These days TDS has become a nightmare both for the assessee as well as
the tax professional with notices being issued by the CPC (TDS)
immediately on filing of the Quarterly TDS Statements.
Let us examine in depth the recent amendments in the relevant provisions
of the Income Tax Act’1961 under which notices are issued and which are also
relevant to Tax Audit and scrutiny assessments:
Section 201 of the Income Tax Act’1961 states as follows:
Consequences of failure to deduct or pay.
1. [(1) Where any
person, including the principal officer of a company,—
is required to deduct any sum in accordance with the provisions of this Act; or
to in sub-section (1A) of section 192, being an employer,
does not deduct, or does not pay, or after so deducting fails to pay,
the whole or any part of the tax, as required by or under this Act, then, such
person, shall, without prejudice to any other consequences which he may incur,
be deemed to be an assessee in default in respect of such tax:
provided that any person, including the principal officer of a company,
who fails to deduct the whole or any part of the tax in accordance with the
provisions of this Chapter on the sum paid to a resident or on the sum credited
to the account of a resident shall not be deemed to be an assessee in
default in respect of such tax if such resident—
(i) has furnished his return
of income under section 139;
(ii) has taken into
account such sum for computing income in such return of income; and
(iii) has paid the tax
due on the income declared by him in such return of income,
and the person
furnishes a certificate to this effect from an accountant in such form as may be prescribed (Inserted VIDE Finance
Vide Notification No. 37/2012 [f.no. 142/18/2012-so(tpl)]
dated 12-9-2012, the CBDT has inserted Rule 31ACB and Form No. 26A to prescribe
the format in which the CA’s certificate should be obtained by the payee.
Provided further that no penalty shall be charged
under section 221 from such person, unless
the Assessing Officer is satisfied that such person, without good and
sufficient reasons, has failed to
deduct and pay such tax.]
prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that
sub-section does not deduct [the whole or any part of the tax] or after deducting fails to pay the tax as
required by or under this Act, he or
it shall be liable to pay simple interest at [one per cent for every month
or part of a month] on the amount
of such tax from the date on which such tax was deductible to the date on which such tax is actually
paid [and such interest shall be paid before furnishing [the statement] in
accordance with the provisions of sub-section (3) of section 200.
(2) Where the tax has not been paid as aforesaid after it is
deducted,[the amount of the tax together with the amount of simple interest thereon
referred to in sub-section (1A)] shall be a charge upon all the assets of the
person, or the company, as the case may be, referred to in sub-section (1).
(3) No order shall be made under sub-section (1) deeming a
person to be an assessee in default for failure to deduct the whole or any part
of the tax from a person resident in India, at any time after the expiry of
seven years from the end of the financial year in which payment is made or
credit is given”.(Inserted by Finance Act, 2014 w.e.f 01.10.2014)
(4) The provisions of sub-clause (ii) of sub-section (3) of section
153 and of Explanation 1 to section 153 shall, so far
as may, apply to the time limit prescribed in sub-section (3)”
Here there are two or three points worth noting which have been amended
recently and are of much importance:
1) The first line says ‘Any person
who is required to deduct any sum in accordance with the provisions of the
Here any sum also includes amount paid by way of salary by the employer
to the employee on which TDS was required to be deducted.
Here there was a mismatch in the Act, wherein the Employer could be
deemed to be an assessee in default for Non deduction or Non-payment of Tax at
Source on Salary paid to Employee but his expenditure on salary debited in the
P&L A/c would not be disallowed as Section 40a (ia) did not include
payments by way of Salary.
This has now been amended by the Finance Act’2014 wherein similar
wording has been used wherein any sum on which tax is deductible at
source has been added.
It means that w.e.f AY 15-16, An assessee will not only be deemed as an ‘Assessee
in default’ for failure to Deduct Tax At Source on payment of Salary
to Employees but also 30% of his expenditure on Salary will be also be
2) The first proviso inserted by
Finance Act’2012 is of much importance as it states that:
A person cannot be treated as an assessee in default for failure to
deduct tax at source, if the person to whom he has made the payment has:
1) Furnished the return of income
2) Taken the amount paid by such person in his return of income.
3) Paid tax on such amount.
4) A certificate in this regard is furnished by a Chartered Accountant.
1) The certificate from the accountant is
with regard to the examination of the books of account of the payee by the
2) Form No. 26A has to be furnished by the
payer and the certificate by the accountant is also to be taken the payer.
3) Certificate by the Chartered Accountant
is an annexure to Form 26A.
4) This clause is only relevant to
Non-deduction or short deduction of Tax and not relevant to cases of
Non-payment or part payment of Tax once deducted.
3) Another interesting amendment is the
amendment to Sub Section (3), wherein the time limit for deeming a person as an ‘Assessee
in Default’ has been increased to Seven Years from the end
of the Financial Year in which the payment is made or credit is given to the
This time Limit has been synchronised with the time limits prescribed
Under Section 148 wherein cases of the Last 6 years from the end of the
Assessment Year could be opened.
This could give rise to the Following situation:
Suppose the assessment of an assessee is made U/s 148, wherein the A.O
finds some payments on which TDS has not been deducted for the Financial Year
In such a case the A.O can not only disallow the expenditure on which
TDS has not been deducted but also deem the assessee as an ‘Assessee in
Default’ U/s 201 of the Act and charge interest and penalty on him for TDS
Another Observation which in my opinion is worth a look is the date from
which the time limit for deeming a person as Assessee in Default is increased.
This amendment is made effective from 1st October, 2014.
This could give rise to the following situation:
Suppose the A.O finds that the assessee has not deducted Tax at Source
worth Rs. 1 lac for the Financial Year 2009-10 on September’2014. Now as per the
existing law he could not issue an order deeming the person as an assessee in
default for FY 2009-10 if such person has furnished Quarterly TDS statement in
FY 2009-10 or FY 2010-11(for the last Qtr of FY 2009-10) after 31.3.2014. Now
since the amendment is with respect to a procedural aspect of the Law. in my
opinion the assessing officer Could wait for 01st October ‘2014
and then issue notice for FY 2009-10 from 01.10.2014 whereas he could not do so
till 30th September,2014. Hope you find the above information
relevant and useful in your daily practice