UTKAL GRAMYA/ GRAMEEN BANK,SAMBALPUR vs. ITO (TDS), SAMBALPUR

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM आयकर अपीऱ सं./ITA No.190 to 192/CTK/2019 (नििाारण वषा / Assessment Year :2010-2011 to 2012-2013) Utkal Gramya/Grameen Bank, Vs. ITO(TDS), Sambalpur Dhanupalli, Dist-Sambalpur-768005 TAN No. : BBNB 00759 D (अऩीलाथी /Appellant) (प्रत्यथी / Respondent) .. ननधाारिती की ओर से /Assessee by : Shri P.K.Mishra, Advocate िाजस्व की ओर से /Revenue by : Shri J.K.Lenka, DR

सुनवाई की तािीख / Date of Hearing : 25/11/2019 घोषणा की तािीख/Date of Pronouncement : 26/11/2019 आदेश / O R D E R Per L.P.Sahu, AM: These three appeals have been filed by the assessee against the order of CIT(A), Sambalpur, all dated 25.03.2019 for the assessment years 2010-2011, 2011-2012 & 2012-2013, respectively. 2. In all the above three appeals, though the assessee has raised as many as six grounds, however, there are two main issues, which has been argued by the ld. AR of the assessee before us, as under :- i) Addition made by the AO and confirmed by the CIT(A) on account of short deduction u/s.201(1) of the Act for assessment year 2010-2011. ii) Addition made by the AO and confirmed by the CIT(A) on account of short deduction u/s.201(1) for non-deduction of TDS u/s.194A & 194-I of the Act for assessment years 2011-12 & 2012-13 and interest charged u/s.201(1A) of the Act.

2 ITA Nos.190-192/CTK/2019 3. First, we shall take up the identical issue raised in all the three

appeals with regard to confirming the addition by the CIT(A) made

u/s.201(1)/201(1A) of the Act by the AO for non-deduction of TDS on

interest payment on Time Deposits as per Section 194A of the I.T.Act,

1961.

society which has been created by the Special Act of the Legislature. A

TDS verification was conducted on 18the January, 2013 in the

impugned cases and the assessee had paid total interest of

Rs.79,75,939/- for the assessment year 2010-2011, Rs.2,65,78,009/-

for the assessment year 2011-2012 & Rs.1,03,72,979/- for the

assessment year 2012-2013 on Time Deposit(TD) and TDS u/s.194A of

the Act was not deducted on the above interest paid amount. During

the course of hearing before the ITO(TDS) the branch manager could

not produce the account-wise interest payment details and Form

No.15G&15H received from the depositors and he also submitted that

Form No.15G&H obtained from the depositors have not been submitted

to the Commissioner of Income Tax for the above years under

consideration. The ITO(TDS) noticed that on the total amount of

interest expenditure, which comes under the purview of TDS as per

Section 194A of the Act in which the individual account interest was

paid for more than Rs.10,000/-, the TDS has not been made as per

3 ITA Nos.190-192/CTK/2019 Section 194A of the Act. Therefore, the AO treated the assessee as

assessee-in-default for short-deduction of TDS applying 10% of the

total interest expenditure and made addition u/s.201(1) along with 1%

interest u/s.201(1A) of the Act for 38 months at Rs.3,29,543/- for the

assessment year 2010-2011. Similarly, the AO made addition

u/s.201(1) along with 1% interest u/s.201(1A) of the Act for 26

months at Rs.4,15,486/- for the assessment year 2011-2012 and

Rs.5,76,423/- for assessment year 2012-2013, respectively.

before the CIT(A), however, the CIT(A) dismissed the appeals of the

assessee.

in appeals before the Income Tax Appellate Tribunal.

