The Bombay High Court has clarified that the limitation period for passing an order under Section 201(1) of the Income Tax Act, is to be computed quarter-wise, with each quarterly TDS Return furnishing a separate starting point for limitation under Section 201(3). Essentially, the limitation is not to be computed on an annual or cumulative basis.
The Court asserted that the scheme of the Income Tax Act and Rules treats each quarter as a separate compliance period, and the statutory language does not permit extension of the limitation period by implication. Accordingly, orders passed beyond two years from the end of the financial year in which the TDS statement for a particular quarter is filed are barred by limitation.
The Division Bench comprising Justice M.S. Karnik and Justice Gautam A. Ankhad observed that Section 201(3), as it stood at the relevant time, stipulated that no order under Section 201(1) shall be made 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.
Since, under Rule 31A, TDS statements are mandatorily filed on a quarterly basis, the computation of limitation must necessarily operate quarter-wise, added the Bench, while finding that in the present case, the TDS Returns for the first three quarters were filed in financial year 2008–09, and the order under Section 201(3), having been passed on 15th March 2012, was beyond two years from the end of that financial year.
The Bench therefore held that the ITAT was 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; and hence, the demand for that quarter was rightly sustained.
The Bench also observed that the language of the statute does not prescribe cumulative or annual computation of limitation as argued by the Revenue Department. 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).
Further, the Bench declared the Appellant’s contention that limitation must be computed on an annual basis, to be contrary to both the text and structure of the statutory framework. The Bench emphasized that an assessee cannot be prejudiced by the Assessing Officer’s failure to pass orders within the prescribed period, and that limitation provisions in taxing statutes must be strictly construed and cannot be extended by implication.
Briefly, pursuant to the respondent filing its TDS Returns for the Financial Year 2008 – 09, an order under Section 201(1) of the Income Tax Act declaring the respondent/ taxpayer as in default was passed. When the matter reached the ITAT, it accepted the respondent’s contention that, for the first three quarters, the limitation prescribed under Section 201(3) had expired, as the TDS Returns for those quarters were filed in the financial year 2008–09, and the order was passed beyond two years from the end of that financial year.
For the fourth quarter, since the TDS Return was filed in the subsequent financial year, the limitation would be computed from the end of that financial year, and the order was within limitation. Hence, the Revenue Department had approached the High Court challenging the order, whereby the ITAT had held that the proceedings initiated by the Assessing Officer under Section 201(1) of the Income Tax Act, for the first three quarters of Assessment Year 2009–10 were barred by limitation.
Appearances:
Advocate A.K. Saxena, for the Appellant/ Revenue
Advocates Jitendra Singh, Shivali Mhatre and Rajesh Gaikwad, for the Respondent/ Taxpayer
