A Reasonable limitation period applicable to Order u/s 206C for failure to deduct TCS

A reasonable limitation period is applicable to Order u/s 206C for failure to deduct TCS although no limitation is prescribed under the Income Tax Act 1961

ABCAUS Case Law Citation:
ABCAUS 3756 (2023) (05) ITAT

Important Case Laws relied upon:
Eid Mohammad Nizamuddin vs. ITO

In the instant case, the office of the District Magistrate (the assessee) had challenged the order passed by the National Faceless Appeal Centre (NFAC) arising out of order u/s 206C(1C)/206C(6A) of the Income Tax Act, 1961 (the Act) passed by the Income-tax Officer (TDS) (the AO).

The sole ground raised by the assessee was that the impugned order passed by the CIT(A), confirming the order of ITO (TDS) u/s 206C(6A) of the Act was unsustainable and bad in law since the assessment order was itself barred by limitation.

The Revenue contended that when no limitation is prescribed under the Statute, then the AO was justified to pass the impugned order.

The ITAT observed that the order passed by the AO u/s  206C(1C)/206C(6A) of the Act was passed after six years. The Tribunal opined that in the Act there is no specific period, however, as every assessee is entitled to be sure of the assessment and its consequential effect, the principles of natural justice require assuming a reasonable period of limitation for passing order.

The Tribunal observed that the Co-ordinate Bench at Delhi had an occasion to deal with the question as to whether in the absence of any specific time period specified in the Act, can an order be passed u/s 206 of the Act at any time or there should be a reasonable limitation of time.

The Coordinate Bench observed that a consistent view has been taken by the various Hon’ble High Courts on this issue that when no limitation is provided in the statute then a period of four years is considered as reasonable for passing the order U/s 201(1)/201(1A) of the Act.

It was observed by the Co-ordinate Bench that the provisions of Section 206C of the Act are analogous and a measure for compliance of collection of tax at source as a similar measure for compliance of deduction of tax at source is provided u/s 201 of the Act. The department has accepted those decisions and consequently brought amendment to the provisions of Section 201 and thereby provided the limitation for passing the orders u/s 201(1)/201(1A) of the Act which was inline with the view taken by the Hon’ble High Courts on this issue.

The Co-ordinate Bench further observed that though, subsequently an amendment vide Finance Act, 2014 was again brought in the said provisions of Section 201 enlarging the period of limitation, however, the said amendment is not retrospective. Accordingly, the liability of tax collected at source is also a vicarious liability of the assessee to assist the department in the measure to avoid any possibility   of   tax   avoidance by the persons with whom the specific transactions have been entered into by the assessee. 

Therefore, the Co-ordinate Bench opined that the analogy and reasoning given in the decisions of various Hon’ble High Courts in respect of the limitation for passing the order u/s 201 of the Act, is also applicable for considering the reasonable time period for passing the order u/s 206C of the Act.  The provisions of Section 201 and 206C of the Act are having same scheme and object being the measures against the avoidance of tax by the parties with whom the assessee had the transactions.

Also, the Tribunal observed that the Co-ordinate Bench at Lucknow also held the same view following the judgment of Jaipur ITAT.

Following the above judgments, the ITAT allowed the appeal of the assessee.

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