TDS Deposited Into Government Treasury Extinguishes Principal Liability Under Section 201(1): ITAT Mumbai Directs Fresh Verification in Vaayu Infrastructure LLP Matter

Background and Overview

The Mumbai Bench of the Income Tax Appellate Tribunal rendered a significant ruling in the case of Vaayu Infrastructure LLP Vs DCIT (ITAT Mumbai) pertaining to Assessment Year 2018-19, addressing three interrelated questions: whether a deductor who has subsequently deposited the TDS can still be held liable for the principal demand under Section 201(1), whether interest under Section 201(1A) survives such deposit, and whether Renewable Energy Certificate (REC) registration charges of Rs. 31,231/- are liable to TDS at all.

The Tribunal, after examining the facts and the material placed on record, allowed the appeal for statistical purposes and remitted all three issues to the jurisdictional TDS Assessing Officer for challan-level verification and fresh adjudication in accordance with the directions set out in the order.

Facts Leading to the Dispute

Spot Verification and Initial Assessment

A spot verification under Section 133B(2) of the Income Tax Act, 1961 was carried out at the business premises of the assessee on 06.08.2018. Following this survey, notices under Section 201(1) and Section 201(1A) were served upon the assessee.

On scrutiny of the Tax Audit Report filed in Form No. 3CD along with the head-wise expenditure details, the Assessing Officer formed the view that:

• Tax aggregating to Rs. 3,51,134/- had been deducted from various payments but had not been deposited into the Government Treasury.
• The assessee had failed to deduct tax of Rs. 3,123/- on REC registration charges of Rs. 31,231/- paid to the concerned authority.

Demand Raised by the Assessing Officer

On the basis of these findings, the Assessing Officer proceeded to treat the assessee as an assessee in default and raised the following aggregate demand of Rs. 6,67,258/-:

Proceedings Before CIT(A)

Assessee's Contentions

Before the learned Additional/Joint Commissioner of Income-tax (Appeals)-2, Hyderabad, the assessee took the position that the entire tax deducted at source had already been remitted to the Government Treasury and no outstanding TDS liability subsisted. In support, the assessee produced challan copies establishing the following remittances:

• Rs. 14,523/- deducted under Section 194H — deposited on 01.04.2024 vide Challan No. 21231
• Rs. 1,04,810/- deducted under Section 194C — deposited on 01.04.2024 vide Challan No. 21311
• Rs. 21,000/- deducted on payment to Talati & Talati — deposited on 03.03.2021 vide Challan No. 01805

Importantly, the assessee disputed the Assessing Officer's figure of Rs. 2,31,801/- adopted in respect of the Talati & Talati payment, asserting that the actual payment was only Rs. 2,10,000/-, on which tax of Rs. 21,000/- was deducted and deposited.

Order Passed by CIT(A)

The learned CIT(A), after considering the written submissions and the challans, partly allowed the appeal: