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Central Bank of India Versus Addl. CIT (TDS) , Ghaziabad

2016 (2) TMI 195 - ITAT DELHI

Penalty u/s 271C - non deduction of tds u/s 194A by the banks including the assessee bank with respect to interest paid to NOIDA - Held that:- In the present case it is apparent that belief of the assessee was reasonable to not to deduct tax at source which is also based upon the notification issued by CBDT u/s 194A(3)(iii)(f) of the Act as well as several judicial precedents. In our view, it cannot be said that Hon‟ble Allahabad High Court has laid down any law with respect to deduction o .....

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10.1990.

There was a reasonable cause for holding a belief regarding non deduction of tax at source on payment of interest made to Noida which is supported by a notification issued as well as several orders of the coordinate benches holding that interest payment made to Development authorities are exempt for deduction of tax u/s 194A(3)(iii)(f) of the Act. - Decided in favour of assessee - ITA No 5968 to 5974/ Del/2015 - Dated:- 8-1-2016 - SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRAS .....

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of Income-tax (Appeals) confirmed the penalty in respect of orders as under:- ITA No. Amount Assessment Year 5968 /Del/2015 Rs.12,60,934 2005-06 5969/Del/2015 Rs.1,48,58,905/- 2006-07 5970/Del/2015 Rs.98,10,293/- 2007-08 5971/Del/2015 Rs.5,89,17,048/- 2008-09 5972/Del/2015 Rs,8,13,52,153/- 2009-10 5973/Del/2015 Rs.5,87,77,941/- 2010-11 5974/Del/2015 Rs.2,13,06,703/- 2011-12 2. As the issue involved in these seven appeals are common we dispose them off by this common order. 3. The brief facts of .....

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assessee in default‟. This matter came before the ITAT in ITANo.3600 to 3606/Del/2014 along with other banks vide order dated 07.08.2015, wherein on merits it has been held that the payment of interest by the banks to NOIDA does not require any withholding tax u/s 194A of the Act as the same is covered under exceptions provided u/s 194A(3)(iii)(f) of the Act. Resultantly, the order passed by the Addl. CIT(TDS) u/s 201(1) and 201(1A) read with section 194A of the act has been set aside. Me .....

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ted 07.08.2015 at the time of passing the penalty orders levied the penalty for all the years. The assessee carried the matter before the learned Commissioner of Income-tax (Appeals) who confirmed the penalty for all the years under the appeal by consolidated order holding as under:- 45. The position of the law with regard to the order dated 07/08/2015 of id. ITAT, Delhi Benches and the judgment dated 28/02/2011 of Hon'ble Allahabad High Court needs to be considered as there is clear conflic .....

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enches has been obtained by concealing the material facts and thereby by playing fraud on Id. ITAT, Delhi Benches the said order is nullity and non-estabinito and cannot be a binding precedence or even a precedence for the undersigned. In any case an order by Id. ITAT Delhi Benches qua1 jurisdiction exercised to a case coming under the territorial jurisdiction of Hon'ble Allahabad High Court cannot supersede the judgment of Hon'ble Allahabad High Court and will have no existence in the e .....

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of revenue and against the appellant bank.The Id. A.O. had the competence and jurisdiction under section 194A of the Income Tax Act and was competent to enforce the compliance of section 194A of the Income Tax Act 1961 by the appellant bank qua credit or payment of interest on time deposits of the Noida Authority by the appellant bank and other similarly p aced banks and other entities. 47. In respectful submission to the ld. ITAT, Delhi Benches it is submitted that each assessment proceeding or .....

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r proceedings for other assessment years and respectfully the order dated 07/08/2014 of ld. ITAT Delhi Benches cannot be the binding precedent for other proceedings in other assessment years. 48. In view of these facts and the position of law, I find no infirmity in impugned penalty orders passed by Id. Addl.ClT(TDS), Ghaziabad imposing penalty u/s. 271C of Income Tax Act, 1961 on the appellant bank for the A.Ys, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12. The same are ther .....

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ore no default persists and hence penalty cannot be levied on the assessee u/s 271C of the Act. He further submitted that observation of the learned Commissioner of Income-tax (Appeals) at Page 46 of the impugned order are not correct, where it is stated that the order passed by ITAT cancelling the demands u/s 201(1) and 201(1A) are nullity and non-est abinito and was not followed by learned Commissioner of Income-tax (Appeals) is against the settled judicial precedent. He further submitted that .....

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source on interest paid to Noida by various banks. He further submitted that Hon‟ble High Allahabad High Court has held that after 01.03.2003 Noida is not local authority within the meaning of section 10(20) of the Income Tax Act, 1961. Hence learned Commissioner of Income-tax (Appeals) had erred in holding that Allahabad High Court has decided the issue in favour of revenue u/s 194A of the Act. He further submitted that various tribunals have held that provisions of section 194A do not ap .....

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e to this the ld DR vehemently argued that the Hon‟ble Allahabad High Court‟s decision has held that Noida is not entity exempted under the provision of section 10(20) of the Act and therefore tax is required to be deduct thereon. He further submitted that Allahabad High Court was also seized of the issue that whether the tax was required to be deducted on the interest payment made to Noida and therefore the issue is covered against the assessee on that count. He further submitted th .....

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assessee in default‟ penalty independently thereof cannot be levied on the assessee u/s 271C of the Act. His contention was that mere failure to deduct the tax at source according to provision of the act can independently lead the assessee to penalty proceedings u/s 271C without passing any order u/s 201(1) of the Income tax Act. He further argued that there is no parallel between the two independent penalty provision one u/s 271(1)(c) and other u/s 271C of the act. In the end, he submitt .....

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at all decided the issue about deductibility of tax at source on interest payment to Noida u/s 194A of the act. He further submitted that the provision of section 271C cannot be invoked when the assessee is not in default and as in the case of the assessee orders u/s 201(1) and 201(1A) has been set aside , penalty u/s 271C of all those years cannot survive. 8. We have carefully considered the rival submission it is necessary to appreciate the issue to consider the provision of section 271C whic .....

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) shall be imposed by the Joint Commissioner. 9. Provisions of section 271C of the act are also qualified by the provision of section 273Bof the act which provides that penalty u/s 271C of the act cannot be levied if the failure referred to in the said provision is proved to be because of reasonable cause.‟ 10. Vide para Nos. 6 to 12 of the order of ITAT, issue about applicability of provisions of withholding tax u/s 194A of the Act on interest paid by assessee bank to Noida is discussed a .....

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, at the time of credit of such income to 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 : ................. (3) The provisions of sub-section (1) shall not apply- (i) ... (iii) to such income credited or paid to- (a) to (e) ..... (f) such other institution, association or body or class of institutions, associations or bodies which the Central Governmen .....

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), which cast obligation on the person responsible for paying interest for deduction of tax at source from such interest, shall not apply in the circumstances given in clauses (i) to (xi). Clause (iii) mandates that the requirement of deduction of tax at source contemplated by sub-section (1) shall be waived where such interest is credited or paid to any banking company/financial corporation/LIC/UTI, etc. One of the items of beneficiaries given in such list, as per sub- clause (f) is, 'such .....

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of such items notified generally is: "Any Corporation established by a Central, State or Provincial Act." The crux of the controversy before us is whether or not the assessee falls under this item? Whereas the case of the assessee is that it is a corporation established by the State Act, the Revenue has canvassed a view that the assessee is not a corporation established by a State Act. 8. It is observed that the assessee is a creation of the UP Industrial Area Development Act, 1976, a .....

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nstitute for the purpose of this Act, an Authority to be called (Name of the area), industrial development authority, for any industrial ITA No.1359/Del/2014 development area.' It is under the UP Industrial Area Development Act, 1976 that the UP Government constituted various industrial development authorities with the name of the area, such as, NOIDA Authority and Ghaziabad Authority, etc. The case of the Revenue is that only a corporation established 'by', inter alia, a State Act c .....

