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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Karnataka Vikas Grameena Bank, Head Office, CTS No.52/B1/A1/D.H.No.133A, H.O.Building, Belgaum Road, D.N.Koppa Dharwad-580 008. … Appellant Vs. Commissioner of Income-tax, Hubli. … Respondent Appellant by: Shri Narendra Sharma, Advocate and Srihari Kutsa Respondent by: Shri Farhat Hussain Qureshi, CIT(DR) Date of hearing : 03/02/2015 Date of pronouncement: 13/02/2015 O R D E R Per Smt.P.MADHAVI DEVI, JM:
This is an appeal filed by the assessee against the order of the CIT, Hubli, dated 14/03/2013 for the assessment year 2008- 09.
Brief facts of the case are that the assessee is a co- operative society doing banking business. It filed its return of income for the assessment year 2008-09 on 30/09/2008 declaring an income of Rs.93,22,72,000/-. The same was processed u/s 143(1) on 17/12/2009 and refund of Rs.11,86,450/- was adjusted against the arrears for the Karnataka Vikas Grameena Bank Page 2 of 7 assessment year 2007-08. Thereafter, the assessee filed revised return on 28/03/2009 declaring an income of Rs.93,25,06,010/-. The assessee also made an application u/s 154 to grant extra refund on account of revised return. Thereafter the Assessing Officer (AO) proceeded to complete the assessment u/s 143(3) after verification of the books of account produced by the assessee. The AO considered the allowability of deduction u/s 36(1)(viia) and 36(1)(vii) of the Act and also 36(1)(viii) of the Act and disallowance u/s 14A etc., and computed the tax accordingly. Thereafter, the CIT perused the assessment records and observed that the assessee-bank had debited an amount of Rs.1,43,23,61,632/- to its profits and loss account under the head ‘interest on deposits’ as expenditure and on verification of interest paid account on such deposits, it is seen that the assessee has paid/credited interest to its customers/depositors without making TDS on the interest amount exceeding Rs.10,000/- which is in violation of the provisions of sec.194A of the Act. He, therefore, observed that the assessment order is both erroneous as well as prejudicial to the interest of revenue. He, accordingly, issued a notice u/s 263 of the Act on 26/11/2012. The assessee was also asked to furnish branch-wise details of depositors and deposit amount, interest accrued/paid, Form No.15G/H, if any obtained and submitted to the department and the details of TDS made in respect of interest payment exceeding Rs.10,000/-. The Karnataka Vikas Grameena Bank Page 3 of 7 assessee filed the requisite details vide its submission dated 12/3/2013. It was submitted that no TDS was required to be made for interest paid up to Rs.10,000/- on term deposits and as regards the interest in excess of Rs.10,000/-, it was informed that interest was not deducted after obtaining declaration in form No.15G/H from depositors as well as the Government and Quasi-Government bodies. It was admitted that total sum of Rs.6,61,48,819/- was paid as interest without TDS even though each of the payments exceeded Rs.10,000/-. The CIT, after considering the assessee’s submissions held that the assessee has not produced Forms 15G/H in the office of the CIT, Hubli, by the prescribed date which is mandatory to avail the facility of not making TDS on interest payment. He, therefore, held that the interest payment of Rs.4,84,13,546/- debited to profit and loss account is liable to be disallowed u/s 40(a)(ia) of the Act for this reason. Similarly, with regard to interest paid in excess of Rs.10,000/- without making any TDS, he held that the same is also liable to be disallowed u/s 40(a)(ia). He accordingly set aside the assessment order. Aggrieved by the order of the CIT, the assessee is in appeal before us.