order of AO for non-deduction of TDS as per Section 194A of the Act on

the interest payments in which TDS was applicable. The assessee had

obtained Form No.15G&H but due to unawareness, the same could not

be submitted to the Commissioner of Income Tax, which has duly been

accepted by the AO. Once the Form 15G&H is obtained from the

deductee/payee-assessee, the liability for deduction of TDS upon the

deductor is automatically discharged. He further submitted that the

assessee has obtained Form 15G&H, which has not been examined by

4 ITA Nos.190-192/CTK/2019 the AO. In support of his arguments, ld. AR relied on the following

judgments :-

i) Karwat Steel Traders vs. ITO, ITA No.6822/Mum/2011, order dated 10.07.2013; & ii) The Branch Manager Vs. ITO(TDS/Survey), ITA Nos.5992- 5994/Del/2012, order dated 04.03.2016.

submit the details of the interest payment in the individual accounts

which was more than Rs.10,000/- on Term Deposits(TD) which comes

under the purview of TDS u/s.194 of the Act and he has also not

submitted the same within the due date to the jurisdictional CIT. It was

also contended by ld. DR that Section 194A of the Act is a mandate on

the next payment which are more than Rs.1,000/- on the interest

payment on Term Deposits. Therefore, the assessee is to be treated as

assessee-in-default for non-deduction of TDS as per Section 201(1) of

the Act. Therefore, ld. DR submitted that the order of the CIT(A) be

restored.

available on record, we noticed from the orders of authorities below

that Form 15G&H was received by the assessee which has not been

submitted before the jurisdictional Commissioner of Income Tax and

once the Form 15G&H has submitted by the deductee/payee-assessee

as per the provisions of Income Tax Act, the liability for deduction of

5 ITA Nos.190-192/CTK/2019

TDS upon the deductor is automatically discharged. In support of our

findings, we rely on the decision of Delhi Bench of the Tribunal in the

case of The Branch Manager, ITA Nos.5992 to 5994/Del/2012, order

dated 04.03.2016, wherein it has been held as under :-

"...........it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax....."

The law in respect of initiation of proceedings u/s 201/201(1A) have been settled only after the aforesaid pronouncement of the order in year 2012 and the ITAT order in the first round to the AO was way back, so now we are bound to follow the law laid by the Hon'ble jurisdictional High Court in M/s. Jagran Prakashan Ltd. (supra) In assessee's own case in a similar matter the Agra Bench of the Tribunal observed after taking note of the law laid in M/s Jagriti Prakashan Ltd (supra) held as under :

"6. It is thus clear that the onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Once all the details of the persons to whom payments have been made are on record, it is for the Assessing Officer, who has al l the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. As a result of the judgment of Hon'ble Allahabad High Court in Jagran Prakashan's case (supra), there is a paradigm shift in the manner in which recovery provisions under section 201(1) can be invoked. As observed by Their Lordships, the provisions of Section 201(1) cannot be

6 ITA Nos.190-192/CTK/2019 invoked and the "tax deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly" . Once this finding about the non- payment of taxes by the recipient is held to a condition precedent to invoking Section 201(1), the onus is on the Assessing Officer to demonstrate that the condition is satisfied. No doubt the assessee has to submit all such information about the recipient as he is obliged to maintain under the law, once this information is submit ted, it is for the Assessing Officer to ascertain whether or not the taxes have been paid by the recipient of income. This approach, in our humble understanding, is in consonance with the law la id down by Hon'ble Allahabad High Court."

From a reading of the AO's order, it is clear that AO has not made any exercise to ascertain whether the deductee / payee assessee has failed to pay taxes directly before initiation of proceedings u/s 201/201(1A) of the Act, thus assumption of jurisdiction itself stands vitiated and all subsequent proceedings are null in the eyes of law. Therefore, we quash the initiation of proceedings of the AO at the outset itself. The AO ought to have assumed jurisdiction only after satisfying the jurisdictional fact as laid by the Hon'ble Jurisdictional High Court which as stated before is obviously absent. So, we quash the impugned assessments itself.

