Relief Granted for TDS Late Filing: ITAT Hyderabad Waives Section 234E Fee on Medical Grounds

Relief Granted for TDS Late Filing: ITAT Hyderabad Waives Section 234E Fee on Medical Grounds

“Income Tax Tribunal rules in favour of assessee; medical emergency considered valid reason for delayed TDS returns”

In a significant judgment offering relief to taxpayers facing genuine hardships, the Hyderabad Bench of the Income Tax Appellate Tribunal has set aside the levy of late filing fees under Section 234E of the Income Tax Act, 1961. The Tribunal emphasized the need for a contextual and judicious approach rather than a mechanical application of the law, especially when the taxpayer has acted in good faith and no prejudice has been caused to the Revenue.

Background of the Case

The assessee in question, Supujita Advisory and Consultancy Pvt. Ltd., a corporate advisory firm, had deducted tax at source on various payments during the Financial Year 2022–23. However, the company filed its quarterly TDS returns in Form 26Q for the first three quarters on 29 April 2023, which was beyond the statutory deadlines prescribed under Section 200(3) of the Income Tax Act. Importantly, these returns were filed before the due date of the fourth quarter, which was 31 May 2023. Despite this, the Centralized Processing Cell levied a late filing fee under Section 234E for the delays, which was subsequently upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

Assessee’s Plea and Mitigating Circumstances

Before the Tribunal, the assessee submitted that the delay was neither wilful nor negligent. The sole director of the company had been incapacitated due to a spinal surgery, and the delay in compliance was directly attributable to his medical condition. The company also argued that it had:

• Paid all TDS liabilities along with applicable interest,
• Filed all quarterly returns before the final deadline, and
• Ensured that no deductee was deprived of credit nor was the Revenue adversely affected.

These contentions were substantiated by supporting medical documentation.

Revenue’s Standpoint

The Department, on the other hand, maintained a strict interpretation of the statute. It contended that Section 234E imposes a mandatory fee for late filing of TDS returns and that the provision does not confer any discretion for waiver on the basis of reasonable cause, unlike other penal provisions under the Act.

ITAT’s Observations and Ruling

The Tribunal, comprising Shri Vijay Pal Rao (Judicial Member) and Shri Manjunatha G (Accountant Member), adopted a more nuanced approach. While acknowledging the mandatory language of Section 234E, the Bench emphasized that statutory provisions must be applied in context, particularly when equity and justice demand a departure from rigid interpretation.

The ITAT made the following key observations:

• The assessee had shown bonafide intent and conduct by ensuring full compliance within a reasonable timeframe.
• The medical exigency of the sole director was a genuine and substantiated cause of delay.
• Filing the returns before the fourth quarter deadline meant that no practical inconvenience was caused to either the Department or the deductees.

Consequently, the Tribunal concluded that the Assessing Officer and CIT(A) erred in mechanically sustaining the levy without examining the mitigating circumstances presented.

Outcome

The ITAT, Hyderabad, allowed the appeal and directed the deletion of the late filing fees imposed for all three quarters. The ruling reinforces the principle that compliance achieved within a meaningful and reasonable timeframe, especially under unavoidable medical or personal hardships, should not be penalized blindly. This decision serves as an important precedent for cases where delays in procedural compliance occur due to genuine and demonstrable causes. It underscores the importance of a balanced interpretation of tax laws, harmonizing strict statutory requirements with real-life challenges faced by taxpayers.