My deductee has returned the income and paid the tax, and I have filed Form 26A. I know the s.201(1) demand goes — but for how long does s.201(1A) interest run against me?
To the date the resident payee furnished his return of income, not to the date you eventually pay. The Mumbai Bench stated the rule expressly: where the payer is not deemed to be an assessee in default under s.201(1) because the resident payee paid the tax, interest under s.201(1A)(i) is payable from the date on which the tax was deductible to the date of furnishing of the return of income by that resident payee. The s.201(1) demand itself was set aside subject to verification.
Decided by the ITAT (Sandeep Gosain, Judicial Member and Prabhash Shankar, Accountant Member) on 2026-01-13, reported as ITA No.4279/Mum/2025 and C.O. No.273/Mum/2025, assessment year 2021-22 (ITAT Mumbai 'A' Bench); heard 10 December 2025, pronounced 13 January 2026. It bears on section 201(1), section 201(1A), section 194A, section 194J, section 40(a)(ia), section 234E, section 133A, section 197, section 139 of the Income Tax Act 1961, in TDS Defaults, Demand, Recovery & Stay and Evidence & Burden of Proof matters.
The interest, not the tax, is where the real money usually sits once Hindustan Coca-Cola has done its work, and the department routinely computes it to the date of its own order. Here the Assessing Officer computed s.201(1A) interest 'till month of September, 2024' on a financial year 2020-21 default — years past the date the payee filed. The proviso to s.201(1A) stops the clock at the payee's return, and paragraph 7.4 of this order is the sentence to put in front of the officer. Two limits to keep straight. First, the rates differ and are constantly confused: s.201(1A)(i) charges 1 per cent for every month or part of a month from the date the tax was deductible to the date it is deducted, for failure to deduct; s.201(1A)(ii) charges 1.5 per cent for every month or part of a month from the date of deduction to the date of payment, where tax was deducted but not paid over. The proviso's cut-off at the payee's return date attaches to the first limb — the failure-to-deduct case — which is why it matters which limb the department is actually running. This order does not decide which limb applied on its facts: the Assessing Officer held the deductor had deducted and not paid, while the deductor said it had merely passed a book entry and deducted nothing, and the Bench remitted rather than resolving it. Second, the relief under the first proviso to s.201(1) is conditional and evidentiary — the payee must have furnished his return under s.139, taken the sum into account in computing income in that return, and paid the tax due, and the payer must furnish an accountant's certificate, which is Form 26A. The Assessing Officer here rejected Form 26A outright; the CIT(A) and the Tribunal did not accept that he could.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee undertakes engineering, procurement and construction contracts for solar power plants. A survey under s.133A(2A) was conducted to verify TDS compliance. For financial year 2020-21 the assessee had booked interest on a loan from Shapoorji Pallonji and Co. Pvt. Ltd. (SPPL) of Rs 32,39,55,000 and professional and audit fees of Rs 25,00,000, and had recorded TDS of Rs 1,48,96,640 under s.194A at 4.6 per cent, the reduced rate flowing from a lower deduction certificate under s.197 held by SPPL, and Rs 90,000 under s.194J. It did not deposit the recorded TDS. Its return disallowed Rs 9,79,63,500 under s.40(a)(ia). The assessee's answer to the show cause notice was that it had an outstanding loan from SPPL of Rs 281,60,00,000 against a net worth of Rs 95,11,70,000, that it was in no position to service the interest and had never paid it, that the interest and the TDS entry were recorded only because the accounting standards required the accrual to be booked, that its cash and bank balance on 31 March 2021 was Rs 12,14,499, and that SPPL had offered the interest in its return and paid tax on it, a total of Rs 128,57,99,996 on its returned income. Form 26A was filed. The Assessing Officer rejected Form 26A as irrelevant, held the assessee to be an assessee in default, and computed Rs 2,17,77,160 in all — Rs 1,49,14,890 under s.201(1) and Rs 68,62,270 as interest under s.201(1A) charged up to September 2024. The CIT(A) deleted the demand, holding that no interest had in fact been paid to SPPL, that no TDS had been deducted, and that SPPL had offered the income and paid the tax. The Revenue appealed; the assessee filed a cross objection against the s.234E fee.
The Revenue's grounds on the s.201(1) default were rejected in principle: once taxes on the subject sums have been recovered from the payee, the deductor cannot be treated as an assessee in default under s.201(1) for non-deduction (para 7.2). On interest, the Bench held that the payer is liable under s.201(1A) on the amount of non-deduction or short deduction from the date on which the tax was deductible to the date on which the payee discharged his tax liability directly, and that where the payer is not deemed to be an assessee in default under s.201(1) by reason of the resident payee's payment, interest under s.201(1A)(i) is payable from the date the tax was deductible to the date of furnishing of the return of income by that resident payee (paras 7.3 and 7.4). The matter was restored to the Assessing Officer to verify the recipient's return and payment of tax, the addition to stand deleted if the recipient is found to have paid (para 8). The cross objection on the s.234E fee was held consequential and the Assessing Officer was directed to re-examine the chargeability of the fee in the light of the s.201 finding (para 10).
The Bench took s.201(1) as deeming an assessee to be in default where he does not deduct, or having deducted fails to pay, and s.201(1A) as charging simple interest in the same two situations, and s.194A as requiring deduction at the time of payment or of credit to the account of the payee, whichever is earlier (para 7.1). It then applied the parity of reasoning of the Supreme Court in Hindustan Coca-Cola Beverage P. Ltd. v. CIT and the CBDT circular of January 1997, noting that the position has since been legislatively recognised by the proviso inserted in s.201(1) by the Finance Act 2012: where the payee has paid the tax, no recovery can be made from the person who failed to deduct, and the payer is no longer required to deduct or deposit (para 7.2). It set out the three conditions of the amended provision — the resident payee has furnished his return under s.139, has taken the sum into account in computing income in that return, and has paid the tax due on the income declared — together with the requirement that the payer furnish an accountant's certificate (para 7.3). Because the deletion turns on facts that had to be verified from the recipient's records, the Bench restored the matter with directions to the assessee to produce evidence and to the Revenue to verify from its database (para 8).
Further, where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee.
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Handle my notice → Ask a CA on WhatsAppTo the date the resident payee furnished his return of income, not to the date you eventually pay. The Mumbai Bench stated the rule expressly: where the payer is not deemed to be an assessee in default under s.201(1) because the resident payee paid the tax, interest under s.201(1A)(i) is payable from the date on which the tax was deductible to the date of furnishing of the return of income by that resident payee. The s.201(1) demand itself was set aside subject to verification. This was decided by the ITAT (Sandeep Gosain, Judicial Member and Prabhash Shankar, Accountant Member) and bears on section 201(1), section 201(1A), section 194A, section 194J, section 40(a)(ia), section 234E, section 133A, section 197, section 139 of the Income Tax Act 1961. It is reported as ITA No.4279/Mum/2025 and C.O. No.273/Mum/2025, assessment year 2021-22 (ITAT Mumbai 'A' Bench); heard 10 December 2025, pronounced 13 January 2026. The interest, not the tax, is where the real money usually sits once Hindustan Coca-Cola has done its work, and the department routinely computes it to the date of its own order. Here the Assessing Officer computed s.201(1A) interest 'till month of September, 2024' on a financial year 2020-21 default — years past the date the payee filed. The proviso to s.201(1A) stops the clock at the payee's return, and paragraph 7.4 of this order is the sentence to put in front of the officer. Two limits to keep straight. First, the rates differ and are constantly confused: s.201(1A)(i) charges 1 per cent for every month or part of a month from the date the tax was deductible to the date it is deducted, for failure to deduct; s.201(1A)(ii) charges 1.5 per cent for every month or part of a month from the date of deduction to the date of payment, where tax was deducted but not paid over. The proviso's cut-off at the payee's return date attaches to the first limb — the failure-to-deduct case — which is why it matters which limb the department is actually running. This order does not decide which limb applied on its facts: the Assessing Officer held the deductor had deducted and not paid, while the deductor said it had merely passed a book entry and deducted nothing, and the Bench remitted rather than resolving it. Second, the relief under the first proviso to s.201(1) is conditional and evidentiary — the payee must have furnished his return under s.139, taken the sum into account in computing income in that return, and paid the tax due, and the payer must furnish an accountant's certificate, which is Form 26A. The Assessing Officer here rejected Form 26A outright; the CIT(A) and the Tribunal did not accept that he could. If it applies to you, the first step is this: Get Form 26A right and file it before the order is passed. The three conditions in the first proviso to s.201(1) are cumulative — return furnished under s.139, the sum taken into account in computing income in that return, and the tax due on the declared income paid — and the accountant's certificate must speak to all three.
The assessee undertakes engineering, procurement and construction contracts for solar power plants. A survey under s.133A(2A) was conducted to verify TDS compliance. For financial year 2020-21 the assessee had booked interest on a loan from Shapoorji Pallonji and Co. Pvt. Ltd. (SPPL) of Rs 32,39,55,000 and professional and audit fees of Rs 25,00,000, and had recorded TDS of Rs 1,48,96,640 under s.194A at 4.6 per cent, the reduced rate flowing from a lower deduction certificate under s.197 held by SPPL, and Rs 90,000 under s.194J. It did not deposit the recorded TDS. Its return disallowed Rs 9,79,63,500 under s.40(a)(ia). The assessee's answer to the show cause notice was that it had an outstanding loan from SPPL of Rs 281,60,00,000 against a net worth of Rs 95,11,70,000, that it was in no position to service the interest and had never paid it, that the interest and the TDS entry were recorded only because the accounting standards required the accrual to be booked, that its cash and bank balance on 31 March 2021 was Rs 12,14,499, and that SPPL had offered the interest in its return and paid tax on it, a total of Rs 128,57,99,996 on its returned income. Form 26A was filed. The Assessing Officer rejected Form 26A as irrelevant, held the assessee to be an assessee in default, and computed Rs 2,17,77,160 in all — Rs 1,49,14,890 under s.201(1) and Rs 68,62,270 as interest under s.201(1A) charged up to September 2024. The CIT(A) deleted the demand, holding that no interest had in fact been paid to SPPL, that no TDS had been deducted, and that SPPL had offered the income and paid the tax. The Revenue appealed; the assessee filed a cross objection against the s.234E fee. The matter was decided on 2026-01-13 by the ITAT (Sandeep Gosain, Judicial Member and Prabhash Shankar, Accountant Member). On those facts the ITAT held as follows. The Revenue's grounds on the s.201(1) default were rejected in principle: once taxes on the subject sums have been recovered from the payee, the deductor cannot be treated as an assessee in default under s.201(1) for non-deduction (para 7.2). On interest, the Bench held that the payer is liable under s.201(1A) on the amount of non-deduction or short deduction from the date on which the tax was deductible to the date on which the payee discharged his tax liability directly, and that where the payer is not deemed to be an assessee in default under s.201(1) by reason of the resident payee's payment, interest under s.201(1A)(i) is payable from the date the tax was deductible to the date of furnishing of the return of income by that resident payee (paras 7.3 and 7.4). The matter was restored to the Assessing Officer to verify the recipient's return and payment of tax, the addition to stand deleted if the recipient is found to have paid (para 8). The cross objection on the s.234E fee was held consequential and the Assessing Officer was directed to re-examine the chargeability of the fee in the light of the s.201 finding (para 10).
The Bench took s.201(1) as deeming an assessee to be in default where he does not deduct, or having deducted fails to pay, and s.201(1A) as charging simple interest in the same two situations, and s.194A as requiring deduction at the time of payment or of credit to the account of the payee, whichever is earlier (para 7.1). It then applied the parity of reasoning of the Supreme Court in Hindustan Coca-Cola Beverage P. Ltd. v. CIT and the CBDT circular of January 1997, noting that the position has since been legislatively recognised by the proviso inserted in s.201(1) by the Finance Act 2012: where the payee has paid the tax, no recovery can be made from the person who failed to deduct, and the payer is no longer required to deduct or deposit (para 7.2). It set out the three conditions of the amended provision — the resident payee has furnished his return under s.139, has taken the sum into account in computing income in that return, and has paid the tax due on the income declared — together with the requirement that the payer furnish an accountant's certificate (para 7.3). Because the deletion turns on facts that had to be verified from the recipient's records, the Bench restored the matter with directions to the assessee to produce evidence and to the Revenue to verify from its database (para 8). In the words reproduced by the source cited on this page: "Further, where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee." The decision followed or applied Hindustan Coca Cola Beverage P. Ltd. v. CIT (2007) 293 ITR 226 (SC) — applied; CBDT circular dated 29 January 1997 — applied (the order gives the date as both 29.1.1997 and 29.1.2007 in successive sentences of para 7.2).
It was decided by the ITAT on 2026-01-13 and is reported as ITA No.4279/Mum/2025 and C.O. No.273/Mum/2025, assessment year 2021-22 (ITAT Mumbai 'A' Bench); heard 10 December 2025, pronounced 13 January 2026. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 201(1), section 201(1A), section 194A, section 194J, section 40(a)(ia), section 234E, section 133A, section 197, section 139, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's grounds on the s.201(1) default were rejected in principle: once taxes on the subject sums have been recovered from the payee, the deductor cannot be treated as an assessee in default under s.201(1) for non-deduction (para 7.2). On interest, the Bench held that the payer is liable under s.201(1A) on the amount of non-deduction or short deduction from the date on which the tax was deductible to the date on which the payee discharged his tax liability directly, and that where the payer is not deemed to be an assessee in default under s.201(1) by reason of the resident payee's payment, interest under s.201(1A)(i) is payable from the date the tax was deductible to the date of furnishing of the return of income by that resident payee (paras 7.3 and 7.4). The matter was restored to the Assessing Officer to verify the recipient's return and payment of tax, the addition to stand deleted if the recipient is found to have paid (para 8). The cross objection on the s.234E fee was held consequential and the Assessing Officer was directed to re-examine the chargeability of the fee in the light of the s.201 finding (para 10). It arises in TDS Defaults, Demand, Recovery & Stay and Evidence & Burden of Proof matters, on section 201(1), section 201(1A), section 194A, section 194J, section 40(a)(ia), section 234E, section 133A, section 197, section 139 of the Income Tax Act 1961, and was decided by Sandeep Gosain, Judicial Member and Prabhash Shankar, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Recompute the s.201(1A) interest yourself from the date the tax was deductible to the date the payee filed his return, and put that figure and that end-date in your submission; do not argue only that interest is excessive. Establish which limb of s.201(1A) the department is applying. If it is the 1.5 per cent limb for deducting and not paying, the department is asserting that you actually deducted — so contest that fact, with bank statements and the ledger, before you argue about the period. Where the only entry is a year-end accrual under an accounting standard and nothing was paid or credited to the payee's account, take the s.194A point on its own terms — tax is deductible at the time of payment or credit to the account of the payee, whichever is earlier — rather than relying solely on the payee's payment of tax. Do not let the fee under s.234E ride along unexamined. Here the cross objection made the point that if no tax was deductible, no statement was due and no s.234E fee could arise; the Bench sent that back to the officer to re-examine as a consequence of the s.201 finding.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator search (doc 188827201, confirmed as 'ITO(TDS)-2(2)(1), Mumbai vs Sashwat Energy Private Limited, Mumbai on 13 January, 2026') returns nothing. A second probe on the company name returned only the two listings of this same order (the Revenue appeal and the cross-objection). The holding that s.201(1A) interest runs only to the date the payee filed its return has attracted no later treatment, and no appeal is disclosed. Nothing overruling, doubting or distinguishing it was found, and no appeal to a High Court against it is disclosed on the record searched. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Three defects in the order should be flagged. First, the last sentence of para 7.3 reads 'The date of payment of taxes by the resident payee shall be deemed to be the date on which return has been furnished by the payer' — 'payer' there must be 'payee', as para 7.4 and the proviso to s.201(1A) both make clear. Second, the disposition is internally inconsistent: paras 7.2 and 8 dismiss the Revenue's grounds and remit for verification, while para 11 records that 'Revenue's appeal is partly allowed'. Third, the figures do not reconcile: para 4.1 records the assessee as saying SPPL 'had offered the entire interest amount of Rs 1,48,96,640/- to tax', and para 6.1 repeats it, but Rs 1,48,96,640 is the TDS figure — the interest was Rs 32,38,40,000. Para 6 also ends mid-sentence. The order records the CIT(A) as the 'Addl./JCIT(A), Bhopal' while the memo of appeal in para 1 of the transcription refers to a CIT(A) at Mumbai. The statement of the two s.201(1A) rates in why_it_matters is the statutory position and is NOT taken from this order, which does not set the rates out. It is taken from s.201(1A) as amended by Act No. 15 of 2024 with effect from 1 April 2025, under which clause (i) charges one per cent for every month or part of a month from the date the tax was deductible to the date it is deducted; clause (ii) charges one and one-half per cent for every month or part of a month from the date of deduction to the date of payment; and the proviso to sub-section (1A) runs interest under clause (i) to the date of furnishing of the return of income by the payee. Older published versions of the section still give a single flat rate of eighteen per cent per annum. They are superseded and must not be used. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's grounds on the s.201(1) default were rejected in principle: once taxes on the subject sums have been recovered from the payee, the deductor cannot be treated as an assessee in default under s.201(1) for non-deduction (para 7.2). On interest, the Bench held that the payer is liable under s.201(1A) on the amount of non-deduction or short deduction from the date on which the tax was deductible to the date on which the payee discharged his tax liability directly, and that where the payer is not deemed to be an assessee in default under s.201(1) by reason of the resident payee's payment, interest under s.201(1A)(i) is payable from the date the tax was deductible to the date of furnishing of the return of income by that resident payee (paras 7.3 and 7.4). The matter was restored to the Assessing Officer to verify the recipient's return and payment of tax, the addition to stand deleted if the recipient is found to have paid (para 8). The cross objection on the s.234E fee was held consequential and the Assessing Officer was directed to re-examine the chargeability of the fee in the light of the s.201 finding (para 10).
TaxSphere, “ITO (TDS) v Sashwat Energy P Ltd”, https://taxnotice.vittsphere.com/caselaw/case/sashwat-energy-v-ito-tds-201-1a-interest-runs-to-payee-return-date/ (validity last checked 2026-09-07)
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My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
My bank has deducted tax on my fixed deposit interest and I was told the limit had gone up. My father is a senior citizen and his bank deducted too. There is also a loan I took from a friend on which I pay interest, and a co-operative society that pays me interest on a deposit. Who exactly has to deduct under section 194A, on what amount, and what are the limits as they stand now?
My payee has already paid the tax on the interest I paid him without deducting TDS. Can I use the second proviso to s.40(a)(ia) for an earlier year?
What proof do I need that my payee declared the income and paid tax, to get the disallowance deleted?
