In a significant ruling, the Bombay High Court has clarified that the limitation period for passing an order treating a person as an “assessee in default” under Section 201 of the Income Tax Act, 1961 must be calculated quarter-wise based on the filing of each TDS statement, and not on an annual or cumulative basis.
A Division Bench comprising Justice M. S. Karnik and Justice Gautam A. Ankhad delivered the judgment on 5 March 2026 while dismissing the appeal filed by the Income Tax Department against Vodafone Cellular Ltd..
The Court upheld the earlier decision of the Income Tax Appellate Tribunal (ITAT) which had ruled that the department’s orders relating to the first three quarters of FY 2008–09 were barred by limitation.
Background of the Case
The dispute arose from proceedings initiated by the Assessing Officer under Section 201(1) of the Income Tax Act, declaring Vodafone Cellular Ltd. as an assessee in default for alleged TDS failures.
For the Financial Year 2008–09, the company had filed its TDS statements on a quarterly basis as required under the law.
- The TDS statements for the first three quarters were filed during FY 2008–09 itself.
- The fourth-quarter statement was filed later on 15 June 2009, falling in FY 2009–10.
However, the Assessing Officer passed the order under Section 201(1) only on 15 March 2012, almost three years later.
Vodafone’s Argument Before ITAT
Before the tribunal, Vodafone argued that Section 201(3) prescribes a time limit of two years from the end of the financial year in which the TDS statement is filed for passing an order declaring a deductor as an assessee in default.
According to the company:
- Since the first three quarterly statements were filed in FY 2008–09, the limitation period expired two years after the end of that financial year.
- Therefore, by the time the order was passed in March 2012, the proceedings relating to those quarters had already become time-barred.
The ITAT accepted this contention, holding that:
- Orders relating to the first three quarters were barred by limitation, and
- The fourth-quarter demand was valid, as the statement for that quarter was filed in FY 2009–10, thereby extending the limitation period.
Revenue’s Argument Before the High Court
The Revenue challenged the tribunal’s ruling before the Bombay High Court. It argued that:
- Although TDS statements are filed quarterly, the TDS liability should be treated as annual and cumulative.
- Therefore, the limitation period should be computed on an annual basis, rather than quarter-wise.
High Court’s Findings
Rejecting the department’s argument, the Bombay High Court held that the statutory framework clearly links limitation to the filing of the TDS statement.
The Court observed that the TDS compliance mechanism under the Act and the Rules treats each quarter as a separate compliance period with independent due dates and filings.
The Bench explained:
“The scheme of TDS compliance under the Act and the Rules treats each quarter as a separate compliance period, with distinct due dates and independent statements. Each filing consequently furnishes a separate starting point for limitation under Section 201(3).”
The Court further emphasized that an assessee cannot be prejudiced due to the failure of the Assessing Officer to pass orders within the prescribed limitation period.
Final Decision
Finding no error in the reasoning of the ITAT, the Bombay High Court concluded that:
- The orders relating to the first three quarters of FY 2008–09 were time-barred, and
- The appeal filed by the Income Tax Department lacked merit.
Accordingly, the Court dismissed the Revenue’s appeal and upheld the tribunal’s ruling.
Case Details
- Case Title: The Commissioner of Income Tax (TDS), Pune vs Vodafone Cellular Ltd., Pune
- Court: Bombay High Court
- Case Number: Income Tax Appeal No. 2438 of 2018
- Date of Judgment: 5 March 2026
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Citation: 2026 LLBiz HC(BOM) 116