2016 (7) TMI 338 - AT - Income Tax

Tribunal Upholds Assessment Reopening & Deletion of Disallowance

Asst. Commissioner of Income-tax Circle 1 (1), Tirupati Versus Chittoor Dist. Co-operative Central Bank Ltd.

The Tribunal upheld the reopening of the assessment under Section 147, citing legal precedents allowing reassessment based on legal correctness or ... TDS u/s 194A - non-deduction of tax on interest paid by the assessee - Held that:- The amount cannot 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. Section 194A is further qualified by section 197A(1A) which is a non-obstante clause. Setion 197A(1A) provides that liability to deduct tax under section 194A ceases when a declaration in writing in duplicate in prescribed form and verified in the prescribed manner received by a person responsible for paying income to the payee. The remedy towards default for non-furnishing of the declaration to the Commissioner of Income Tax as prescribed has been addressed under section 272A(2)(f) of the Act by imposing suitable penalty thereon. However, once Form No,15G/Form 15H were received by the persons responsible for deducting tax, there is no liability to deduct tax at source in view of section 194A r.w.s. 197 A. Once, it is held that tax is not deductible at source under section 194A on receipt of prescribed form, the mischief provided under section 40(a)(ia) is not attracted. - Decided in favour of assessee Issues Involved:1. Legality of reopening the assessment under Section 147 of the Income Tax Act.2. Justification of additions made by the Assessing Officer (AO) under Section 40a(ia) for non-deduction of tax on interest payments as per Section 194A.Detailed Analysis:1. Legality of Reopening the Assessment under Section 147:The assessee challenged the reopening of the assessment under Section 147, arguing that the original assessment under Section 143(3) was completed after verifying relevant details, and no new material/evidence was brought to the AO's notice post-assessment. The CIT(A) rejected this challenge, citing several judicial precedents, including Kalyanji Mavji & Co. Vs. CIT and CIT vs. Bai Navajbai N.Gamadia, which held that the AO could reopen an assessment based on the correct state of law derived from judicial decisions or oversight/mistake in the original assessment. The Tribunal found no merit in the cross-objections as the assessee failed to provide substantial evidence or material to support its contentions. Thus, the reopening of the assessment by the AO was upheld.2. Justification of Additions Made by the AO under Section 40a(ia):The core issue was whether the CIT(A) was justified in deleting the additions made by the AO under Section 40a(ia) for non-deduction of tax on interest payments as mandated by Section 194A. The AO had disallowed interest payments totaling Rs. 6,37,64,249, arguing that the assessee, a cooperative society engaged in banking, was required to deduct tax at source on interest payments to members and other cooperative societies as per Section 194A. The AO relied on CBDT Circular No.9 of 2002, which restricted exemptions under Section 194A(3)(v) only to certain members.The CIT(A), however, found that the assessee had submitted Forms 15G/15H/60 to the Income Tax Authorities, albeit not to the designated authority, and held that a different remedy was available for this default. The CIT(A) cited ITAT rulings in Karwat Steel Traders vs. ITO and Shyam Sunder Kailash Chand vs. ITO, which supported the view that non-filing or delayed filing of such forms did not warrant disallowance under Section 40(a)(ia). The Tribunal upheld this view, noting that the Hon'ble Bombay High Court in Jalgaon District Central Cooperative Bank Ltd. had quashed the CBDT Circular No.9 of 2002, affirming that the circular could not override statutory provisions.The Tribunal further examined whether Section 40(a)(ia) could be invoked when the requisite forms for non-deduction were obtained but not filed with the proper authority. It concluded that once Form No.15G/Form 15H were received by the person responsible for deducting tax, there was no liability to deduct tax at source under Section 194A, as per Section 197A(1A). Any default in filing these forms with the Commissioner of Income Tax was addressed under Section 272A(2)(f) by imposing a penalty, not by disallowance under Section 40(a)(ia). Thus, the Tribunal found no infirmity in the CIT(A)'s order and upheld the deletion of disallowance under Section 40(a)(ia).Conclusion:The appeals of the Revenue and the cross-objections of the assessee were dismissed. The Tribunal upheld the reopening of the assessment under Section 147 and confirmed the CIT(A)'s decision to delete the disallowance under Section 40(a)(ia) due to non-deduction of tax on interest payments.