No Late fee u/s 234E for TDS returns filed prior to 01.06.2015:

written by Income tax Expert | November 3, 2019

Many of you must be receiving order/ notice u/s 200A from Income tax department for recovery of late fees for A.Y. 2012-13 or 2013-14 and none of us had really paid such late fee at the time of filing such TDS return as this section was introduced later with retrospective effect and now everyone is panicked as the amount is huge and they don’t know what to do. As you have read the title of the article you are not required to pay late fee for above period but you need to work for it because of some minor misunderstanding in framing the law. So, let’s discuss it.

If you read section 234E, it was introduced by Finance Act, 2012 w.e.f. 01.07.2012, so it’s available and effective from F.Y. 2012-13. However, the power to recover the same by department was introduced in section 200A by Finance Act, 2015 w.e.f. 01.06.2015 as before this it was optional for assessee to pay such late fee and no late fees could be recovered for processing of your TDS return. Also as per natural law and justice no recovery of penalty can be made retrospectively and therefore any penalty relating to period prior to 01.06.2015 cannot be levied under Income Tax act and it shall be applicable prospectively.

Now you must be thinking if it’s so clear why are people still receiving notices for such late fees?

There have been various appeal filed by assessee at various level some have been accepted, whereas a few has been rejected also and none of them have really went on to Supreme court to get this decision and most of this decision are of various Tribunals.

Let’s discuss few decision:

Honorable ITAT Mumbai in the case of Karunashankar Shukla vs. AO, TDS Ward (I.T.A. No. 4746/Mum/2016) has made following observations:

“After analyzing the above orders, we find that identical issues involved in the present case has already been decided by the coordinate bench of ITAT Mumbai Bench. Therefore respectfully following the decision of the coordinate bench and in order to maintain judicial consistency and judicial discipline, we also hold that the amendment to section 200A(1) of the Act is prospective in nature and therefore the AO while processing the TDS statements/returns in the present appeal for the period prior to 01.06.2015 was not empowered to charge fees under section 234E of the Act. Therefore the intimation issued by the AO under section 200A of the Act in this appeal is unsustainable and the demand raised by way of charging of the fees under section 234E of the Act not being valid is deleted. In this view of the matter, we hold that the AO is not empowered to charge fees under section 234E of the Act by way of intimation issued under section 200A of the Act in respect of defaults before 01.06.2015 and consequently allow the grounds of appeal raised by the assessee.

In the net result, the appeal filed by the assessee is allowed.”

 

Also Honorable ITAT Amritsar in case of Sibia Healthcare Pvt. Ltd. Vs Dy. Commissioner of Income Tax (TDS) (I.T.A. No. 90/Asr/2015) has made the following observation:

“In view of the above discussions, in our considered view, the adjustment in respect of levy of fees under section 234E was indeed beyond the scope of permissible adjustments contemplated under section 200A. This intimation is an appealable order under section 246A(a), and, therefore, the CIT(A) ought to have examined legality of the adjustment made under this intimation in the light of the scope of the section 200A. Learned CIT(A) has not done so. He has justified the levy of fees on the basis of the provisions of Section 234E. That is not the issue here. The issue is whether such a levy could be effected in the course of intimation under section 200A. The answer is clearly in negative. No other provision enabling a demand in respect of this levy has been pointed out to us and it is thus an admitted position that in the absence of the enabling provision under section 200A, no such levy could be effected. As intimation under section 200A, raising a demand or directing a refund to the tax deductor, can only be passed within one year from the end of the financial year within which the related TDS statement is filed, and as the related TDS statement was filed on 19th February 2014, such a levy could only have been made at best within 31st March 2015. That time has already elapsed and the defect is thus not curable even at this stage. In view of these discussions, as also bearing in mind entirety of the case, the impugned levy of fees under section 234 E is unsustainable in law. We, therefore, uphold the grievance of the assessee and delete the impugned levy of fee under section 234E of the Act. The assessee gets the relief accordingly.”

 

Contrary to above views in a judgement by Honorable Gujarat High Court in case of Rajesh Kourani Vs. Union of India 83 taxmann.com 137, the court has made the following observation:

“Even in absence of section 200A of the Act with introduction of section 234E, it was always open for the Revenue to demand and collect the fee for late filing of the statements. Section 200A would merely regulate the manner in which the computation of such fee would be made and demand raised. In other words, we cannot subscribe to the view that without a regulatory provision being found for section 200A for computation of fee, the fee prescribed under section 234E cannot be levied. Any such view would amount to a charging section yielding to the machinery provision. If at all, the recasted clause (c) of sub-section (1) of section 200A would be in nature of clarificatory amendment. Even in absence of such provision, as noted, it was always open for the Revenue to charge the fee in terms of section 234E of the Act. By amendment, this adjustment was brought within the fold of section 200A of the Act. This would have one direct effect. An order passed under section 200A of the Act is rectifiable under section 154 of the Act and is also appealable under section 246A. In absence of the power of authority to make such adjustment under section 200A of the Act, any calculation of the fee would not partake the character of the intimation under said provision and it could be argued that such an order would not be open to any rectification or appeal. Upon introduction of the recasted clause (c), this situation also would be obviated. Even prior to 01.06.2015, it was always open for the Revenue to calculate fee in terms of section 234E of the Act. The Karnataka High Court in case of Fatheraj Singhvi (supra) held that section 200A was not merely a regulatory provision, but was conferring substantive power on the authority. The Court was also of the opinion that section 234E of the Act was in the nature of privilege to the defaulter if he fails to pay fees then he would be rid of rigor of the penal provision of section 271H of the Act. With both these propositions, with respect, we are unable to concur. Section 200A is not a source of substantive power. Substantive power to levy fee can be traced to section 234E of the Act. Further the fee under section 234E of the Act is not in lieu of the penalty of section 271H of the Act. Both are independent levies. Section 271H only provides that such penalty would not be levy if certain conditions are fulfilled. One of the conditions is that the tax with fee and interest is paid. The additional condition being that the statement is filed latest within one year from the due date.”

 

You can find various other case laws on the same line and all said that levy of such late fee is prospective in nature. However still you are receiving this notice and the reason behind this is the system of Assessing officer in TDS department have the effective date of such section as 01.07.2012 and hence they have to start recovery of any late fee which is visible on their system because revenue is of a view that this section needs to be applicable from 01.07.2012 as this will increase their collection and thus you can’t stop receiving such notice and AO won’t help you, so all you can do is appeal against this order u/s 200A which is an appealable order before CIT(A) and wait for his decision. Also do remember that in TDS you need to make separate appeal for each quarter.

So hire a CA and save your late fee.

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