Iapl/225/2017 Of Union Bank Of India Ada Branch Jaipur House Agra v. The Additional Commissioner Of Income Tax Tds Kanpur

A F R Reserved on 29.10.2018 Delivered on 20.11.2018 Case :- INCOME TAX APPEAL No. - 225 of 2017Appellant :- Union Bank Of India Ada Branch Jaipur House AgraRespondent :- The Additional Commissioner Of Income Tax (Tds) KanpurCounsel for Appellant :- Suyash AgarwalCounsel for Respondent :- C.S.C.,S.S.C. I.T.,Shubham Agarwal And Case :- INCOME TAX APPEAL No. - 230 of 2017Appellant :- Union Bank Of India Ada Branch Jaipur House AgraRespondent :- The Additional Commissioner Of Income Tax (Tds)Counsel for Appellant :- Suyash AgarwalCounsel for Respondent :- C.S.C.,Shubham AgrawalHon'ble Pankaj Mithal,J.Hon'ble Ashok Kumar,J. The assessee in these two appeals is the Union Bank of India,ADA Branch, Jaipur House, Agra. The assessee Bank had various fixed deposits of the AgraDevelopment Authority under different IDs for many years. It failed todeduct tax at source (TDS) and deposit the same with the CentralGovernment for the financial years 2012-13 and 2013-14.Accordingly, penalty under Section 271 C of the Income Tax Act,1961 (in short of the Act) amounting to Rs. 6,84,167/- and Rs.13,23,794/-was imposed for the assessment years 2012-13 and2013-14 respectively. The aforesaid penalty for the year 2012-13 was affirmed andthat of the assessment year 2013-14 was deleted by the CIT(Appeals). In appeals to the Income Tax Appellate Tribunal, Agra Bench,Agra preferred by the assessee Bank for the assessment year 2012-13 and by the Additional Commissioner, Income Tax (TDS) Kanpurfor the assessment year 2013-14, the tribunal dismissed the appealof the assessee Bank and allowed that of the revenue. In the net result, the order of penalty passed under Section271 C of the Act for both the assessment years 2012-13 and 2013-14 stood affirmed. Thus, aggrieved the assessee Bank has preferred these twoappeals. Both the appeals were admitted vide order dated 1.8.2017.The appeal in relation to the assessment year 2012-13 was admittedon the following two substantial questions of law:- (i) Whether the Tribunal was correct to confirm the penaltyunder Section 271 C of the Act in not deducting TDS ontwo ID's out of 9 ID's which has not found to be false orfrivolous by the authority below when the error wasbonafide not intentional; andunder Section 271 C of the Act in not deducting TDS ontwo ID's out of 9 ID's which has not found to be false orfrivolous by the authority below when the error wasbonafide not intentional; and (ii) Whether the appellant having deposited the TDS on01.03.2013 as soon as mistake was noticed and alsothe interest under Section 201 (1 A) of the Act havingpaid for delayed payment prior to the passing of theassessment order dated 15.03.2015under Section 201(1)/201(1A) of the Act having paid for delayed paymentprior to the passing of the assessment order dated15.03.2015 under Section 201 (1)/201 (1A) of the Act,penalty was sustainable.01.03.2013 as soon as mistake was noticed and alsothe interest under Section 201 (1 A) of the Act havingpaid for delayed payment prior to the passing of theassessment order dated 15.03.2015under Section 201(1)/201(1A) of the Act having paid for delayed paymentprior to the passing of the assessment order dated15.03.2015 under Section 201 (1)/201 (1A) of the Act,penalty was sustainable. The appeal for the assessment year 2013-14 was admitted on thefollowing substantial questions of law:- (i) Whether the ITAT was correct to restore the penaltyof Rs. 13,23,794/- for the F.Y. 2012-13 and A.Y. 2013-14when the appellant has deducted and deposited Rs.5,86,720/- on 11.01.2013 and Rs. 7,73,075/- on01.03.2013 totaling Rs. 13,23,794/- within the samefinancial year in view of sub-section (4) of Sectin 194 Aof the Act; and (I) Whether survey having taken place under Section133A of the Act on 10.01.2013 can be presumed it that The appeal for the assessment year 2013-14 was admitted on thefollowing substantial questions of law:- (i) Whether the ITAT was correct to restore the penaltyof Rs. 13,23,794/- for the F.Y. 2012-13 and A.Y. 2013-14when the appellant has deducted and deposited Rs.5,86,720/- on 11.01.2013 and Rs. 7,73,075/- on01.03.2013 totaling Rs. 13,23,794/- within the samefinancial year in view of sub-section (4) of Sectin 194 Aof the Act; and (I) Whether survey having taken place under Section133A of the Act on 10.01.2013 can be presumed it that TDS was deducted by the assessee on account ofsurvey only ignoring that the TDS and deducted anddeposited in the same financial year as such thepenalty under Section 271C of the Act cannot beattracted and the penalty imposed was saved by theprovision of section 273 B of the Act. We have heard Sri Suyash Agrawal, learned counsel for theassessee Bank and Sri Subham Agrawal, learned counsel appearingfor the revenue ie. Additional Commissioner of Income Tax (TDS)Kanpur. Sri Suyash Agrawal argued that in respect of the assessmentyear 2013-14 tax at source on the FDRs of the Agra DevelopmentAuthority was deducted before the close of the relevant financialyear and was deposited on 1.3.2013 and the interest for the delayedpayment was deposited on 15.3.2013. Therefore, in view of Sub-section (4) of Section 194 A of the Act there is no default which mayattract penalty provision. Moreover, the Agra Development Authorityhad furnished certificates of exemption under Section 197 of the Actupto the financial year 2010-11 and as the assessee Bank had notbeen deducting tax at source on the interest income on its FDRs itbonafidely due to technical fault or error in programming of thecomputer system could not deduct tax for the relevant year in time.Thus, no penalty was leviable in view of Section 273 B of the Act. In respect for the assessment year 2012-13 he submitted thatthough in this year tax at source was deducted and deposited a littlelater but as the said delay was bonafide in view of earlier certificatessubmitted under Section 197 of the Act by the Agra DevelopmentAuthority, there was a reasonable cause for not deducting tax atsource. Thus, no penalty could have been levied in view of Section273 B of the Act. Sri Subham Agrawal to counter the above submissions hadargued that deduction and deposit of tax within the financial yearconcerned under Section 194 A (4) of the Act would not absolve theassessee Bank from its liability to pay interest and penalty for not deducting and paying the tax in time. The deduction of tax at sourcein time and its payment under Section 194 A (1) of the Act is adistinct act then that of deduction of tax for adjustment under Section194 A (4) of the Act. Since admittedly tax at source was notdeducted and deposited within time, the assessee Bank is liable forinterest as well as penalty both. The tribunal as of fact has notaccepted the cause for the failure or delay in making deduction oftax at source to be reasonable. Therefore, Section 273 B of the Acthas rightly not been applied. In view of the respective submissions of the parties and in thelight of the substantial questions of law on which the appeals wereadmitted, only the following two substantial questions of law actuallyarise in these appeals and it is on these two questions that thecounsel for the parties have addressed the Court:- (i)Whether in view of deduction and deposit of tax by theassessee Bank on the interest income of FDRs by adjustment under Section 194 A (4) of the Act before the close of the financial year relevant for the concernedassessment year, penalty under Section 271C of the Act could have been imposed on the appellant assessee ; and In view of the respective submissions of the parties and in thelight of the substantial questions of law on which the appeals wereadmitted, only the following two substantial questions of law actuallyarise in these appeals and it is on these two questions that thecounsel for the parties have addressed the Court:- (i)Whether in view of deduction and deposit of tax by theassessee Bank on the interest income of FDRs by adjustment under Section 194 A (4) of the Act before the close of the financial year relevant for the concernedassessment year, penalty under Section 271C of the Act could have been imposed on the appellant assessee ; and (ii) Whether under the facts and circumstances of the case, as the Agra Development Authority for the earlier years had submitted certificates under Section 197 of the Act, there was a reasonable cause for the delay/failure to deduct tax at source on part of the assessee Bank so as to absolve it from penalty under Section 271 C of the Act in view of of Section 273 B of the Act? Section 194 A of the Act provides that any person who isresponsible for paying to a resident any income by way of interestshall at the time of credit of such income to the account of the payeeor at the time of payment thereof in cash/cheque or draft whicheveris earlier deduct income tax thereon at the rates in force. The relevant part of Section 194 A (1) is reproduced hereinbelow:- “194 A (1) Any person, not being any individual Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities shall, at the time of credit of such incometo the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.” The expression at the time of credit of such income to theaccount of the payee used above are most relevant and material. Itcastes upon the person responsible for paying interest to deductincome tax thereon at the time of credit of such income to theaccount of the payee. The aforesaid provision thus specifically stipulates that tax atsource on interest has to be deducted at the time of credit of suchincome to the account of the payee. The time of crediting interestincome to the account of the payee is the point of time for deductingtax at source on such income. On the other hand, sub-section 4 of Section 194 A of the Actreads as under:- “194 A (4) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.” The aforesaid sub-section enables the person responsible formaking payment of interest as provided under Sub-section 1 ofSection 194 A of the Act to make necessary adjustments for anyexcess or deficiency arising out of previous deduction or failure todeduct it during the financial year before the close of the relevantfinancial year. This is an enabling provision to adjust anydiscrepancy or shortcoming in deduction of tax on interest incomeduring the year,but it does not shifts the time/point of deduction and payment of such tax. In other words, the person responsible to makethe payment of interest has been given latitude to adjust any shortfall in previous deduction or failure in deduction to be adjusted bymaking appropriate deduction in the financial year. The aforesaid sub-section enables the person responsible formaking payment of interest as provided under Sub-section 1 ofSection 194 A of the Act to make necessary adjustments for anyexcess or deficiency arising out of previous deduction or failure todeduct it during the financial year before the close of the relevantfinancial year. This is an enabling provision to adjust anydiscrepancy or shortcoming in deduction of tax on interest incomeduring the year,but it does not shifts the time/point of deduction and payment of such tax. In other words, the person responsible to makethe payment of interest has been given latitude to adjust any shortfall in previous deduction or failure in deduction to be adjusted bymaking appropriate deduction in the financial year. The aforesaid provision does not envisage any shifting orchange of time for making deduction of tax at source on the incomeof interest payable by the person concerned provided under Sub-section (1) of Section 194 A of the Act . The time for deduction of taxon interest income remains the same as contemplated underSection 194 (1) of the Act, ie, when the interest income is to becredited in the account of the payee or at the time of payment incash/cheque or draft. Therefore, even if the assessee Bank makesany deduction in the financial year concerned by adjustment asprovided under Sub-section (4) of Section 194 A (1) of the Act, it inno way legitimize the failure or shortage of not deducting the tax atsource at the time it ought to have been deducted in accordancewith Section 194 A (1) of the Act. Section 201 of the Act provides for payment of interest on thedelayed period on account of failure to deduct tax at source oninterest income or for delay in making such deduction, whereasSection 271 C of the Act provides for imposition of penalty for suchdefault. In the instant case, we are not much concerned with thepayment of interest on account of delay in deducting the tax atsource on interest income but are only concerned with theimposition of penalty under Section 271 C of the Act due to nondeduction of tax at source on interest income as contemplated bySection 194 A (1) of the Act. Section 271 C of the Act provides that if any person fails todeduct whole or any part of the tax as required, then he shall beliable to pay by way of penalty a sum equal to the amount of taxwhich he has failed to deduct. A bare reading of the aforesaid provision would reveal that thepenalty is imposable where there is failure to deduct tax as required to be deducted under section 194 (1) of the Act on interest income.The time of deduction of such tax is undisputedly the time at whichinterest is to be credited to the account of the payee or when it ispaid in cash/cheque or draft. In the present case it is not disputed that tax at source was notdeducted by the assessee Bank at the time interest income wascredited to the income of the payee ie., Agra Development Authoritybut was deducted and deposited subsequently though before theclose of the financial year. Thus, apparently on account of nondeduction of the tax at source at the time stipulated under Section194 (1) of the Act, the assessee Bank became liable for penaltyunder Section 271 C of the Act. Now the other aspect is if the assessee Bank could beexempted from penalty by applying the provision of Section 273-B ofthe Act provided the assessee Bank is able to satisfy that there wasa reasonable cause for failure to deduct tax at source on the interestincome. Section 273 B of the Act provides that notwithstanding theprovisions contained under Section 271 C of the Act no penalty shallbe imposable upon the person or the assessee for any failurereferred to in the aforesaid provision if the person or the assesseeconcerned proves there was reasonable cause for the said failure. Now the other aspect is if the assessee Bank could beexempted from penalty by applying the provision of Section 273-B ofthe Act provided the assessee Bank is able to satisfy that there wasa reasonable cause for failure to deduct tax at source on the interestincome. Section 273 B of the Act provides that notwithstanding theprovisions contained under Section 271 C of the Act no penalty shallbe imposable upon the person or the assessee for any failurereferred to in the aforesaid provision if the person or the assesseeconcerned proves there was reasonable cause for the said failure. In this regard the assessee Bank contends that the failure todeduct tax at source on interest income in time was due to the factthat the Agra Development Authority had obtained certificates underSection 197 of the Act permitting the assessee Bank not to deducttax at source on its interest income. It is in view of the above andthe improper feeding in the computer system or updation of thesoftware that the authorization was for limited period and not for thefinancial/assessment years concern that the assessee Bank couldnot deduct tax at source on interest income in the relevant period. The tribunal has not found the aforesaid cause to bereasonable as in the earlier year no certificate under Section 197 ofthe Act was submitted by the Agra Development Authority and in that year necessary feeding was done in the computer system and thededuction of tax at source was made on the interest income. Thus,there was no occasion to commit the mistake of not deducting tax atsource on interest income in time in the relevant years. It is pertinent to point out that due to certificates under Section197 of the Act furnished by the Agra Development Authority no taxwas deducted at source on the interest income in the Financial Year2010-11 . The software was updated in the subsequent year with theresult tax at source on interest income was deducted in the year2011-12. Once the software was updated, there was no reason forany error in the subsequent year ie. 2012-13 and 2013-14. The finding of the tribunal on the above aspect is a finding offact and when the cause shown has not been found to bereasonable by the tribunal, it does not inhers this Court to take acontrary view and to accord the benefit of Section 273 B of the Act. The various authorities cited by Shri Suyash Agrawal are notof any help in the facts and circumstances of the case and we do notconsider it necessary to burden our judgment by discussing them asthe appeals at hand can conveniently be decided on their own facts. In view of the aforesaid facts and circumstances of the case,the two questions raised in these appeals are answered against theassessee Bank and it is held that deduction of tax at source oninterest income before close of the financial year concerned asprovided under Section 194 A (4) of the Act would not absolve theassessee Bank from penalty for not deducting the tax at source fromthe interest income of the Agra Development Authority at the time ofcredit of the said income in its account and that there was noreasonable cause on part of the assesee Bank for not deducting taxat source on the interest income of the Agra Development Authorityso as to permit any benefit of exemption from penalty as envisagedunder Section 273 B of the Act. The appeals have no merit and are dismissed. Order Date :- 20.11.2018SKS