Tuesday, 9 September 2014

Whether assessee is to be treated as assessee-in-default where assessee deducted tax payable by its employees but instead of remitting same in Govt account it appropriated same for its benefit - YES: HC

THE issue before the Bench is - Whether assessee is to be treated as assessee-in-default where assessee deducted tax payable by its employees but instead of remitting same in Govt account it appropriated same for its benefit. And the verdict goes against the assessee.
Facts of the case

The
Assessee Company is engaged in the business and operating as a schedule passenger airline in India. A survey under Section 133A was conducted in the assessee’s premises in order to verify TDS compliance. The survey revealed that the assessee was not remitting the taxes deducted by it at source to Government account within the due dates as prescribed in the Income Tax Act, 1961.
During the course of verification, it was noticed that for the financial year 2009-2010 to 2011-2012 certain sums were deducted from the salaries paid to the employees and payments under other heads for the above mentioned assessment years but the same was not remitted to the Government Account. Therefore, show cause notices were issued and were duly served on the assessee to explain as to why they should not be treated as an assessee-in-default. In two cases there was no response. In one case, time was sought for filing response. The assessing authority passed an order directing the assessee to pay the amount deducted with interest and issued a demand notice. The order was passed to initiate penalty proceedings under Section 221(1) separately.

In appeal, First Appellate Authority held that the assessee had never denied the fact that taxes have been deducted from the salaries paid to its employees. The assessee had no right to withhold the tax deducted from payments without paying it to the Government Account. Because of this action of the assessee, the deductees were not in a position to claim the credit for tax deducted in their cases. Therefore, he confirmed the order passed by the assessing authority.

In second appeal, Tribunal held that proper opportunity of being heard was not given to the assessee. Hence, the orders passed by both the authorities were set aside and matter was remanded to the assessing authority for fresh adjudication.

Assessee contended that the assessing authority is not the prescribed officer under the Act, who is competent to pass the impugned order and therefore the entire proceeding is vitiated. Secondly, it was contended though notices were issued, either the notices were served after passing of the order or sufficient opportunity was not given before passing the order and therefore there was violation of principles of natural justice. It was submitted that it was clear from the survey report that the amount outstanding from the assessee was not found therein and unless the Department ascertains the exact amount due by the assessee, the Assessing Authority will have no jurisdiction to proceed with the matter, because it is a jurisdictional fact. It was submitted that impugned order passed by the assessing authority was one without jurisdiction. It was submitted that the documents produced before this Court at the time of hearing of these appeals shows that assesses had filed return though belatedly and made payments. The prescribed authority under the Act has passed orders calling upon the assessee to pay certain sum of money, which according to him was the deficient. Unless these amounts are taken into consideration, the liability, if any of the assessee cannot be fixed and those orders are not passed by the assessing authority but by the prescribed authority under the Act. Even otherwise as the Tribunal has not decided the case on merits, in the event the Court were to set aside the order of remand, the matter has to be remitted to the Tribunal to consider the case on merits and pass appropriate orders.

Revenue submitted that, the prescribed authority’s duty is to receive the statement on file, look into the contents and if there is any deficiency they have to communicate to the assessee for compliance. In these cases, the amount collected as TDS was not paid, no Returns were filed and therefore it was for the assessing authority who was the competent authority to pass an order under Section 201. It was submitted that before issuance of notice under Section 201 of the Act, after survey, there was a correspondence between the parties wherein the assessee was called upon to produce the statements and accounts which he did and the amount reflected in the notice was taken from those correspondences and therefore assessee could not contend that the jurisdictional facts were not ascertained before proceeding with the matter. Secondly, it was contended the claim was not in dispute. Notice was issued. Sufficient opportunity was granted. When no explanation was offered, payment was not made, the orders were passed. After passing of the order, accepting the order, the Managing Director of the Assessing Company in several letters had pleaded for time to make payment in installments. Parallelly, he had filed an appeal, which came to be dismissed. Before, the First Appellate Authority, the assessee did not make any efforts either to offer an explanation to the notice issued or to produce documents to show that he has paid money. Therefore, it was not open to him to contend before the Tribunal that the principles of natural justice were violated. The Tribunal without appreciating the difference between Section 201 and Section 221, set aside the impugned order on the ground that the requirements of Section 221 is not complied with, which has no application to the facts of this case. Therefore, the order of remand was illegal.

