2020 (7) TMI 190 - AT - Income Tax

Tribunal rules AO lacked jurisdiction in TDS case

The Dy. Commissioner of Income-Tax, Central Circle-1, Lucknow Versus Sahara India Financial Corporation Ltd. And (Vice-Versa) And The Addl. Commissioner of Income-Tax, Central Circle-1, Lucknow Versus Sahara India Financial Corporation Ltd. And (Vice-Versa)

The Tribunal upheld the CIT (A)'s findings that the Assessing Officer lacked jurisdiction to pass orders under Sections 201(1) and 201(1A) of the Income ... TDS u/s 194A - interest provision credited to the interest payable account - non deduction of TDS - assessee company has provided interest on deposits collected under GFDA scheme floated by assessee and debited the same to the profit and loss account by applying the average rate of interest on the balance amount of deposits bypassing monthly credit entries in the interest payable account without crediting the corresponding interest accrued on each individual deposit to the individual depositors account - default u/section 201(1) and 201(1A) - HELD THAT:- Any sum credited to 'suspense account' or 'interest payable account' shall be deemed to be credited for the purpose of tax deduction at source. Therefore, if the individual account interest payments exceed ₹ 2500/- merely because they are credited to the different account than the account of depositors, TDS liability of the deductor cannot be eliminated. But, there has to be provision of interest of individual account where credited to the account of depositor or to interest payable account is more than ₹ 2500/- for the FY, then only tax is required to be deducted. As per assessee there are no accounts where the individually interest payable to them is in excess of ₹ 2500/- and wherever it is requisite tax is deducted. This is not disputed by the ld DR. Therefore, we hold that there is no infirmity in the order of the ld CIT (A) in holding that assessee was not required to deduct tax at sources where the interest payable to individual account holder does not exceed ₹ 2500/- in FY. Jurisdictions of assessing officer as well as TDS officers - Looking at the orders passed under section 127 of the income tax act by the Commissioner of income tax Lucknow, it is apparent that jurisdiction over TDS has not been transferred to the other specified officers other than ITO (TDS), Lucknow. Further in case of sister concerns also the ITO TDS Ward – 2, Lucknow and not the officer of the central circle, has passed the respective orders under section 201 (1A relating to several years which have been mentioned in paragraph number 28 of the order of the learned CIT – A. Further in sub paragraph number five of para 28 of that order , in case of the assessee itself the orders have been passed by the ITO (TDS), Ward – 2 Lucknow under section 201 (1A) of the act. Therefore, it is apparent that the jurisdiction of all TDS matters over the assessee was with ITO (TDS) Ward – 2, Lucknow and not with The Deputy Commissioner of Income Tax, Central Circle – 1, Lucknow. On reading of all these notifications produced before us and considered by the learned CIT – A on jurisdictions of assessing officer as well as TDS officers, it is apparent that the order passed by the learned Assistant Commissioner of Income Tax, central circle – 1, Lucknow under section 201 (1) and 201 (1A) of the act on 1/6/1999 has correctly been held by the learned CIT – A as without jurisdiction. No infirmity in the order of the learned CIT – A in quashing the order passed by the learned assessing officer under section 201 (1) and 201 (1A) of the act on 16 1999 on the issue of jurisdiction as well as on the merits. - Decided against revenue. Penalty u/s 271C - HELD THAT:- Penalty u/s 271C is also dismissed for the reason that, there is no default by the assessee under section 194A of the income tax act relating to deduction of tax at source on interest paid for the year. Further the action of penalty was initiated based on the order under section 201 (one) and 201 (1A of the act passed by the learned assistant Commissioner of income tax, central circle – one, Lucknow was also found to be without jurisdiction. Therefore, when the penalty itself was initiated on an order, which was not passed by a proper jurisdictional officer, penalty initiated based on that order, even otherwise, could not survive. Issues Involved:1. Jurisdiction of the Assessing Officer (AO) under Sections 201(1) and 201(1A) of the Income Tax Act.2. Applicability of Section 194A for tax deduction at source (TDS) on interest payments.3. Imposition of penalty under Section 271C for failure to deduct TDS.Detailed Analysis:Issue 1: Jurisdiction of the Assessing Officer (AO) under Sections 201(1) and 201(1A) of the Income Tax ActThe primary issue was whether the AO had the jurisdiction to pass orders under Sections 201(1) and 201(1A). The CIT (A) determined that the AO lacked jurisdiction because the jurisdiction over TDS matters had been assigned to the Income Tax Officer (TDS), Ward-2, Lucknow. This was supported by several notifications and orders under Section 127 of the Income Tax Act, which clarified that the TDS jurisdiction was not transferred to the Central Circle. The CIT (A) noted that even in related cases of the assessee's sister concerns, the TDS orders were passed by the ITO (TDS), not the AO of the Central Circle. Consequently, the CIT (A) quashed the AO's order for lack of jurisdiction.Issue 2: Applicability of Section 194A for TDS on Interest PaymentsThe AO argued that the assessee should have deducted TDS on the interest credited to the 'interest payable account' under Section 194A. The assessee contended that the interest was credited on a lump-sum basis and not on an individual depositor basis, and thus, Section 194A was not applicable. The CIT (A) agreed with the assessee, stating that TDS is required only when the interest payable to an individual depositor exceeds Rs. 2500 in a financial year. Since the AO did not demonstrate that any individual depositor was credited with more than Rs. 2500, the CIT (A) concluded that there was no TDS liability. This interpretation was supported by an example illustrating that consolidated interest amounts do not trigger TDS unless individual accounts exceed the Rs. 2500 threshold.Issue 3: Imposition of Penalty under Section 271CFollowing the order under Sections 201(1) and 201(1A), the Additional Commissioner issued a notice for penalty under Section 271C for failure to deduct TDS. The assessee argued that there was no requirement to deduct TDS as individual interest payments did not exceed Rs. 2500, and the AO lacked jurisdiction. The CIT (A) cancelled the penalty, affirming that the AO's order was without jurisdiction and that there was no TDS default by the assessee. Consequently, the penalty under Section 271C could not be sustained.Conclusion:The Tribunal upheld the CIT (A)’s findings on both jurisdiction and merits. It agreed that the AO did not have jurisdiction to pass the order under Sections 201(1) and 201(1A) and that the assessee was not liable to deduct TDS under Section 194A as the interest payable to individual depositors did not exceed Rs. 2500. Consequently, the penalty under Section 271C was also dismissed. The appeals filed by the revenue were dismissed, and the cross-objections by the assessee were allowed.Order Pronounced:The orders were passed beyond the stipulated 90 days due to extraordinary circumstances and were pronounced in the open court on 08/06/2020.