The learned counsel for the assessee, while supporting the orders of the AO submitted that the assessee had filed all the details including books of account before the AO and as observed by the AO, they were test checked before accepting the same. He has drawn our particular attention to the profit and loss
Karnataka Vikas Grameena Bank Page 4 of 7 account which included both interest earned as well as interest expended and submitted that when the AO has considered interest income earned by the assessee, he would have considered the interest expenditure also. He submitted that the issue of disallowability u/s 40(a)(ia) of interest paid or payable was a subject of debate during the relevant assessment year and the AO, having accepted one of the possible views, the assessment order cannot be said to be erroneous or prejudicial to the interest of the revenue. For this proposition, he placed reliance upon the judgment of the Hon’ble Supreme Court in the case of Malabar Industrial Co. vs. CIT (243 ITR 83)(SC). As regards merits of the disallowance u/s 40(a)(ia) is concerned, the learned counsel for the assessee submitted that the disallowance u/s 40(a)(ia) can be made only if the interest is payable by the end of the relevant financial year and not of the amount already paid. He submitted that in the case before us, interest has been paid before the end of the relevant financial year and therefore, as held by the Special Bench of the Tribunal in the case of Merilyn Shipping reported in (2012) 136 ITD 23 (Vishakapatnam)(SB), this amount cannot be disallowed u/s 40(a)(ia). He also placed reliance upon the judgment of the Hon’ble Allahabad High Court in the case of CIT vs. Vector Shipping Services (P) Ltd., reported in (2013) 357 ITR 642(All.) which has referred to the decision of the Special Bench of the Tribunal for coming to the above conclusion and also drawn our
Karnataka Vikas Grameena Bank Page 5 of 7 attention to the fact that the Hon’ble Supreme Court has dismissed the SLP filed by the Revenue against the judgment of the Hon’ble Allahabad High Court. Thus, according to him, the decision of the Hon’ble Allahabad High Court has been upheld by the Hon’ble Supreme Court. Therefore, according to him, the assessment order is neither erroneous nor prejudicial to the interest of revenue and the order of the CIT u/s 263 is not sustainable.
The learned Departmental Representative, on the other hand, supported the order of the CIT and supported the order of the CIT and submitted that as is clear from the assessment order, the AO has not considered the allowability or otherwise of the interest expenditure without TDS u/s 40(a)(ia) of the Act. Therefore, according to him, the order of the CIT u/s 263 is to be upheld.
Having regard to the rival contentions and the material on record, we find that during the assessment proceedings u/s 143(3), the AO has not verified the issue as to whether the assessee has complied with the provisions of 194A and has deducted the tax at source on the interest paid to its customers or depositors even where the interest exceeded Rs.10,000/-. There is nothing on record to demonstrate that the assessee has filed these details before the AO or that the AO has called for and verified these facts. The Hon’ble Delhi High Court in the case of Gee Vee Enterprises, reported in (1975) 99 ITR
Karnataka Vikas Grameena Bank Page 6 of 7 375)(Del.) has held that the ITO being an adjudicator as well as investigator, cannot remain passive in the face of a return which is apparently in order but calls for further enquiries in the facts and circumstances of the case and the word ‘erroneous’ in sec.263 includes the failure to make such enquiry. Therefore, in the case before us, since the AO failed to make any enquiries on the issue, the assessment order is clearly erroneous. However, for an order to be revisable u/s 263 of the Act, it has to be both erroneous as well as prejudicial to the interest of the revenue. We find that the issue of disallowance u/s 40(a)(ia) was a highly debatable one leading to the reference of the said issue to the Special Bench in the case of Merilyn Shipping (cited supra) and the Special Bench had held that the said provision is applicable only to the amounts payable as on the last date of the financial year and not to the amounts already paid. This decision has been confirmed by the Hon’ble Allahabad High Court in the case of Vector Shipping Services (supra) and aggrieved by the same, the Revenue had filed an SLP before the Hon’ble Supreme Court which was dismissed in limine. Therefore, though the Hon’ble Supreme Court has not laid down any ratio decidendi, since it has not entertained any appeal against the order of the Hon’ble High Court, the decision of the Hon’ble High Court is final. Thus, on merits, this issue is covered in favour of the assessee by the decision of the Hon’ble Allahabad High Court which is followed by this Tribunal in a number of cases to which both of us i.e. the Karnataka Vikas Grameena Bank Page 7 of 7 Judicial Member and the Accountant Member are signatories. Therefore, respectfully following the decision of the Hon’ble Allahabad High Court, we hold that the issue is covered in favour of the assessee on merits. Therefore, it is clear that there is no prejudice caused to the revenue by the assessment order. Thus the order u/s 263 is not sustainable. The order u/s 263 is thus set aside and the assessment order is upheld.
In the result, the assessee’s appeal is allowed.