Having heard the parties, the Court held that,

++ the jurisdictional fact is a fact which must exist before a Court, a Tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends on the jurisdiction of a Court, a Tribunal or an Authority. It is the fact upon which an administrative agency’s power to act depends. If the jurisdictional fact does not exist, then the Court, authority or officer cannot act. If a Court or authority wrongly assumes existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming the existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess. There cannot be any quarrel with the aforesaid legal position;

++ assessee was served with three notices dated 13-12-2011, 16-12-2011 and 21-12-2011 claiming amounts mentioned therein and calling upon the assessee to show cause why the assessee should not be treated as an assessee in default under Section 201(1) of the Act in respect of the sum mentioned in the notice. Further, the assessee was also requested to furnish the above details month wise in the format mentioned in the said notice to enable the office to verify the TDS compliance and calculations of interest under Section 201(1A). In case, the month wise details is not furnished, the interest under Section 201(1A) will be calculated from 01-04-2010. The format was also mentioned in the said notice. Now the argument is, the amount mentioned as having been deducted by the assessee and has not been remitted to the Government Account in accordance with the provisions of Section 200 is devoid of particulars and not supported by any supporting documents. Neither before the First Appellate Authority nor before the Tribunal nor before this Court, the particulars are forthcoming nor furnished. Therefore in the absence of those particulars, the jurisdictional fact does not exist and the entire proceedings is vitiated;

++ materials on record also disclose that the audit report under Section 44AB of the Act along with audited Profit and Loss Account for the year ended on 31st March 2010, the audited balance sheet as at 31st March 2010 and the documents declared by the relevant Act to be part of or annexed to the Profit and Loss Account and Balance Sheet were also furnished which are dated 01st October 2010;

++ in column No.27, as against the query whether the assessee had complied with the provisions of Chapter XVII-B regarding deduction of tax at source and regarding payment thereof to the credit of the Central Government, the auditors have remarked that they had verified the compliance with the provisions of Chapter XVII-B regarding deduction of tax at source and regarding the payment thereof to the credit of the Central Government in accordance with the Auditing Standards generally accepted in India which include test checks and the concept of materiality. The non-compliance revealed during such audit procedures are as mentioned in clause(b). Then they had set out non-compliance. Insofar as tax deducted but not paid to the credit of the Central Government is concerned, they have enclosed Annexure-IX. Annexure-IX shows the tax deducted for the months under various provisions of the Income Tax Act as well as the due dates and wherever the payment has been made, the date of payment is given. Wherever no such payment is made, the column is left blank. The said annexure also shows the amount of tax which is deducted and not paid. Based on this information and correspondence, the notice was issued under Section 201 of the Act. The demand was made as required under Section 201 of the Act. Therefore, the contention that the amount claimed in the notice has no basis and how the said amount is arrived at is not made known and therefore, the assessee did not have an opportunity to meet the case of Department is without any substance. Therefore, we do not see any merit in the said contention.
++ after survey, before issuing notice under Section 201 of the Act, the authorities had made enquiries calling upon the assessee to furnish the particulars. The assessee reluctantly has furnished the particulars. Therefore, in this background when there was total non-cooperation on the part of the assessee, the Department was left with no alternative than to issue those notices calling upon them to appear and show cause why the assessee should not be declared as ‘assessee in default’ in respect of the tax mentioned in the said notice;

++ in the notice dated 21-12-2011, 29-12-2011 it is mentioned as the date on which it was served, however, the assessee was called upon to appear on 26-12-2011. Hence, it was argued that the said notice is vitiated and at any rate a reasonable opportunity was not given. The notice dated 29-12-2011 is put by the assessee’s official with their seal. In fact, in the notice dated 13-12-2011 which is said to have been received by the assessee on 16-12-2011, we do not see any such date being put. But in that particular case, they engaged the services of a leading Chartered Accountant, who made a request for time by three weeks, which was not granted and therefore, the order came to be passed on 30-12-2011. Even in pursuance of the notice dated 16-12-2011, no objections are filed. Therefore, in all the three cases, in spite of notice under law has been issued, duly served, but no steps were taken to file any objections or furnish the particulars and contest the matter. The question is whether the principles of natural justice is violated in the aforesaid circumstances;

++ the assessee never complained of violation of principles of natural justice, on the contrary the liability was admitted and their difficulties in making the payment was expressed. They wanted to make payments in installments and a part of the amount was also paid. However, in the appeal filed, all the facts set up by them were made a ground. For the first time they contended that the order is in violation of principles of natural justice. The argument was that they have made payments and there was no opportunity for them to show the said payments and also that the amounts claimed are without any basis. If there is any substance in the said contention, it was open to the assessee to produce before the First Appellate Authority along with the appeal memorandum the particulars such as, number of employees employed by them, salary paid to them, the TDS deductions made from the salary, what is the total amount of TDS deduction which came to their hands and what is the amount they have to pay and requested the First Appellate Authority to set aside the order of the Assessing Authority on the basis of such factual position which was in their possession;

++ section 106 of the Evidence Act, 1872 which deals with the burden of proving the fact, especially within knowledge, provides that when any fact is established within the knowledge of any person the burden of proving that fact is upon to him. The amount collected as TDS is the amount deducted from the salary of the employees of the assessee. The assessee has failed to furnish particulars such as the number of employees employed by them, the amount of salary paid to them, the amount of TDS deducted out of their salary and if any payment has been made to the Central Government. These are all facts which are within the knowledge of the assessee and they cannot expect the Department to furnish all these particulars. The Department is acting on the basis of the information furnished by the assessee as set out above. The assessee in their correspondence has stated what is the amount due which is reflected in the annexures. The Department has gathered the figures from the materials available on record. If that is wrong, it was open to the assessee to produce their accounts and point out to the Appellate Authority that, that is not the amount due. But no such exercise has been done;

++ if the grievance of the assessee is that Assessing Authority did not give sufficient opportunity to place their version and to produce receipts showing payments of money, they were not afforded with an opportunity to produce the documents to show that the assessee has not deducted the tax from the salary of its employees, it was open to the assessee to produce all those documents before the First Appellate Authority whose powers are co-extensive with that of the Assessing Authority. He was empowered in law to do what the Assessing Officer failed to do and request the Authority to grant the relief to which he was entitled to in law. The assessee was assisted by able Chartered Accountant. The assessee was in possession of audit report and the books of account were in his possession. No effort was made before the First Appellate Authority to produce those documents to substantiate the defence, if they have any. On the contrary, the conduct of the assessee shows, they are corresponding with the Assessing Authority admitting the total liability of the tax payable requesting him to grant some time or liberty to pay in installment.They have also made partial payment. Therefore, at no point of time, the liability was in dispute. The grievance was because of cash crunch, difficult times the assessee was undergoing, he is not able to raise requisite funds, he wanted accommodation. It is in this background, the First Appellate Authority in one of the case has clearly set out the ground urged before him, where difficulties are pleaded. The First Appellate Authority was of the view that the amount payable by the assessee to the Department is not tax due by him. He has deducted the tax payable by his employees or to whom he has made payment, collected tax due to the Government on behalf of Government, instead of remitting the same he has appropriated the same for his benefit. Therefore, it was held, none of those causes put forth for not remitting the said amount would constitute sufficient cause. Therefore, the assessee was not entitled to relief;

