M/S THE H.P. STATE CO-OPERATIVE BANK,CHAMBA vs. ITO (TDS), PALAMPUR

That the worthy CIT(A) did not appreciate that the amount reflected in the balance-sheet shown as "Income Tax payable" relates to TDS on payment of interest but not deposited in Central Govt. a/c. This tax was wrongly deducted at source on account of defect in software of the bank, furthermore, the authorities below did not appreciate that there was defect in the working of software as on the payment of interest to small depositors TDS was wrongly deducted at source where the deductee have filed Form 15G/15H. It was further explained before the authorities below that TDS was wrongly deducted on the payment of interest in the case of Govt. Agencies. The authorities below further failed to appreciate that on a/c of defects in the software the TDS was to be reversed and therefore die same was not deposited in the Govt. Treasury as there was no applicability of TDS and accordingly the accounts of the parties from whom TDS has shown were reversed. 5. That the authorities below did not appreciate that when there was no liability to deduct TDS and consequently there was no question of raising any demand against TDS u/s 201(1) and interest u/s 201(1 A) of the IT Act. 1961 against the assessee.

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justified in confirming the order of the AO. As such the addition made is unjustified and unlawful and the same may be deleted.

3.1 It was conveyed that due to above defect of the software, the tax deducted was to be reversed and therefore, was not deposited into the Central Govt. account and was lying as Income Tax Payable in the Balance Sheet of the bank. The assessee also filed a reconciliation statement in this regard.

3.2 The AO, however, held that as per provisions of Chapter XVII of the Income Tax Act, 1961, the person responsible to deduct tax u/s 194A of the Act was required to deposit the same to the credit of the Central Govt. account within a period of seven days from the end of the month. However, till the date of passing of the order, the PR had neither reversed the tax wrongly deducted as claimed nor had the same been deposited into the Central Govt. account. In view of the above, the AO held the PR in default for not depositing the tax into Central Govt. account and further determined interest u/s 201(1 A) as under:-

F.Y. Demand u/s 201(1) Interest u/s 201(1 A) Total Payable 2009-10 2,71,190/- 1,95,257/- 4,66,477/ -

H.P. STATE CO-OPERATIVE BANK ITA NO. 326 TO 337 ASST. YEAR: 2010-11 TO 2013-14 4 OF 7

2010-11 3,43,481/- 1,85,480/- 5,28,961/- 2011-12 9,03,325/- 3,25,197/- 12,28.522/- 2012-13 4,77,605/- 85,970/- 5,63,575/-

-Form 15G/15H were not considered by the software as a result the tax was deducted from the various accounts which were actually not supposed for deduction and the amount so deducted was parked in the Income tax payable account of branch.

-Tax was even deducted in saving accounts/Term deposit accounts maintained by the Government agencies like schools, colleges etc to whom the provisions of TDS were not applicable.

-Tax was even deducted on the amounts of interest where the amount credited was less than Rs. 10,000.00 in any financial year. -Tax has been deducted on MACT accounts in which the interest paid is even less than 50,000.00 as the software has considered the name MACT as one unit, whereas the amount pertains to different entities. Moreover considering the judgment of Hon'ble High Court o f H P the (CWPIL No.9 of 2014) bank was not required to deduct the tax on MACT deposits but the system has deducted the same and parked into the Income tax payable account.

Sir, the Ld. AO has simply relied on the report of the statutory auditors in which they have advised the branch to take appropriate action in respect of the amount standing in the Income tax payable account. The relevant paragraph form the audit report is being reproduced below for your kind perusal.

"The Branch is deducting tax on interest paid/credited to its depositors and the amount so deducted is transferred to Income tax payable account which is

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never remitted to the credit of Central Government. Such violation will lead to imposition o f heavy penalty by the Income tax department and will also create difference in the maturity value of the instruments. Although in few instances it was also observed that the software is deducting TDS on interest payments which otherwise was not required, such deductions to the extent are also responsible for accumulating huge amount of tax payable. We recommend on appropriate action at HO level at an earliest possible time frame so that the penal provisions could be avoided further. " The auditor have very categorically recommended that appropriate action should be taken which implies that he was also satisfied with our contention that amount needs to be reversed. However due to non availability of staff in the branch the reversal of amount deducted could not be done. Further considering the fact that most of the amount deducted was supposed to be reversed, the amount was not remitted to the credit of Central Government as it could have created undue hardship to the small and petty depositors and government agencies who does not to file their Income tax returns. Moreover wrong deduction of tax could have adversely affected the business of bank and the bank might have lost all the Government deposits. Sir, even after the inspection of the Ld. AO asked for the list of depositors having deposits more than Rs.1.00 Lacs as technically the liability of TDS would only arise if the amount of deposit is more than Rs.1.00 Lacs. Further reconciliation in respect to various reversal vis a vis amount supposed to be deposited was being asked for which was duly provided to the Ld. AO along with the Bank statements for Government accounts exempt from TDS deduction, copies of harm 15G/15LI, copies of MACT accounts and certain other statements, but the Ld. AO with a predetermined mindset and with a hurry to pass the orders deliberately ignored the documents and issued orders on the basis of report of the statutory auditors. Lie even didn't bothered to give the credit for the amount of TDS deposited by the appellant for which again the rectification request was made and the same was then allowed by the AO, but request for consideration of other matters which could minimize the tax incidence were turned down on ground that since the matter is under appeal the same could not be decided at the moment. The orders passed by the Ld. AO are even non speaking as there is not even a single word written in his orders as to why these all documents/evidences having effect of minimizing the amount ol TDS payable were ignored by him.

