The Income Tax Appellate Tribunal's ruling in this case clarifies critical thresholds for TDS obligations under Sections 194C and 194J of the Income Tax Act, 1961, establishing that non-deduction does not constitute default where statutory exemptions or payment limits are satisfied. This decision provides essential guidance to traders and service recipients on when TDS liability is legally extinguished.
Background & Facts
The Dispute
The assessee, a sugar trader, filed his return for AY 2014-15 declaring income of ₹10.10 lakh. The case was selected for scrutiny under CASS due to low net profit relative to gross receipts. The regular assessment under Section 143(3) was completed on 31.08.2016. Subsequently, the Assessing Officer reopened the assessment under Section 147 based on an audit objection alleging non-deduction of TDS on freight payments and accounting charges.
Procedural History
- 2014: Assessee filed return for AY 2014-15 declaring income of ₹10,10,280
- 2016: Regular assessment completed under Section 143(3)
- 2021: Notice under Section 148 issued for reassessment
- 2022: Assessee did not respond to notices under Section 142(1) due to non-service
- 2025: CIT(A) upheld partial disallowance of ₹55.19 lakh for non-deduction of TDS
- 2026: Appeal filed before ITAT Patna Bench
Relief Sought
The assessee sought annulment of the reassessment order, arguing that:
- No TDS liability arose under Section 194C because contractors furnished PANs and owned ≤10 goods carriages
- No liability under Section 194J as accounting payments to two individuals were below ₹30,000 each
- Reassessment notice was invalid due to procedural defects and expiry of limitation
- Adequate opportunity was denied due to bounced emails
The Legal Issue
The central question was whether Section 194C and Section 194J impose TDS liability when payments to contractors or professionals fall below statutory thresholds or when statutory exemptions apply, and whether reassessment proceedings are valid if procedural compliance is defective.
Arguments Presented
For the Appellant
The appellant relied on the plain language of Section 194C(6), which exempts TDS deduction if the contractor owns ten or fewer goods carriages and furnishes a declaration with PAN. It was argued that the amendment introducing vehicle ownership condition (effective 01.06.2015) was not applicable for AY 2014-15, and PAN submission alone sufficed under pre-amendment law. For Section 194J, it was contended that since ₹30,000 was paid to each accountant, the aggregate per payee did not exceed the threshold, and thus no liability arose. The appellant also cited non-service of notices under Section 142(1) and challenged the validity of the reopening.
For the Respondent
The Department relied on the audit findings and argued that non-deduction of TDS on freight and accounting payments constituted a clear violation. It contended that the assessee failed to prove compliance and that the reassessment was valid as the notice was issued within the extended limitation period under TOLA. The Department maintained that the CIT(A) had correctly applied the law by restricting the addition to the actual non-deducted amount.
The Court's Analysis
The Tribunal examined the statutory text of Section 194C and Section 194J with precision. It noted that Section 194C(6) explicitly provides an exemption from TDS deduction if the contractor owns ten or fewer goods carriages and furnishes a declaration with PAN. The Tribunal held that the amendment introducing the vehicle ownership condition was prospective and did not apply retrospectively to AY 2014-15. Therefore, the mere furnishing of PANs by the transporters was sufficient to discharge the assessee’s obligation under the law as it stood then.
"The assessee had furnished the PANs of the transporters and the payments were made to persons who were contractors in the business of plying goods carriages. The requirement of furnishing a declaration was not mandatory at the relevant time."
Regarding Section 194J, the Tribunal accepted the assessee’s submission that ₹30,000 was paid to each of two accountants, and since the threshold for deduction is ₹30,000 per payee in a financial year, no liability arose. The Tribunal emphasized that the statutory language is clear: liability arises only when the amount exceeds ₹30,000 to any one person.
On procedural grounds, the Tribunal acknowledged that notices under Section 142(1) were not served due to email bounce-backs. However, it held that since the penalty under Section 271(1)(b) was dropped and the reassessment notice under Section 148 was issued within the extended limitation period under TOLA, the reopening was valid. The Tribunal declined to interfere with the CIT(A)’s finding on this point.
The Verdict
The assessee won. The Tribunal held that no TDS liability arose under Section 194C because the transporters furnished PANs and the exemption under sub-section (6) applied as of the relevant assessment year, and no liability arose under Section 194J because payments to each accountant were exactly ₹30,000, not exceeding the threshold. The addition of ₹55.19 lakh was set aside. The reassessment notice was upheld as valid.
What This Means For Similar Cases
TDS Liability Is Not Automatic
- Practitioners must verify whether payments fall below statutory thresholds before assuming TDS liability
- For Section 194C, PAN submission alone may suffice for AY 2014-15 and earlier, even without a formal declaration
- For Section 194J, payments split across multiple payees below ₹30,000 each avoid TDS obligation
Documentary Evidence Prevails Over Audit Objections
- Audit findings alone cannot override statutory exemptions
- Assessee’s submission of PANs, Form 26Q, and payment records must be accepted if they establish compliance
- Department must prove non-compliance beyond mere audit objections
Procedural Non-Compliance Does Not Invalidate Reassessment If Substantive Law Is Satisfied
- Non-service of Section 142(1) notices does not invalidate reassessment if penalty is dropped and notice under Section 148 is timely
- Courts will not set aside assessments on technical grounds if the substantive legal position favors the assessee
- Practitioners should focus on statutory exemptions rather than procedural defects when defending TDS assessments