Steel Traders, ITA No.6822/Mum/2011, order dated 10.07.2013,

wherein it is held that

“4. We have considered the issue. The provisions of section 40(a)(ia) are as under :- 40. Amounts not deductible Notwithstanding anything to the contrary in Sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "profits and Gains of business or profession",- (a) In the case of any assessee-- (i)....... (ia) any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid,-- ...... ( rest not extracted.) ( emphasis supplied) 4.1 As can be seen from above provision, the amount can not be allowed as deduction only in the event when tax is deductible at source under Chapter-XVII-B and such tax has not been deducted or, after deduction has not been paid. In this case, the assessee was to deduct tax under provisions of section 194A. Section 194A is further qualified by the provisions of section 197A(1A) wherein if a person furnishes a

7 ITA Nos.190-192/CTK/2019

declaration in writing in prescribed Form and verified in the prescribed manner to the effect that tax on his estimated total income is to be included in computing his total income will be nil, there is no need to deduct tax The assessee has received such Forms as prescribed from those persons to whom interest was paid/being paid and accordingly no A.Y.08-09 Karwat Steel Traders deduction of tax was to be made in such cases. The default for non- furnishing of the declarations to the CIT as prescribed may result in invoking penalty provisions u/s. 272A(2)(f), for which separate provision/ procedure was prescribed under the Act. However, once Form 15G/Form 15H was received by the person responsible for deducting tax, there is no liability to deduct tax. Once there is no liability to deduct tax, it can not be considered that tax is deductible at source under Chapter XVII-B as prescribed u/s. 40(a)(ia). The provisions of section 40(a)(ia) can only be invoked in a case where tax is deductible at source and such tax has not been deducted or after deduction has not been paid. No such default occurred in this case. Accordingly, we are of the opinion that the provisions of section 40(a)(ia) are not applicable to the facts of the case. Both the Assessing Officer and CIT(A) erred in considering that non-filing of form 15H invites disallowance u/s. 40(a)(ia).

4.2 Similar issue was considered by the co-ordinate Bench in the case of Vipin P. Mehta vs. Income Tax Officer (2011) 11 taxmann.com 342(Mum) where in it was held:.

"Section 194A, read with sections 197A and 40(a)(ia), of the Income- tax Act, 1961 - Deduction of tax at source - Interest ) other than Interest on securities - Assessment year 2006-07 - Assessee was carrying on business of manufacture and printing of packaging materials - He made payment of interest to 34 parties in excess of Rs.5000 without deducting tax at source - In response to show cause notice, assessee submitted that all payees to whom interest was paid, had furnished declarations in Form No. 15H/15G, as the case may be, before date on which tax ought to have been deducted and, therefore, assessee was not liable to deduct tax - Assessee also submitted that by oversight he did not submit copies of declarations in Form No. 15G/15H to office of Commissioner (TDS) - Assessing Officer took a view that it was only when he proposed disallowance of interest by invoking section 40(a)(ia) then assessee filed declarations claimed to have been submitted to him by payees of interest, in office of Commissioner (TDS) as required by sub-section (2) of section 197A - Accordingly, Assessing Officer invoked section 40(a)(ia) and disallowed interest payments - Commissioner (Appeals) confirmed disallowance made by Assessing Officer - On instant appeal, it was seen that apart from aforesaid inference, there was no other evidence in possession of revenue authorities to hold that declarations were not submitted by payees of interest to assessee at time when payments were made - Moreover, Assessing Officer had not recorded any statements from payees of interest to effect that they did not file any declarations with assessee at appropriate time or to effect that they filed declarations only at request of assessee - Whether in absence of any direct evidence produced by revenue authorities, assessee's claim that

