Limitation For TDS Default Orders Runs Quarter-Wise, Not Annually: Bombay High Court

The Bombay High Court has recently held that limitation for passing an order treating a person responsible for deducting tax at source as an “assessee in default” under Section 201 of the Income Tax Act must be computed quarter-wise based on the filing of each TDS statement, and not on an annual or cumulative basis.

A Division Bench of Justice M.S. Karnik and Justice Gautam A. Ankhad on March 5, 2026 dismissed the Income Tax Department's appeal against Vodafone Cellular Ltd., Pune.

In doing so, the Court affirmed a ruling of the Income Tax Appellate Tribunal (ITAT) which had held that the department's orders for the first three quarters of FY 2008–09 were barred by limitation.

Explaining the statutory scheme, the bench said, “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 Appellant's contention that limitation must be computed on an annual basis is contrary to both the text and structure of the statutory framework. An assessee cannot be prejudiced by the Assessing Officer's failure to pass orders within the prescribed period."

The dispute arose from proceedings initiated by the Assessing Officer under Section 201(1) of the Income Tax Act declaring the Vodafone to be in default.

For FY 2008–09, the TDS statements were filed on a quarterly basis. The returns for the first three quarters were submitted during that financial year itself, while the statement for the fourth quarter was filed later on June 15, 2009, in the following financial year.

Nearly three years later, on March 15, 2012, the Assessing Officer passed an order under Section 201(1) of the Income Tax Act.

Before the ITAT, Vodafone Cellular Ltd. argued that under Section 201(3), an order declaring a person to be an assessee in default must be passed within two years from the end of the financial year in which the TDS statement is filed. Since the returns for the first three quarters were filed in FY 2008–09, the limitation period had expired before the order was passed.

The tribunal accepted this contention and held that orders relating to the first three quarters were time-barred, while the demand for the fourth quarter remained within limitation because the return for that quarter was filed in FY 2009–10.

The Revenue argued before the High Court that although TDS statements are filed quarterly, the liability should be considered on an annual and cumulative basis, and therefore the limitation should not be computed quarter-wise.

Rejecting this argument, the Court held that the statute links limitation to the filing of the TDS statement and that Rule 31A of the Income Tax Rules requires quarterly filing of TDS returns, meaning each filing triggers a separate limitation period.

Finding no error in the tribunal's reasoning, the High Court held that orders relating to the first three quarters were rightly declared time-barred and dismissed the Revenue's appeal.

For Appellant: Advocates A.K. Saxena

For Respondent: Advocates Jitendra Singh with Shivali Mhatre and Rajesh Gaikwad