court in the cae of M/S.Dundlod Shikshan Sansthan & another Vs. Union of India & others has taken a view that even in the absence of Sec.200A of the Act with introduction of Sec.234E of the Act it was always open to the revenue to demand and collect fee for late filing of statement of TDS and that Sec.200A merely regulates the manner in which the computation of such fee would be made and demand raised. The NFAC/CIT(A) referred to decisions rendered by ITAT Mumbai in Ravi Rajkumar Valecha Vs. Assessing Officer, TDS Ward, Kalyan in ITA No.4822/Mum/2016 dated 15.6.2018 and another decision of ITAT Mumbai in the case of Nav-Alka Co-op.Housing Society Vs. DCIT(TDS) ITA wherein the Tribunal after quoting the aforesaid two conflicting decisions of Hon’ble Gujarat and Karnataka High Court, held following decision of Hon’ble Supreme Court in the case of CIT Vs. Vegetable Poducts Ltd. wherein it was held that when two views are possible, the view which favours the assessee may be adopted, held that levy of interest u/s.234-E prior to 1.6.2015 was not valid.

The NFAC/CIT(A) however referred to the decision of the Constitutional Bench of five Judges in the case of CCI Mumbai Vs. M/S.Dilip Kumar and Co.& others wherein the Hon’ble Supreme Court held Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. The NFAC/CIT(A) therefore upheld the levy of interest u/s.234E of the Act on the ground that if return of TDS is filed after 1.6.2015, then levy of interest u/s.234- E is valid. Thus the NFAC/CIT(A) took the view that the date of filing of the TDS return would be material to decide whether the levy of late fee u/s.234-E of the Act, is valid or not.

Aggrieved by the order of the CIT(A), the Assessee has preferred appeals before the Tribunal. We have heard the submission of the learned counsel for the Assessee who submitted that the decision of the Hon’ble Karnataka High Court being the decision of the jurisdictional High Court ought to have been followed by the NFAC. The learned DR reiterated the stand of the revenue as reflected in the order of the CIT(A).

Observation by the Court

The court had considered the submissions of the learned DR and also the grounds of appeal filed by the Assessee. It is not in dispute that if the ratio laid down by the Hon’ble Karnataka High Court in the case of Fateeraj Singhvi is applied then the levy of interest u/s.234-E of the Act would be illegal for returns of TDS in respect of the period prior to 1.6.2015. The present appeals of the Assessee relate to TDS returns filed prior to 1.6.2015 and therefore levy of interest u/s.234E of the Act would not be valid, following the ratio laid down by the Hon’ble Karnataka High Court.

It is no doubt true that three Hon’ble High Courts of Gujarat and Rajasthan, have taken a view contrary to the view taken by the Hon’ble Karantaka High Court in the case of Fateeraj Singhvi (supra). If there is conflicting views rendered by different High Courts, the view taken by the jurisdictional High Court is binding in the jurisdictional area of the respective High Court. The Hon’ble Bombay High Court in the case of Subramaniam – vs.- Siemens India Ltd. (1985) held that in the case where there is conflict of views between different High Courts, authorities must follow the decision of the High Court within whose jurisdiction he is functioning. The Court further added that in cases where there is a conflict between the decisions of non-jurisdictional High Courts, the ITO must take the view which is in favour of the assessee and not against him. In CIT -vs.- Sunil Kumar (1996) it was held that the decision of the Jurisdictional High Court is binding on the Income tax Authorities and the Tribunal within the jurisdiction of the Court and the contrary decision of another High Court is not relevant, and that a point decided by the Jurisdictional High Court can no longer be considered to be a debatable issue.

In the case of Mahadev Cold Storage Vs. AO ITA No.41 & 42/Agr/2021 order dated 14.6.2021, it was held that although a centralized NFAC had been created by the notifications, it had to be ensured that where an appellate order was passed by the NFAC, the decision of the jurisdictional high court with jurisdiction over the AO should be followed and applied by the NFAC. Relief should not be refused to the taxpayer merely because there was a conflicting decision of a non-jurisdictional high court. It was held that an appeal against the decision of the Agra ITAT would be before the Allahabad High Court; therefore, the decision rendered by that court was binding not only on the ITAT but also on the NFAC that was deciding the issue pertaining to the jurisdiction of the Agra ITAT and hence the Allahabad High Court. The NFAC was bound by the binding decision of the jurisdictional High Court, where the AO was situated.

In so far as the decision of the Hon’ble Supreme Court in the case of CCI Vs. M/S.Dilip Kumar & Co. & others is concerned, , it was a case where a Constitutional Bench was set up to examine the correctness of the ratio of the 3-Judge Bench decision in the case of Sun Export Corporation v. CC (1997) , namely the rule of construction to be applied while interpreting a tax exemption provision / notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied. The Division Bench in Dilip Kumar & Co’s case was tackling the question as to whether the assessee was eligible for claiming benefit of concessional rate of import duty in respect of a consignment of ‘Vitamin E50 powder’ , in terms of a notification. The revenue authorities contended that the notification was applicable only to ‘animal feed’. The assessee, on the other hand, argued that the concessional duty rate had to be extended to ‘animal feed supplement’ as well, in light of the Sun Export Case, wherein it was held that ‘in case of two views possible, it is well- settled, that one favourable to the assessee in matters of taxation has to be preferred’.

In the light of the above discussion, the court are of the view that the levy of interest u/s.234E of the Act in the present case cannot be sustained and the same is directed to be deleted and the appeals of the Assessee are allowed.