8 ITA Nos.190-192/CTK/2019

he had declarations of payees in prescribed form before him at time when interest was paid, and, thus, he was not liable to deduct tax at source under section 194A, was to be accepted - Held, yes- Whether, consequently, impugned disallowance made by authorities below was to be deleted - Held, yes In the instant case, the claim of the assessee was that at the time of paying the interest to the 34 persons mentioned in the assessment order, he had before him the appropriate declarations in the prescribed form from the payees stating that no tax was payable by them in respect of their total income and therefore, tax need not be deducted from interest under section 194A, and in the light of these declarations he had no option but to make the payment of interest without any fax deduction. If the claim was true then the contention must be accepted because under sub-section (IA) of section 197A, if such a declaration is filed by the payee of interest, no deduction of tax be made by the assessee. The revenue authorities had doubted the assessee's version because according to them it was only when the Assessing Officer proposed the disallowance of the interest by invoking the section 40(a)(ia) in the course of the assessment proceedings that the assessee filed the declarations claimed to have been submitted to him by the payees of the interest, in the office of the Commissioner (TDS) as required by sub-section (2) of section 197A. Apart from this inference, there was no other evidence in their possession to hold that the declarations were not submitted by the payees of the interest to the assessee at the time when the payments were made. Without disproving the assessee's claim on the basis of other evidence, except by way of inference, it would not be fair or proper to discard the claim. The Assessing Officer had not recorded any statements from the payees of the interest to the effect that they did not file any declarations with the assessee at the appropriate time or to the effect that they filed the declarations only at the request of the assessee in September/October, 2008. In the absence of any such direct evidence, the assessee's claim could not be rejected. The Assessing Officer had stated in the assessment order that he found that some of the loan creditors were having taxable income but still A.Y.08-09 Karwat Steel Traders the assessee had submitted declarations from them in form No. 15G. Unless it was proved that these forms were not in fact submitted by the loan creditors, the assessee could not be blamed because at the time of paying the interest to the loan creditors, he had to perforce rely upon the declarations filed by the loan creditors and he was not expected to embark upon an enquiry as to whether the loan creditors really and in truth had no taxable income on which tax was payable. That would be putting an impossible burden on the assessee. That apart section (1A) of section 197A merely requires a declaration to be filed by the payee of the interest and once it is filed the payee of the interest has no choice except to desist from deducting tax from the interest. The sub-section uses the word shall which leaves no choice to the assessee in the matter. The sub- section does not impose any obligation on the payer to find out the truth of the declarations filed by the payee. Even if the assessee had delayed the filing of the declarations with the office of the Commissioner /Chief Commissioner (TDS) within the time-limit specified in sub-section (2) of section 197A, that was a distinct omission or default for which a penalty

9 ITA Nos.190-192/CTK/2019 is prescribed Section 273B provides that no penalty shall be imposed under any of the clauses of sub-section (2) of section 272A for the delay, if the assessee proves that there was reasonable cause for the same. Further, under sub-section (4) of section 272A, no penalty can be imposed unless the assessee is given an opportunity of being heard. All these provisions indicate that the failure on the part of the assessee, who was the payer of the interest, to file the declarations given to him by the payees of the interest, within the time-limit specified in sub-section (2) to section 197A was distinct and separate and merely because there was a failure on the part of the assessee to submit the declarations to the income-tax department within the time-limit, it could not be said that the assessee did not have declarations with him at the time when he paid the interest to the payees. That would be a separate matter and separate proof and evidence was required to show that even when the assessee paid the interest, he did not have the declarations from the payees with him and therefore he ought to have deducted the tax from the payment. No such evidence or proof had been brought on record by the department. [Para 7] For the aforesaid reasons, the assessee's claim was to be accepted that since he had the declarations of the payees in the prescribed form before him at the time when the interest was paid, he was not liable to deduct tax there from under section 194A. If he was not liable to deduct tax, section 40(a)(ia) was not attracted. There was no other ground taken by the income-tax authorities to disallow the interest. Therefore, the assessee's appeal was to be allowed and the disallowance of interest was to be deleted. (Para 8]" 4.3 Similar finding was also held in other cases relied upon by the assessee, which we do not intend to extract here. Suffice to say that on the facts of the case, there is no need to deduct tax at source in the above 17 cases and thus, there is no default committed by the assessee. Accordingly, disallowance under section 40(a)(ia) does not arise. Non filing or delayed filing of such forms can not result in disallowance u/s 40(a)(ia). The grounds raised by assessee are allowed. AO is directed to modify the order accordingly.”