Sir, as a matter of fact mere entry in the books of accounts would not make the assessee liable to pay the amount as TDS unless the same was actually payable. In case the system have deducted the tax assuming at the rate of 1% against the applicable rate of 10%, whether the same would have accepted by the department. The department in that case-would have asked for the difference amount although the system would have calculated the tax by applying the wrong rate. What I am trying to elaborate is that the tax is required to be paid on actual basis and not merely based on calculation by the software. The detailed exercise after the inspection was carries out by the staff of the branch and whole of the amount payable as TDS was deposited. Later on in response to the notice u/s 221 of the Income tax act, the appellant was asked to pay the interest amount on the amount so deposited which was also deposited. The necessary reconciliation statement o f TDS deducted, TDS paid before the survey, TDS paid after the survey, and amount reversed due to various reasons ci was earlier submitted to the Ld. AO :

I II III IV V VI VII VIII IX FINANCIAL BALANCE AMOUNT AMOUNT TOTAL AMOUNT 15G/H/GOVT. SMALL TOTAL YEAR OF TDS ALREADY RECENTLY AMOUNT TO BE A/C (Rs.) DEPOSIT REVERSD (Rs.) DEDUCTED DEPOSITED DEPOSITED DEPOSITED REVERSED (Rs.) BY SYSTEM TO @ (Rs.) (b+c) a-(b+c) (a)(Rs.) CENTRAL (Rs.) (Rs.) GOIT. A/C (b) (Rs.) 2009-10 271190 65940 51106 117046 154144 116294 37850 154144 2010-11 343481 137285 NIL 137285 206196 160190 46006 206196

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2011-12 903325 63519 248703 312222 591103 400100 191003 591103 2012-13 477605 98113 193522 291635 185970 155070 30900 185979 TOTAL 1995601 364857 493331 858188 1137413 831654 305759 1137413

The Ld. AR further submitted that According to Circular No. 014(XL-35) dated 11th April, 1955, only tax due should be charged. Whatever the legitimate tax, it must be assessed and must be collected. The purpose of this circular is that the department should not take advantage of assessee's ignorance to collect more tax out of him than is legitimately due from him. The Ld. AR further relied on the decision of ITAT, Kolkata Bench 'A' in the case of Allahabad Bank vs. DCIT, Circle-6, Kolkata, reported in (2018) 90 taxmann.com 328 (Kolkata - Trib.) in which it was held as under:- "It is now well settled that there is no estoppels against the statute. The assessee is only pleading for claim of deduction which had been erroneously disallowed by it in the return of income and considered as such by the Assessing Officer in the assessment. Though there was no occasion for the revenue to adjudicate this issue on merits, the revenue could not take advantage of the mistake committed by the assessee. The scheme of taxation is primarily governed by the principles laid down in the Constitution of India and as per article 265 of the Constitution of India, no tax shall be levied or collected unless by an authority of law. When a particular item is not to be taxed as per the statute, then taxing the same would amount to violation of constitutional principle and revenue would be unjustly enriched by the same. Hence, in the process of verification by the Assessing Officer, if the stand of the assessee is found to be correct and if it results in income being assessed lower than the returned income, that would be the true and correct income of the assessee and it would be the duty of the revenue to assess the correct tax liability of the assessee. In view of these findings in the facts and circumstances of the case, it is deemed fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of the Assessing Officer for adjudication on merits. Accordingly, the additional ground raised by the assessee is allowed for statistical purposes." T h e L d . A R further submitted that it is relevant to point out that interest was increased u/s 201(1 A) from 1% to 1.5% per month from 1st July 2010. Accordingly the necessary directions may be given for charging the interest. Accordingly, it is prayed that the appeal may kindly be set-aside and may be restored to the file of the ITO (TDS Circle), Palampur.

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Hence the case is being remanded back to the file of the ITO(TDS) to examine, whether TDS has been deducted correctly and paid to the exchequer on time as stipulated, whether the excess TDS deducted has been credited into the accounts of the customers, if so what is interval of re-crediting of the TDS, to look into the remedial measures taken by the PR post survey to bring about the correct changes in the software and to re-determine the default of the TDS and subsequent deposit into the Government Account. The ITO(TDS) would be at liberty to levy the penalty / interest for non deduction and delayed deposit if any as per the provisions of the Income Tax Act 1961.

Order pronounced in the Open Court.

Sd/- Sd/- (DIVA SINGH) (DR.B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER

Date:05/03/2018 AG

Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR