2023 (12) TMI 57 - AT - Income Tax

Cooperative society wins appeal as tax deduction denial overturned due to prospective amendment application

ITAT Bangalore set aside ex-parte appellate order by National Faceless Assessment Centre, finding violation of natural justice principles as assessee did ... Ex-parte appellate order passed by National Faceless Assessment Centre - assessee argued that he did not receive any notice issued by the First Appellate Authority, thus violation of principle of natural justice - HELD THAT:- Upon perusal of the entire set of documents, we find that the impugned order is ultimately an ex-parte one. The documents furnished before First Appellate Authority physically on 15/5/2018 were also not taken into consideration by the ld.CIT(A), Faceless as impugned before us. This is clearly a violation of the principle of natural justice. The deliberation on this documents should have been made by the authorities below while dealing with the issue involved in the appeal preferred before the First Appellate Authority and in the absence of the same, the entire proceedings initiated by the ld.CI(TA) is found to be bad in law and requires re-adjudication of the same. We, therefore, find it fit and proper to direct the ld.AO to consider the issue afresh upon consideration of the relevant evidences already been placed by the assessee or any other evidences appellant chooses to file at the time of hearing of the matter. Deduction u/s 40(a)(ia) - interest paid by a cooperative society to its members in terms of the provision of sec. 194A(3)(v) - We find that so far as the amendment made by the Finance Act 2015 is concerned, the Chennai Bench in [2022 (7) TMI 1048 - ITAT CHENNAI] has been pleased to observe that the amendment is prospective in nature and applicable only from 01/06/2015. We find substance in the submission made by assessee that though amendment has been made by the Finance Act 2015, the same is not applicable to the instant case, particularly taking into consideration the observation made by the Mumbai Benches. We also find that the assessee has been able to make out a substantial case against addition made by the authorities below on the issue itself and thus, respectfully relying upon the order passed by the Co-ordinate Bench Asst. Year 2013-14 [2017 (9) TMI 2016 - ITAT BANGALORE] particularly in assessee’s own case on the identical issue as already discussed above, we remit the issue to the file of the ld.AO for fresh adjudication of the same on merit upon giving an opportunity of being heard to the assessee and to consider the evidence in support of the case made out by the assessee. Appeal of the assessee is allowed for statistical purposes. Issues Involved:1. Non-receipt of notice by the assessee.2. Ex-parte order passed without considering physical evidence.3. Deduction of tax at source on payments made to members.4. Violation of principles of natural justice.5. Reliance on previous Tribunal decisions and CBDT Circulars.Summary:Non-receipt of notice by the assessee:The assessee argued that they did not receive any notice from the First Appellate Authority. The ex-parte order was passed without considering the evidences/materials furnished physically before the transfer of the matter to the National Faceless Assessment Centre. The assessee relied on a letter dated 15/05/2018 to the CIT(A) where all relevant documents were submitted and acknowledged.Ex-parte order passed without considering physical evidence:The assessee's representative vehemently argued that the ex-parte order suffers from the violation of the principle of natural justice as the relevant documents were not considered. The appeal was disposed of without considering the documents which should have been reviewed on merit.Deduction of tax at source on payments made to members:The issue of whether the assessee deducted tax at source on payments made to members was previously considered by the Tribunal in the assessee's own case for the assessment years 2010-11 and 2011-12. It was decided in favor of the assessee, relying on the order passed by different benches of ITAT. The Tribunal upheld that cooperative societies carrying on banking business need not deduct tax at source under section 194A(3)(v) of the Act when paying interest to members.Violation of principles of natural justice:The Tribunal found that the impugned order was ex-parte and the documents furnished before the First Appellate Authority were not considered, which is a clear violation of the principle of natural justice. The Tribunal directed the AO to re-adjudicate the issue afresh upon consideration of the relevant evidences already placed by the assessee or any other evidences the appellant chooses to file.Reliance on previous Tribunal decisions and CBDT Circulars:The Tribunal referred to previous decisions where it was held that cooperative societies carrying on banking business need not deduct tax at source on interest paid to members. The Tribunal also referred to CBDT Circular No. 9 of 2002, which clarified that a member of a cooperative bank shall receive interest on both time deposits and deposits other than time deposits without TDS under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section.Conclusion:The Tribunal allowed the appeal for statistical purposes, remitting the issue to the AO for fresh adjudication on merit and directing the AO to pass a speaking order considering the ratio laid down by different Benches. The Tribunal emphasized the need to follow the principles of natural justice and consider all relevant evidences.Order Pronounced:The order was pronounced in the open court on 21st September, 2023.