above, we are of the considered opinion that the very initiation of

proceedings by the AO (TDS) u/s.201 & 201(1A) of the Income Tax Act,

1961 is not sustainable as the AO had not averted to the explanation of

the Section 191 of the Act as to whether the deductee/payee-

assessee has also failed to pay such tax directly. Thus, to declare a

deductor, who failed to deduct the tax at source as an assessee in

10 ITA Nos.190-192/CTK/2019 default, the condition precedent is that the deductee has also failed to

pay tax directly. The fact that the deductee has failed to pay tax

directly is, thus, fundamental and jurisdictional fact and only after

finding that the deductee has failed to pay tax directly, deductor can be

deemed to be assessee as assessee-in-default in respect of such tax.

Therefore, addition made u/s.201(1) along with interest levied

u/s.201(1A) of the Act by the AO and confirmed by the CIT(A) in

respect of non-deduction of TDS u/s.194A of the Act on the interest for

all the assessment years under consideration stands deleted.

& 201(1A) for non-deduction of TDS u/s.194-I of the Act for the

assessment years 2011-2012 & 2012-2013.

before the ITO(TDS), the assessee submitted the copy of the return of

income for the years under consideration of the rent recipient Mr.

Bijaya Kumar Mishra, where the rent received was included in the total

income of the assessee. However, without considering the submission

of the assessee, both the authorities below have rejected the plea of the

assessee. Therefore, ld. AR submitted that the addition on account of

rent received may kindly be deleted.

He further submitted that interest u/s.201(1A) of the Act cannot be

11 ITA Nos.190-192/CTK/2019 denied for delay in payment of tax on the impugned amount which was

required to be paid by way of TDS.

perusing the entire material available on record, we find that the

assessee has produced the copy of income tax return filed by the

landlord along with computation of income. From the computation of

income filed before us, it is clear that the assessee has shown income

from house property Rs.2,23,680/- for the assessment year 2011-2012

& 2012-2013. In this regard, ld. AR submitted that the deductee/payee

has paid tax thereon, therefore, the deductor is not to be treated as

assessee-in-default as per Section 201(1) & 201(1A) of the Act and

amendment provisions thereon. Considering the submissions of the

assessee and the computation of income filed before us, we deem it fit

to send back this issue to the file of AO for the limited purpose of

verification of the rent received as to whether it has been shown under

the head income from house property or not and whether any tax has

been paid on the disputed amount for both the assessment years under

consideration i.e. A.Ys. 2011-2012 & 2012-2013 and the AO is directed

to decide the issue as per law after affording reasonable opportunity of

being heard to the assessee. This ground of appeal of the assessee

raised in the appeals for assessment years 2011-2012 & 2012-2013 is

allowed for statistical purposes.

12 ITA Nos.190-192/CTK/2019 16. In the result, appeals of the assessee i.e. ITA No.190/CTK/2019 is allowed and ITA Nos.191&192/CTK/2019 are allowed for statistical purposes. Order pronounced in the open court on 26/11/ 2019. Sd/- Sd/- (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनाांक Dated 26/11/2019 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीलाथी / The Appellant- 1. Utkal Gramya/Grameen Bank, Dhanupalli, Dist-Sambalpur-768005 प्रत्यथी / The Respondent- 2. ITO(TDS), Sambalpur आयकि आयुक्त(अऩील) / The CIT(A), 3. आयकि आयुक्त / CIT 4. ववभागीय प्रनतननधध, आयकि अऩीलीय अधधकिण, कटक / DR, ITAT, 5. Cuttack गार्ा पाईल / Guard file. 6. सत्यावऩत प्रनत //True Copy// आदेशािुसार/ BY ORDER,

(Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack