Tribunal rules AO lacked jurisdiction in TDS case

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 Tax Act. It was determined that the assessee was not obligated to deduct TDS under Section 194A as individual interest payments did not exceed the threshold. Consequently, the penalty under Section 271C was canceled. The revenue's appeals were dismissed, and the assessee's cross-objections were allowed.

---

---

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 Act

The 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 Payments

The 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 271C

Following 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.

---