++ the Tribunal has completely misdirected itself and proceeded on the assumption that the assessee has not been given a reasonable opportunity of putting forth his case and therefore, it set aside the order. Before coming to that conclusion, the Tribunal has not looked into the material on record. It has also not taken into consideration the scope of enquiry before the First Appellate Authority. It has also not taken into consideration that the assessee did not make any efforts to produce documents and statements in support of their contention, though a ground was raised in the appeal memo. When we look at the order passed by the First Appellate Authority, the said ground appears to have not been urged. Even otherwise, if assessee wanted an opportunity to produce statement, nothing prevented the assessee from producing them along with the appeal or file an application to the First Appellate Authority requesting them to take note of the same and then frame an order of assessment. The Tribunal has proceeded on the assumption that the assessee has been denied a reasonable opportunity by the Assessing Officer and therefore, the order requires to be set aside. The approach of the Tribunal is not in accordance with law and it has not borne in mind the distinction between the jurisdiction of the First Appellate Authority in taxation laws as compared to other jurisdiction. The powers of the First Appellate Authority are co-extensive with that of the Assessing Officer. Therefore, the order of the Tribunal cannot be sustained and accordingly, it is set aside;

++ sub-section (3) of Section 201 declares no order shall be made under sub-section (1) deeming a person to be an assessee in default in failing to deduct the whole or any part of the taxes from a person resident in India at any time, after the expiry prescribed therein. As this order declaring an assessee to be in default would have serious consequence and the statute does not exclude issue of notice before passing such an order, principles of natural justice requires before passing an order, the assessee should be heard. Therefore, notice is issued to the assessee before passing such order. This order declaring an assessee as in default, is not an order which is contemplated under Section 200-A, where the prescribed Authority who is processing the return is a Director General of Income Tax (Systems). The Authority which is competent to pass an order under Section 201(3) is the Assessing Officer, who has the jurisdiction on the assessee on TDS matters under the provisions of the Income Tax Act. Though the word "Assessing Authority" is not stipulated in sub-section (3) or in sub-section (1) of Section 201, the proviso to Section 201 throws some light on who is the competent authority to pass such orders. The second proviso provides that no penalty shall be charged under Section 201 from such person meaning the assessee in default, unless the Assessing Officer is satisfied that such person without good and sufficient reasons has failed to deduct and pay such tax. Therefore, not only the Assessing Officer is competent to declare an assessee in default, by virtue of Section 221 which empowers an Assessing Officer to impose penalty payable when tax is in default, authorizes the Assessing Authority also to impose penalty for failure to comply with Section 200. Therefore, if we read the aforesaid three provisions together in a harmonious way, after deducting and payment of tax, if the statement is filed under Section 200-A, it is the Director General of Income Tax (Systems) who is a competent authority to look into the said statements and find out whether the liability under Section 200 has been complied or not. If no such deduction is made, no such payment is made, no such statement is filed, then under Section 201, it is the Assessing Authority who is competent to declare him as the "assessee in default" and levy tax, interest and penalty and take appropriate steps to recover the said amount. Therefore in the light of the aforesaid discussion, we are of the view that order passed under Section 201 of the Act by the Assessing Authority is a valid order and Assessing Authority is the competent person to pass such orders. Therefore, the said question of law is answered in favour of the revenue and against the assessee;

++ statements were filed on 28.7.2012, 27.12.2012, 4.4.2013 and 19.12.2013. Some of the orders are passed under Section 200-A of the Income Tax Act, whereas, the majority were intimation under Section 154 of the Income Tax Act, 1961. These documents are undisputed and produced before us, clearly demonstrate that those statements had not been filed as and when required to be filed under law. If these statements are filed after the orders are passed, it only means the assessee has admitted the liability. In order to avoid future consequence of nonpayment of interest and penalty, these payments are made. Therefore, the liability is not in dispute. Deduction of the amount is not in dispute. Non-crediting the said amount to the Central Government account is not in dispute. Non-filing of statement is not in dispute. However, today, when they filed the statement, they have complied with the requirement of law. All the payments made as aforesaid are to be deducted out of the total amount due to the assessee if not deducted and only for the balance amount, the Authorities have to proceed, if any amount is due. That exercise shall be done by the Assessing Authority by giving effect to the orders which we have passed.

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