There is no restriction/prohibition in challenging the intimation passed u/s 154 (of Income Tax Act, 1961) without challenging the same u/s 200A (of Income Tax Act, 1961).

1. These appeals at instance of assessee are directed two orders of CIT(A), both dated 25-6-2019. The relevant asst. Years are 2011-12 and 2012-13.

2. Identical issues are raised in these appeals, hence they were heard together and a consolidated order is passed.

3. Identical grounds are raised in these appeals except for variance of figures, hence ground pertaining to asst. Year 2011-12 is reproduced.

1. General Ground

1.1. The learned Assistant Commissioner of Income Tax, Centralized Processing Cell - TDS, Ghaziabad ('AO') has erred in passing the intimation under section 154 (of Income Tax Act, 1961) read with section 200A (of Income Tax Act, 1961) ('the Act') in the manner passed by him and the Commissioner of Income Tax-(Appeals)-3 ('CIT(A)') has erred in confirming the said order. The said order being bad in law is liable to be quashed.

2. Grounds relating to demand raised under 154 read with section 200A (of Income Tax Act, 1961)

2.1. The learned AO has erred in determining Rs. 1,24,130 as the amount payable on account of short deduction of tax at source and interest on the same in respect of payments of salary, without considering the facts of the case and law applicable.

2.2. The learned AO has erred in not appreciating that the flat rate of tax at 20% on gross payment cannot be automatically applied in the case of deduction of tax at source under section 192 (of Income Tax Act, 1961).

2.3. In any case and without prejudice, the exercise undertaken by the AO by adopting the rate of 20% under section 206AA (of Income Tax Act, 1961) and consequently raising the demand of tax in an intimation issued under section 200A (of Income Tax Act, 1961) is beyond the scope of the section 200A (of Income Tax Act, 1961) and hence bad in law and liable to be quashed.

2.4. The learned CIT(A) has erred in dismissing the appeal on the ground that the demand of Rs.1,24,130/- has not been raised vide order under section 154 (of Income Tax Act, 1961) but vide order under section 200A (of Income Tax Act, 1961).

2.5. The learned CIT(A) has erred in concluding that the applicability of provisions of section 206AA (of Income Tax Act, 1961) while processing the return under section 200A (of Income Tax Act, 1961) could not be examined in an appeal against intimation under section 154 (of Income Tax Act, 1961) as the impugned demand was raised only in the order under section 200A (of Income Tax Act, 1961).

2.6. The learned CIT(A) has erred in not appreciating the fact that once an order of rectification is passed under section 154 (of Income Tax Act, 1961), the original order passed under section 200A (of Income Tax Act, 1961) itself is modified and what remains thereafter is, not the order of rectification, but the order under section 200A (of Income Tax Act, 1961) as rectified.

2.7. The learned CIT(A) has erred in not appreciating that even though demand was raised in intimation passed under section 200A (of Income Tax Act, 1961), the same demand continued in the Intimation passed under 154 and hence the appellant had a legal right in filing an appeal against the said intimation.

2.8. The learned CIT(A) has erred in not appreciating that there is no restriction or prohibition in challenging the Intimation passed under section 154 (of Income Tax Act, 1961) without challenging the intimation passed under section 200A (of Income Tax Act, 1961).

2.9. In any case and without prejudice, determination of short deduction of TDS without finding whether payee also has failed to pay the tax directly amounts to double recovery of tax, which is unsustainable and not permissible as per Explanation to section 191 (of Income Tax Act, 1961).

2.10. Assuming without admitting that the determination of short deduction of TDS is correct, the same cannot be recovered from the deductor since as per section 191 (of Income Tax Act, 1961) where income tax has not been deducted in accordance with the provisions of Chapter XVII B, income tax shall be payable by the assessee i.e., payee directly.

2.11. On facts and circumstances of the case and law applicable, short deduction of TDS amounting to Rs. 67,184 should be deleted. Levy of Interest on short deduction

2.12 The learned CIT(A) erred in confirming the levy of interest on short deduction amounting to Rs. 56,950. On facts and circumstances of the case and law applicable, interest on short deduction is not leviable.

The appellant denies its liability to pay interest on short deduction.

3. Prayer

3.1. In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order passed by the learned CIT(A) and the intimation under section 154 (of Income Tax Act, 1961) read with section 200A (of Income Tax Act, 1961) passed by the AU be quashed Or in the alternative

a) Amount determined as tax short deducted of Rs.67,184 be deleted.

b) Interest levied under section 201(1A) (of Income Tax Act, 1961) amounting to Rs. 56,950 be deleted.

The appellant prays accordingly.”

4. Brief facts of case are follows :- Assessee is a company, engaged in business process management service. For asst. Years 2011-12 & 2012-13, assessee had paid salaries to certain employees and deducted tax at source (TDS) thereon at the rates in force as per sec.192 (of Income Tax Act, 1961). The eTDS statement/return for quarters were filed as per section 200(3) (of Income Tax Act, 1961) for asst. Year 2011-12 & 2012-13. Subsequently correction statements were filed to rectify the defaults existing in the statements. Thereafter, statements filed by assessee were processed by TRACES and intimation u/s 154 (of Income Tax Act, 1961) r.w.s 200A (of Income Tax Act, 1961) was received by assessee for asst. Year 2011-12 & 2012-13.

5. In the intimation for asst. Year 2011-12, the short tax deduction at source with respect to Form 24Q for 4th quarter of the Financial Year 2010-11 has been quantified at Rs.67,184/-. Interest on such short deduction of tax at source has been quantified at Rs.56,950/-. Thus, the net sum payable has been determined at Rs.1,24,130/- [i.e 67,184 + 56,950]. Similarly for asst. Years 2012-13, short tax deduction at source with respect to Form 24Q for 4th quarter of the Financial Year 2011-12 has been quantified at Rs.73,929/-. Interest on such short deduction of tax at source has been quantified at Rs.53,874/-. Thus, the net sum payable has been determined at Rs.1,27,800/- [i.e 73,929 53,874]. The assessee had downloaded and analysed the justification report of TRACES to ascertain the reasons for short TDS as mentioned u/s 200A (of Income Tax Act, 1961). In the intimation passed u/s 200A (of Income Tax Act, 1961), TDS has been computed at flat rate of 20% as per sec. 206AA (of Income Tax Act, 1961) on entire salary on account of invalid PAN furnished by employees of the assessee. In other words, TDS is computed on entire taxable income of the employees without reducing the basic exemption limit available to individual assessee. However, the assessee had deducted tax at source at the rates in force on the total taxable income after reducing the basic exemption limits and paid such TDS. According to the assessee, the difference between tax deductible at source computed at 20% and the actual amount of tax deducted at source has resulted in short deduction of tax at source as per intimation passed u/s 200A (of Income Tax Act, 1961) for asst. Year 2011-12 & 2012-13.

6. Aggrieved by intimation passed u/s 154 (of Income Tax Act, 1961) r.w.s 200A (of Income Tax Act, 1961) for asst. Year 2011-12 & 2012-13, assessee preferred appeals before the 1st Appellate authority. Before the 1st Appellate authority, the assessee relied on the order of ITAT Vishakapatnam Bench [ITA No.115 to 117 (Vysag)/2015 dated 22-1-2016 for proportion that rate of tax on gross payment cannot be automatically applied in the case of deduction of TDS u/s 192 (of Income Tax Act, 1961). Further it was contended that sec. 206AA (of Income Tax Act, 1961) is inapplicable to persons whose income is below taxable limit.

7. The CIT(A) however rejected the appeal of assessee without going into the merits. The CIT(A) was of view that assessee ought to have filed appeals against intimation u/s 200A (of Income Tax Act, 1961) instead of intimation u/s 154 (of Income Tax Act, 1961) r.w.s 200A (of Income Tax Act, 1961). The relevant finding of the CIT(A) read as follows:-

4.2 The submissions of the appellant have duly been considered. A perusal of the records as well as submissions of the appellant clearly shows that demand of Rs.1,24,130/- related to short deduction of tax and consequent interest in relation to the above referred two employees was raised by the AO while passing order under Section 200A (of Income Tax Act, 1961) and not through the order under Section 154 (of Income Tax Act, 1961). Since no such demand of Rs 1,24,130/- has been raised in the order under Section 154 (of Income Tax Act, 1961), so the relevant order which was required to be challenged in appeal for such demand was the order under Section 200A (of Income Tax Act, 1961) and not the order under Section 154 (of Income Tax Act, 1961). Vide order under Section 154 (of Income Tax Act, 1961) the AO has only looked into the corrections filed by the appellant in its correction statement and no fresh demand related to short deduction of tax or consequential interest has been raised by the AO. This is not the claim of the appellant that in the correction statement it had corrected the PAN of the two employees and the same had not been accepted by the AO. Even during appellate proceedings the appellant has admitted that valid PANs of those two employees were not available with it. The appellant has contended that the demand as per provisions of Section 206AA (of Income Tax Act, 1961) could not have been raised by the AU while processing the return under Section 200A (of Income Tax Act, 1961). However this argument is devoid of any merit as this issue could have been examined in an appeal against the order under Section 200A (of Income Tax Act, 1961) as the demand was raised vide that order and not vide the order under Section 154 (of Income Tax Act, 1961) passed by the AO in relation to the correction statement. Further it is also not the case of the appellant that the rectification order of denying the correction of a mistake apparent from record was passed by the AU in response to a rectification application filed by it wherein it had contested that raising such demand was a mistake apparent from record. So that aspect is also not required to be looked into. Since the demand of Rs 1,24,130/- has not been raised vide order under Section 154 (of Income Tax Act, 1961), so the grounds of appeal of the appellant are dismissed.”

8. Aggrieved by the orders of CIT(A) for asst. Year 2011-12 & 2-12-13, the assessee has filed these appeals before the ITAT. The ld AR relied on the grounds raised and prayed that Tribunal may remand the issue to CIT(A) with direction to consider the assessee’s case on merits. The ld DR strongly relied on orders of IT authorities.

9. We have heard rival submissions advanced by both sides and perused the material on record. We are in view that the CIT(A) has erred in dismissing the appeal solely for the reason that demand has been raised vide intimation u/s 200A (of Income Tax Act, 1961) and assessee ought to have filed appeals against the same. Once an order of rectification is passed u/s 154 (of Income Tax Act, 1961), the original order passed u/s 200A (of Income Tax Act, 1961) itself is modified and what remain thereafter is, not the order of rectification, but the orders u/s 200A (of Income Tax Act, 1961) as rectified.

Therefore though demand was raised in intimation passed u/s 200A (of Income Tax Act, 1961), the same demand continued in the intimation passed u/s 154 (of Income Tax Act, 1961). Hence, we are of the view that assessee has a legal right in filing an appeal against the said intimation. Moreover, there is no restriction/prohibition in challenging the intimation passed u/s 154 (of Income Tax Act, 1961) without challenging the intimation passed u/s 200A (of Income Tax Act, 1961). For the aforesaid reasons, we set aside the CIT(A) orders for 2011-12 & 2012-13 and remand the case to him. The CIT(A) is directed to pass orders on merits/grounds raised before him for asst. Years 2011-12 & 2-12-13. It is ordered accordingly.

10. In the result, the appeal filed by assessee is allowed for statistical purposes.

Order pronounced in the open court on 11th Sept., 2020.