2021 (4) TMI 14 - AT - Income Tax

Tribunal quashes tax orders, emphasizes payee liabilities, rejects bank default status.

Allahabad Bank Versus ITO (TDS) Ghaziabad

The Tribunal allowed both appeals, quashing the orders under Sections 201 and 201(1A) of the Income-tax Act, 1961, for the assessment years 2014-15 and ... TDS on interest u/s 194A - Assessee in default u/s 201 read with section 201(1A) - assessee in default and consequently the recovery of amount determined by the Assessing Officer - payees who had furnished Form No. 15G/15H - HELD THAT:- The assessee bank has not deducted TDS in respect of customers who have provided Form No. 15G and 15H of the Act under the statute as provided by the Income Tax Act. The customers who have provided Form No. 15G/15H has specifically requests through these forms that TDS should not be deducted on their FDs/respective withdrawals. The prime responsibility relating to TDS deduction u/s 201 is of the recipient assessee to pay the tax directly once they filed From No. 15G/15H and any tax liability will be held as pending in recipient assessee’s cases and hence Section 201 of the Act cannot be invoked as it is a recovery provision as submitted by the Ld. AR. The decisions given by the Ld. AR also reiterates similar facts. Besides this, in Assessment Years 2002-03 to 2004-05, in the case of the assessee itself in the same branch, the Delhi ITAT in [2016 (3) TMI 1240 - ITAT DELHI] after following the judgment of the Jurisdictional Allahabad High Court in the case of the assessee itself, has quashed the proceedings u/s 201 of the Act on the similar lines. Further, for Assessment Year 2014-15 and 2015-16 also the issue is identical and no distinguishing feature was pointed out by Ld. DR at the time of hearing. Since, both the assessment years i.e. A.Y. 2014-15 and 2015-16 are identical, therefore, we are allowing both the appeals. Issues Involved:1. Jurisdiction of the Assessing Officer under Section 201(1) and 201(1A) of the Income-tax Act, 1961.2. Validity of the income-tax demand in the absence of notice under Section 201 or 201(1A).3. Treatment of the assessee in default for payees who furnished Form No. 15G/15H.4. Inclusion of interest items on which TDS has been deducted and paid.5. Creation of TDS demand for items of interest included in payees' income-tax returns.Detailed Analysis:1. Jurisdiction of the Assessing Officer under Section 201(1) and 201(1A):The appellant argued that the Assessing Officer (AO) had no valid jurisdiction under Sections 201(1) and 201(1A) of the Income-tax Act, 1961, to hold the appellant as an assessee in default in the absence of any outstanding income-tax demand against the payee or any action taken against the payee by the Department. The Tribunal agreed with the appellant, citing the Allahabad High Court's judgment in 345 ITR 288, which clarified that the prime responsibility to pay tax directly lies with the recipient assessee. Unless the Department demonstrates that any tax liability is pending against the recipient, the provisions of Section 201 cannot be invoked.2. Validity of the Income-tax Demand in the Absence of Notice:The appellant contended that the income-tax demand created as a result of the order dated 29th February 2016, without issuing a proper notice under Sections 201 or 201(1A), was arbitrary and against natural justice. The Tribunal found merit in this argument, noting that the AO had passed the order without issuing a proper notice, which is a prerequisite for invoking the provision of Section 201.3. Treatment of the Assessee in Default for Payees Furnishing Form No. 15G/15H:The appellant argued that the authorities should not have treated the assessee in default under Section 201 read with Section 201(1A) for payees who had furnished Form No. 15G/15H. The Tribunal agreed, emphasizing that the bank could not be expected to verify the taxability of the recipient's income beyond the declarations made in these forms. The Tribunal highlighted that the AO had not provided any evidence of pending tax demands against the payees, thus failing to justify treating the bank as an assessee in default.4. Inclusion of Interest Items on Which TDS Has Been Deducted and Paid:The appellant argued that the AO should not have included items of interest on which TDS had already been deducted and paid. The Tribunal concurred, noting that neither the AO nor the CIT (Appeals) had given due consideration to the interest paid to certain persons from whom TDS was either deducted or the interest paid was below the taxable limit.5. Creation of TDS Demand for Items of Interest Included in Payees' Income-tax Returns:The appellant contended that the TDS demand under Sections 201 and 201(1A) was unjust and excessive, especially for items of interest included in the payees' income-tax returns, where the payees had already paid the income tax. The Tribunal supported this argument, emphasizing that the AO had not established any pending tax liability against the payees. The Tribunal also noted that interest under Section 201(1A) is compensatory and can only be charged if the deductor is declared as an assessee in default, which was not the case here.Conclusion:The Tribunal allowed both appeals, quashing the orders under Sections 201 and 201(1A) of the Income-tax Act, 1961, for the assessment years 2014-15 and 2015-16. The Tribunal emphasized the need for the Department to demonstrate pending tax liabilities against the payees before invoking Section 201 and held that the bank could not be treated as an assessee in default based on the declarations made in Form No. 15G/15H. The Tribunal also highlighted the procedural lapses, including the absence of proper notice, which rendered the AO's orders invalid.