STATE BANK OF INDIA,HOSPET vs. CIT, BANGALORE

PER A. K. GARODIA, A.M.:

All these four appeals are filed by the assessee which are directed

against a combined order passed by the ld. CIT(A), Gulbarga dated 09-11-

2015 for the assessment years 2008-09 to 2011-12. All these appeals

were heard together and are being disposed of by way of this common

order for the sake of convenience.

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(1) That the learned Respondent is erred in confirming the order of the Assessing Officer without laying the due emphasis on explanation to section 191 which provides that primary liability of payment of income tax is on the assesse to whom the income belongs. (2) That the learned Respondent is erred in confirming the demand U 1 s. 201 (1) and 201(1A) without laying the due emphasis on the CBDT Circular No. 03/2010, dated 2-3- 2010 which clarifies the Explanation to 194A. (3) The learned Respondent passed the order without considering the Board's Circular No.3/2010 dated 2-3-2010 and without laying due emphasis on the citation in case of Bank of Maharashtra v. ITO 38 SOT 432 Ahmedabad Bench of ITAT which considered the Board's Circular No.3/2010 dated 2-3-2010 and held that interest credited as per notional entry was only provisioning the accounts for the purposes of macro monitoring and it was not actual credit or payment of interest to depositors and therefore, section 194A is not applicable. (4) The learned Respondent is not justified in upholding the order of the Assessing Officer in treating the appellant as an assessee in default only on failure to deduct tax at source. Reading together of section 201(1) and proviso to section 201(1) of the Act, clarify that (a) that there shall be failure to withhold tax at source and (b) in addition to that failure, the recipient of the income has also failed to pay the tax directly. (5) That the learned Respondent ought to have considered the following facts: (a) That no constructive credit to the depositor's / payee's account takes place while calculating interest on time deposits on daily or monthly basis in the CBS software used by banks. (b) That banks using CBS software and interest payable on time deposits is calculated generally on daily basis or monthly basis and is swept & parked accordingly in the provisioning account for the purposes of macro- monitoring only. (c) That the order under section 201(1) & 201(1A) has been passed by the Assessing Officer without considering the CBDT Circular No. 03/2010, dated 2-3- 2010.

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(d) That the order under section 201(1) & 201(1A) has been passed without considering the principles settled by the Honorable High Court of Karnataka in the case of CIT & Am. V. Intel Tech India Pvt. Ltd. [2011] 55 DTR (Kar) 173. (e) The Assessing Officer passed the order without first exhausting the remedies provided under section 191 of the IT Act. The learned Respondent failed to appreciate that the onus is on the revenue to demonstrate that the taxes have not been recovered from the person to whom interest is credited and they are the primarily liability to pay tax. There is no mention of step taken by the Department in the Order of the Assessing Officer for recovery of tax from the person/ s to whom interested was credited. (f) That the learned Respondent ought to have consider the fact that the appellant cannot be treated as an assessee in default till it is found that the person who received the interest from the appellant has failed to pay tax directly. (g) That the learned Respondent failed to appreciate the fact that the Assessing Officer fails to prove sufficient and adequate opportunity of being hard to the appellant to furnish certificate from the accountant and hence violated the principles of natural justice. (h) That the learned Respondent has failed to appreciate that the proceeding under section 201(1) is also assessment proceeding. The order u/s 201(1) is akin to the assessment and for re-assessment the Assessing Officer should record the reasons and issue notice under section 148 of the IT Act. The reasonable time for initiating and completing the proceedings under section 201(1) has to be at par with the time limit available for initiating and completing the reassessment as the assessment includes reassessment. Reliance is placed upon the decision in case of Director Of Income Tax vs M/S Mahindra & Mahindra Limited, Income tax Appeal No. 3480 of 2009, Bombay High Court, and also upon the decision in case of State Bank Of India" Kanpur vs Department Of Income Tax ITAT, Lucknow bench ITA Nos.476 & 477 /LKW /2012. (6) That the Learned Respondent has erred on facts and in law in upholding that the order of the Assessing Officer passed under section 201(1)/201(1A) of the Income Tax Act without adjudicating and appreciating the grounds raised, issue involved and case laws cited in

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the written argument filed in addition to verbal argument. That the order of the Learned Respondent is Arbitrary, illegal and bad in law liable to be quashed.

(7) That the learned Respondent ought to have considered the fact that the so called short remittance has been reverted back to the payee's account and same cannot considered as tax deduction at source.

(8) The learned Respondent erred in passing an order by overlooking the proviso to section 201(1) inserted by the Finance Act, 2012 which provides for furnishing of a certificate from an accountant in Form 27BA for which no opportunity is given. That no sufficient and adequate opportunity of being heard was provided to the appellant to furnish certificate from the accountant and hence violate the principles of natural justice.

(9) The learned Respondent failed to consider the fact that declaration is made under section 197 A by payee to the payer and the payer has no choice except to desist from deducting tax from the payment. The sub-section uses the word "shall" which leaves no choice to the payer in the matter.

The learned Respondent ought to have (10) considered the fact that the payer cannot be blamed because at the time of paying the amount, payer has to rely upon the declarations filed by the payee even though it is incomplete and even though the payer has failed to submit the copy of same to the CIT. The payer is not expected to embark upon an enquiry as to whether the payee in reality have no taxable income on which tax is payable or direct to fill the data in all respect. That the learned Respondent ought to have (11) considered the fact that even if the payee has delayed the filing of the declarations with the payer within the time limit, the payer has no power to reject it, instead it needs to be considered by the payer in reverting back the TDS if same is not remitted to the Central Govt. Account.

(12) That the order of the learned Respondent is hit by Article 19(1)(g) of the constitution. No "assessee" can be considered as an "assessee in default" unless a

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demand notice under section 156 had been given to him. According to section 156 of the IT Act demand notice can be served only on account of tax, interest, penalty fine or other sum payable in consequence of any order passed under the Act. In substance, tax liability shall be determined by an order for issuing the demand notice. But the section 201(1) deem the assessee in default before making any order and therefore hit by Article 19(1)(g) of the constitution. (13) That sub-section 6 and 6A covers all situations and contingencies, and makes the liability absolute, limited on deductor. The sub-section does not provide for issue of notices, assessment, collection or anything connected with the imposition, levy and collection of the tax. Section (4) of the Income tax Act is the charging section and according to said section, tax is levied upon assessee depending upon income accrued in the previous year and not upon the income earned by other persons. Invoking the provisions of section 201 and (201(1A) is erroneous and overrides the provisions of charging section. That the learned Respondent has failed to appreciate the fact that the provisions of 201 is only "machinery provisions II and hence demanding the Tax by invoking the provisions from the payer of interest for failure to deduct the tax is erroneous. APPEAL FEE

(1) That as per Section 253(6)(d) an appeal made, be accompanied by a fee of Rs. 500/- where the subject matter of appeal relates to any matter other than those specified in clause (a), (b) and (c) of the said section. The appellant has paid the appeal fee of Rs. 500/- by challan.

LIMITATION

(2) That as per section 253(3) of the Income tax Act the appeal to the Appellate Tribunal shall be made within Sixty days from the date of receipt of order. The appellant received the order on 24-11-2015 and as per the provisions of Act the appeal should be filed on or before 23-01-2016. The appellant is filing the appeal today.

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PRAYER

(3) WHEREFORE, the appellant most respectfully prays on aforesaid grounds and among other grounds that will be urged at the time of hearing that this Hon'ble Tribunal may be pleased to: (i) To admit the appeal and allow this appeal. And to set aside the order passed under section 201(1)/201(1A) of the Income Tax Act (ii) Set aside ad cancel the demand of Tax and interest (iii) that your honour may be pleased to pass such orders as the facts and circumstances of the case may require. GROUNDS FOR INTERIM PRAYER

(4) That is most respectfully submitted that unless interim order sought for are granted, the appellant will be put to irreparable hardship and injury. The appellant have valid grounds and it is just and necessary to stay the operation of recovery till the disposal of appeal. Hence the need for interim relief.

INTERIM PRAYER

(5) Pending disposal of this appeal, the appellant respectfully pray that this Hon'ble Tribunal may be pleased grant the stay of the impugned order. The appellant is filed an application for stay for demand raised by the Asst. Commissioner of Income Tax TDS Circle, Bellary in form as mention in Appendix X(e). Pending disposal, the appellant respectfully prays this Hon'ble Tribunal may please grant Order for waiver of pre deposit till the appeal is decided.

banks using CBS software, interest payable on time deposits is calculated

generally on daily basis or monthly basis and is swept & parked

accordingly in the provisioning account for the purpose of macro

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monitoring only but constructive credit is given to the depositors/payee’s

account either at the end of the financial year or at periodic intervals as

per practice of the bank or as per the depositor’s/payee’s requirement or

on maturity or on encashment of time depositors whichever is earlier. He

submitted that under similar facts, it was held by the Tribunal in the

case of Bank of Maharashtra Vs ITO in ITA No.2419(Ahd/2007 dated 16-

03-2010 that no TDS was required to be deducted by the assessee on

such macro accounting as per CBS software. He submitted a copy of the

Tribunal order and drawn our attention to para-7 of this Tribunal order.

He also placed reliance on another Tribunal order rendered in the case of

ITO Vs State Bank of India, Kanpur in ITA Nos.476 & 477(Luck)/2012

dated 25-04-2013 and submitted a copy of this Tribunal order also.

in the case of Bank of Bank of Maharashtra Vs ITO (Supra) which reads

under;

“7. In view of the above Circular of CBDT clarifying TDS provisions by banks using “Core Banking Solutions” Software (CBS), the position is very clear that while deducting tax at source from the payments of interest on time deposits by bank using

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CBS software, interest payable on time deposits usually calculated on daily basis or monthly basis and is swept and parked in provisioning account for the purposes of macro monitoring. Actually, the credit is given to the depositor’s account either at the end of financial year or on a fixed periodic intervals as per practice or rules framed for the same, or as per the depositor’s requirement or on maturity or encashment of time deposits, as the case may be. In such a situation, the TDS is not possible at the time of calculation of interest payable on daily basis or monthly basis under the scheme of swept and parked in provisioning account for the purposes of macro-monitoring. The Board has clearly clarified the position and the facts are exactly identical in the present case that the interest credited as per notional entry dated 29-09-2001 is only provisioning in the accounts for the purposes of macro monitoring and it is not actual credit of payment of interest to the depositors. This notional provision was made and as is evident from record, which was reversed on next working day, the amount so credited as never accrued to the payee. Accordingly, we are of the view that the lower authorities i.e. the Assessing Officer as well as the CIT(A) has carried the matter under misconception and wrong presumptions. Accordingly, this issue of the assessee’s appeal is allowed”.

it is seen that in that case, the tribunal has given a finding that as is

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evident from the record, the entry was reversed on the next working day

and therefore, the amount so credited has never accrued to the payee. In

the present case, no such evidence has been brought on record hat

interest credited as per this software was only a notional provision and

the same was reversed afterwards. But this is also an undisputed fact

that the bank is using CBS software as in that case. Hence, we feel it

proper that the matter should be restored back to the file of the AO for a

fresh decision in the light of this Tribunal order rendered in the case of

Bank of Maharashtra (Supra) and if the assessee is able to establish that

it was only a notional provision which was reversed afterwards then no

TDS liability can be imposed on the assessee. We order accordingly.

State Bank of India (Supra), we find that this Tribunal order is not

rendering any help to the assessee in the present case because in that

case, it was held by the Tribunal that the AO should pass order u/s

201(1) and 201(1A) within a reasonable time i.e. within six years at the

end of the assessment order and in that case, the impugned order was

passed after more than 10 years and therefore, the same were barred by

limitation. In the present case, the orders u/s 201(1) & 201(1A) of the IT

Act were passed by the AO on 29-09-2014 and the earliest assessment

year involved is 2008-09 and therefore, it is seen that six years from the

end of the relevant assessment year has not elapsed at the time of

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passing the impugned orders and therefore, this Tribunal order is not

rendering any help to the assessee in the facts of the present case.

statistical purposes.

Order pronounced in the open court on the date mentioned on the

caption page.

Sd/- Sd/- (ASHA VIJAYARAGHAVAN) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER Bangalore: D a t e d : 16.09.2016 am*

Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file

By order, AR, ITAT, Bangalore

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2.तार�ख, �जस पर टाइप �कया हुआ मसौदे, संबंिधत सदःय के सामने रखा गया ह� DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER……………………………………………………………………………………….. 3. तार�ख �जस पर अनुमो�दत मसौदे व.िनजी सिचव/िनजी सिचव के पास वापस आए DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/Sr.PS……………….

6 आदेश अपलोड करने क� ितिथ DATE OF UPLOADING THE ORDER ON WEBSITE………………………………………….. 7. अगर अपलोड नह�ं �कया तो, उसका कारण IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO…………………………. 8. ब�च िल�पक के पास फाइल जाने क� ितिथ DATE ON WHICH THE FILE GOES TO THE BENCH CLERK……………………………….. 9. आदेश ज़ेरो�स/पृ�ांकन के िलए भेजने क� ितिथ DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT……………………… 10. फाइल मु�य िल�पक के पास जाने क� ितिथ DATE ON WHICH THE FILE GOES TO THE HEAD CLERK………………………………… 11. आदेश पर हःता�र के िलए फाइल सहायक र�जःशार के पास जाने क� ितिथ THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER………………………………………………………………………….