The AO observed that the loan granted to the shareholder would be deemed dividend u/s. 2(22)(e). The A.O. issued notice u/s. 201/201(1A) for alleged default in non-deduction of tax and interest for payments made to shareholder. The A.O. passed an order dated 17-10-2016 holding  ‘assessee-in-default’ for having failed to deducted tax at source as obliged u/s. 194.

Under the pre-amended law, the order u/s. 201/201(1A) should be passed with 6 years, post-amendment by the Finance (No. 2) Act, 2014 with effect from 1-10-2014 the limitation was changed to 7 years. In the facts of the case, under pre-amended law, the order ought to be passed on 31.03.2016, on the other hand, post-amended law the order ought to be passed on 31.03.2017.

Aggrieved by the order, the assessee challenged the same before the CIT(A) on the ground that the proceedings u/s. 201/201(1A) are bar by limitation as it passed beyond six years from the end of the relevant financial year. The CIT(A) held that the pre-amended law would apply and hence the order was barred by limitation. Tribunal reversed the order of the CIT(A).

The Tribunal held that the law on limitation stipulated in section 201(3) could not be considered as substantial law but procedural law. In the case of procedural law, the amendment provisions would apply. The show-cause notice was issued within six years from the time of default was committed as well as continuing. Accordingly, the AO can press upon the amended provisions as the cause of action was continuing and was subsisting. The assessee would have no rights to claim immunity from the applicability of S. 201(1) for alleged default where the order has been passed within seven years. In the facts of the case, the last date of passing the order was 31-03-2017, thus within limitation.  ( AY. 2010-11)