Limitation u/s 201(3) for TDS defaults operate quarter-wise – High Court

Since TDS statements are filed on a quarterly basis, the computation of limitation for treating assessee in default u/s 201 (3) operate quarter-wise – High Court

In a recent judgment, Hon’ble High Court has held that scheme of TDS compliance and rules treats each quarter as a separate compliance period, with distinct due dates and independent statements. Each filing consequently furnishes a separate starting point for limitation under Section 201(3).

ABCAUS Case Law Citation:
5067 (2026) (03) abcaus.in HC

In the instant case, the CIT TDS had challenged the order passed by the ITAT holding that the proceedings initiated by the Assessing Officer under Section 201(1) of the Income Tax Act, 1961 (the Act) were barred by limitation.

The respondent assessee for FY 2008-09 had filed TDS returns for various quarters within/around prescribed dates. The order under Section 201(1) of the Act declaring the assessee to be in default was passed on 15th March 2012.

Before the Tribunal, it was contended by the assessee that insofar as the first three quarters are concerned, the limitation prescribed under Section 201(3) had expired. In respect of the fourth quarter, since the TDS Return was filed on 15th June 2009, i.e. in the subsequent financial year, the limitation would have to be computed from the end of that financial year.

The Tribunal accepted this contention and held that the proceedings for the first three quarters was held to be time-barred, while those relating to the fourth quarter was held to be within limitation.

Before the Hon’ble High Court, the Revenue contended that TDS Returns are filed quarterly, therefore, the liability is to be considered on an annual and cumulative basis and limitation ought not to be computed quarter-wise.

The assessee relied upon Sections 201(3), 201(1A), 139 of the Act and Rule 31A of the Income Tax Rules to submit that the TDS Returns for each quarter are to be filed as per the due date mentioned in Rule 31A. The TDS Return for the fourth quarter is to be filed in the following financial year. Since the TDS Returns for the first three quarters were filed in financial year 2008–09, the order treating assessee in default dated 15th March 2012 was beyond two years from the end of that financial year. However, the Return for the fourth quarter was filed on 15th June 2009, i.e. in financial year 2009–10 and the order dated 15th March 2012 was within two years from the end of that financial year.

The Hon’ble High Court observed that Section 201(3), as it stood at the relevant time stipulated that no order under Section 201(1) shall be passed after the expiry of two years from the end of the financial year in which the TDS statement is filed. The commencement of limitation is thus linked to the filing of the TDS Return.

The Hon’ble High Court opined that since, under Rule 31A, TDS statements are mandatorily filed on a quarterly basis, the computation of limitation must necessarily operate quarter-wise.

The Hon’ble High Court observed that in the given case, the TDS Returns for the first three quarters were filed in financial year 2008–09. The order under Section 201(3), having been passed on 15th June 2012, was beyond two years from the end of that financial year. The Tribunal was therefore justified in directing deletion of the demand pertaining to those quarters. As regards the fourth quarter, the TDS Return was filed in financial year 2009–10 and the order dated 15th March 2012 was within two years from the end of that financial year; the demand for that quarter was rightly sustained.

The Hon’ble High Court further observed that the language of the statute does not prescribe of cumulative or annual computation of limitation as is sought to be argued by the Appellant. The scheme of TDS compliance under the Act and the Rules treats each quarter as a separate compliance period, with distinct due dates and independent statements. Each filing consequently furnishes a separate starting point for limitation under Section 201(3).

The Hon’ble High Court further held that the Appellant revenue’s contention that limitation must be computed on an annual basis is contrary to both the text and structure of the statutory framework. An assessee cannot be prejudiced by the Assessing Officer’s failure to pass orders within the prescribed period. It is well settled that limitation provisions in taxing statutes must be strictly construed and cannot be extended by implication.

Accordingly, the appeal was dismissed.

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