TDS non deduction by bank where income in Form 15G/15H exceeded threshold limit

TDS non deduction by bank where income in Form 15G/15H exceeded threshold limit of basic exemption. ITAT remands case for filing of Form 26A

ABCAUS Case Law Citation
ABCAUS 3411 (2020) (10) ITAT

Important case law relied upon by the parties:
Hindusthan Co-cola Breverages Ltd. Vs. CIT 293 ITR 226 (SC)

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming order passed by the Assessing Officer (AO) u/s 201(1) and u/s. 201(1A) of the Income Tax Act, 1961 (the Act) treating the assessee in default.

The appellant assessee was a Government bank. A survey operation u/s 133A was conducted at the branch with a view to verify the deduction of TDS against the interest credited/paid to the customer.

The AO found that the customers had filed Form 15G/15H and so the bank did not resort to deduct TDS. 

However, the main objection of AO was that these Forms i.e. 15G/15H were accepted by the bank blindly without verifying whether their Forms have been correctly filled or not and, according to AO, the bank did not deduct TDS where applicable as per provision of section 194A of the Act. 

According to the AO, in some cases the customers had earned interest from their deposit which was more than the income limit not chargeable to tax and therefore the bank failed to deduct tax by accepting Form 15G/15H.

The AO declared assessee bank as an assessee in default and noted that since those customers had not furnished the certificate from an accountant as per section  201(1)  of  the  Act,  the  AO  passed  the  order  by  raising  a  demand  u/s. 201(1)/201(1A) of the Act. 

Aggrieved, the assessee preferred an appeal before the CIT(A), who dismissed the appeal of the assessee citing the reasons that none appeared before him on behalf of the assessee and by this non-attendance, he was of the opinion that assessee was not interested in pursuing the appeal and, therefore, dismissed the appeal ex parte qua the assessee. 

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The Tribunal observed that as per the provision of section 201, the assessee bank should not be deemed to be an assessee in default for non-deduction of tax at source in respect of a payee if the payee satisfy the following conditions:

(i) the payee has furnished his return of income u/s. 139;

(ii) payee has taken into account such sum for computing income in such return of income and ;  

(iii) payee has paid the taxes due on the income declared by him in such return of income and the payee furnishes a certificate to this effect from an accountant in such form prescribed ( i.e. form no. 26A) read with Rule 31ACB.

The Tribunal further observed that even though as per section 197A of the Act no deduction of tax is to be made by the payer (assessee-bank in this case) if the payee (customers who received interest)files Form No. 15G/15H, however, if the income exceeds the threshold limit exempted for taxation then this provision does not apply.

The bank contended that the customers involved in said short deduction of TDS had duly reflected and shown the entire interest income in their respective return of income and had remitted the tax on it, therefore, the bank could not be held to be an assessee in default.  

The Tribunal set aside the order of the CIT(A) and remanded the issue back to the file of the AO with direction to bank to furnish the Form 26A before the AO and the AO if satisfied, then the assessee bank should not be treated as an assessee in default.

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