ORDER
U.B.S. Bedi, J.M.
These are two appeals of the Revenue directed against the consolidated order passed by the learned CIT(A), Kolhapur dt. 16-12-1998, relevant to the assessment years 1994-95 and 1995-96 respectively, whereby deletion of charging of interest of Rs. 33,874 and Rs. 47,672 under section 201(1A) by the AO has been challenged.
2. The AO noted that at the end of the financial years 1994-96 and 1995-96, the assessee had quantified interest on consumers’ security deposits and credited the same to an interest payable account. In view of Explanation to section 194A, the said interest was deemed to have been credited to the account of the respective payees as on 31st of March of the respective years. As such, the ITO invoked the provisions of section 194A r/w sections 201 and 201(1A). The ITO also observed that tax amounts of Rs. 9,81,266 and Rs. 13,18,205 were liable to be deducted at source from the said interest amounts debited in the assessee’s books in the financial years 1994-96 and 1995-96. He further observed that these amounts had been paid to the Government Treasury on 23-6-1995 and 27-6-1996, respectively. In this view of the matter, the ITO (TDS) invoked the provisions of section 201(1A) and charged interest of Rs. 33,874 and Rs. 47,672 for alleged delay of 84 and 86 days respectively.
3. The assessee took up the matter in appeal and it was contended before the first appellate authority that the delay, if any, in deduction and payment of TDS was totally unintentional. The learned counsel for the assessee while drawing attention of the first appellate authority to the Accounts Code Vol. IV followed by the MSEB has pointed out that the payment of interest constitute expenditure/payments for which pre-audit is done by the Internal Audit Unit attached to the office concerned and takes time. He has further clarified that the expenditure on interest payable to depositors came to be debited in the assessee’s books at times when the financial years concerned were drawing to a close and books were also closing. The exact amounts were to be determined only after the pre-audit would get over. This, according to the learned counsel, is the reason why the interest was taken in the interest payable account. It was claimed that it was only after internal audit had checked the figures that entries of exact payment to be made were incorporated in the consumers’ accounts and the formalities of TDS were gone through. As far as financial year 1995-96 is concerned, it was submitted that the assessee was plagued by shortage of funds. He also produced before the first appellate authority a copy of the fax message sent by the Chief Engineer concerned to the assessee’s head office at Mumbai. This fax message showed that the assessee was asking for immediate transfer of Rs. 30 lakhs on priority basis to Kolhapur Circle to enable to discharge or liability including TDS on interest on security deposits.
4. The learned CIT(A) while considering and accepting the plea of the assessee of reasonable cause and due date to be 30th June and not within a week of end of the financial year and non-granting of opportunity of being heard, deleted the penalties for both the years.
5. Aggrieved by this order of the learned CIT(A), Revenue is in appeal and while relying upon the basis and reasoning as given by the ITO (TDS) Kolhapur it was contended for setting aside the order of the CIT(A) and restoring that of the ITO. It was further submitted that there was a delay in deduction of tax at source. Therefore, interest is chargeable being automatic and mandatory. Relying upon various case laws as cited in Chaturvedi & Pithisaria P. 6746 and jurisdictional High Court decision as Pentagon Engg. (P) Ltd. vs. CIT (1995) 212 ITR 92 (Bom) and Addl. CIT vs. Delhi Cloth &, General Mills Co. Ltd. (1986) 157 ITR 822 (Del), it was contended for upholding the order of the ITO.
6. The learned counsel for the assessee, while relying upon the basis and reasoning as given by the learned CIT(A), has pleaded for confirmation of the impugned order. It was further submitted that the case law as relied upon by the Revenue of the jurisdictional High Court relates to a case where tax was deducted but not paid, but in the case of the assessee, tax was deducted but paid late. So on facts the reliance placed on the jurisdictional High Court’s decision is not applicable to the facts of the case. Further, relying on R.B. Shree Ram Durga Pd. & Fateh Chand Nursing Das vs. Settlement Commission & Anr. (1989) 176 ITR 169 (SC) and Sona Builders vs. Union of India & Ors. (2001) 251 ITR 197 (SC) and Reckitt & Colman of India Ltd. & Anr. vs. Asstt. CIT (2001) 170 CTR (Cal) 611 at p. 623, it was pleaded for upholding the view of the learned CIT(A).
7. After hearing both the sides and going through the orders of the authorities below as well as the case law cited by both sides, it is found that tax was deducted by the assessee for both the years but the same was paid late. Since provisions of charging of interest on late payment of TDS in Government account automatically and mandatorily attracts, further liability of interest under s. 201(1A), therefore, in my considered view, the order of the learned CIT(A) is not justified, especially in view of the lately decided case by the Hon’ble Supreme Court in the case of CIT vs. Anjum M.H. Ghaswala & Ors. (2001) 252 ITR 1 (SC), wherein Constitutional Bench of the Supreme Court while interpreting the word ‘shall’ in the context of interest chargeable under sections 234A, 234B and 234C has held that the expression ‘shall’ used in these sections is clear indication that the intention of legislature was to make the collection of statutory interest mandatory and similarly in section 201(1A) the Word used is ‘shall. Therefore, the same makes the levy to be mandatory. Therefore, interest could validly be charged even in the absence of any opportunity having been allowed or even there being reasonable cause shown. But so far as quantum of interest is concerned, the default starts from 1st of June and not from 8th of April each year as held by the AO because two months time is permissible under rule 30(1)(b)(i) of Income Tax Rules, 1962, for payment of tax deducted at source under section 194A. Therefore, while upholding the order of the AO with regard to charging of interest, the order of the learned CIT(A) in this respect to this extent would be reversed, but as regards quantum of interest, the matter would be restored back on the file of the AO with direction to recalculate the same by treating the default after 2 months time from the end of respective financial year. I order and direct accordingly. Therefore, the appeals of the Revenue would be treated to have been allowed in part in the above terms.