S. 201(1) and S. 201(1A) — Where deductees have paid taxes, assessee not liable to make good short deduction. Interest not chargeable for period after payment by deductees.

The assessee, an autonomous
body controlled by the Government of Haryana, short deducted tax at source. The
Assessing Officer (AO) issued a notice of demand for the amount of tax short
deducted by the assessee. He also levied interest u/s.201(1A).

Aggrieved the assessee
preferred an appeal to CIT(A) and contended that since the deductees have paid
their tax dues, the tax cannot be recovered from the assessee. Proof with regard
to some of the deductees was sought to be filed before the CIT(A) but the
assessee could not explain why the same was not filed before the AO. The CIT(A)
did not take into consideration the said evidence filed by the assessee and
rejected the appeals filed by the assessee.

Aggrieved, the assessee
preferred an appeal to the Tribunal where it was contended that the short
deduction was due to the fact that the assessee being government-controlled body
did not have provision of engaging private consultant and the staff being not
conversant with the provisions of the Act could not deduct proper TDS, deductees
have paid the taxes due from them, interest cannot be levied for a period after
the date when the deductees have paid their taxes and in respect of delay in
depositing TDS interest be levied up to the date of tender of the cheque and not
up to the date of its encashment.

The Tribunal held this to be
a case of genuine hardship faced by the assessee and observed that if such
payment is made by the assessee, then from whom the payment can be recovered as
the deductees are stated to have already paid the taxes and have submitted their
returns.

The Tribunal restored the
matter back to the file of the AO with a direction to verify the contention of
the assessee that deductees having paid their taxes, the assessee cannot be held
liable to make good the short deduction of tax. It also held that interest
cannot be levied after the date on which the tax has actually been paid by the
deductees. The AO was directed to give reasonable opportunity to the assessee to
place the evidence on record and thereafter re-compute the liability of the
assessee u/s.201 and u/s.201(1A).

As regards interest on
belated payments, following the decision of the Supreme Court in the case of CIT
v. Ogala Glass Works Ltd., (25 ITR 529) (SC), the Tribunal directed the AO that,
for computing interest u/s.201(1A), date of tendering of cheque be taken into
consideration and if the cheque is tendered within the due date and has also not
been dishonoured, then no interest be charged on the assessee for belated
payment on account of late encashment of cheques.

The appeal filed by the
assessee was allowed.