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contention, the ld. DR relied on the judgment of the Hon'ble Supreme Court in the case of Dalco Engineering Pvt. Ltd. vs. Satish PrabhakarPadhye and Ors., dated 31.3.2010, a copy of which has been placed in the paper book. The ld. AR also drew strength to fortify his point of view by relying on the same judgment for contending that the assessee is a Corporation ITA No.1359/Del/2014 established 'by' the State Act. Since both the sides have heavily relied on the same judgment, it becom .....

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sioner, instead of making a mere suggestion, ought to have issued a direction to the employer. He filed a writ petition on this aspect. The Hon'ble High Court allowed the said writ petition and directed the employer company to reinstate the Respondent. The Hon'ble High Court held that the appellant, though a private limited company, was an 'establishment' under the Act. The appellant took the matter to the Hon'ble Supreme Court urging that it was not covered within the meanin .....

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ighted the use of the words "by or under" in the definition of the term 'establishment' and explained the difference between a corporation established by' an Act and a corporation established under' an Act. The Hon'ble Apex Court held that a Corporation is established by' an Act, where the Act itself establishes the Corporation, such as, State Bank of India Act and Life Insurance Corporation of India Act. On the other hand, a Corporation is established under' .....

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in that case in which the Respondent urged that the appellant, a company, be declared as 'established by or under the Act.' The Hon'ble Supreme Court further observed that: Thus, a State Financial Corporation is established under a central Act. Therefore, when the words "by and under an Act" are preceded by the words "established", it is clear that the reference is to a corporation established, that it is brought into existence, by an Act or under an Act. In shor .....

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14 considered as established by or under an Act and the use of the words by' and under' in such a situation, is interchangeable. 11. Adverting to the facts of the instant case, we find that the assessee is a statutory corporation established by means of the UP Industrial Area Development Act, 1976. It has been noticed above from the preamble of this Act that it has been made for development of certain areas in the State into industrial and urban township. Instead of enacting area-wise In .....

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ified under the UP Industrial Area Development Act, we are of the considered opinion that the expression 'any corporation established by a State Act' shall include ITANo.1359/Del/2014 NOIDA (New Okhla Industrial Development Authority) in the given circumstances. 12. We find that identical issue involving payment of interest by some banks to Ghaziabad Development Authority without tax withholding came up for consideration before the Delhi Bench of the Tribunal in the case of Chief/Senior .....

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Manager Jammu & Kashmir Bank Ltd. Vide its order dated 24.4.2012 in ITANo.206 to 210/Asr/2011, the Tribunal has held that payment of interest by the bank to Jammu Development Authority (Jammu) is exempt u/s 194A(3)(iii)(f) and, hence, there can be no liability u/s 201(1) and 201(1A) on the bank and ITA No.1359/Del/2014 resultantly, the bank cannot be treated as an assessee in default u/s 201(1) and 201(1A). Likewise view has been taken by the Amritsar Bench of the Tribunal in ITO vs. the Br .....

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on record to demonstrate that all/any of the above orders have either been reversed or modified in any manner by the Hon'ble High Courts. Further, the ld. DR failed to point out any contrary decision. In view of the legal position discussed supra and these precedents, we are of the considered opinion that the ld. CIT(A) was justified in reversing the order passed by the Addl. CIT (TDS), Ghaziabad declaring the assessee liable u/s 201(1) and 201(1A) of the Act. We, therefore, uphold the impug .....

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t to interest paid to NOIDA. Therefore, at present it cannot be said that assessee has failed to deduct tax at sources on such payment of interest. Hence, on this score only penalty orders are deserved to be set aside. 12. Regarding the contention of revenue, that ITAT has not considered the decision of Honourable Allahabad high court dated 28.02.2011 is also devoid of any merit. Firstly because ITAT in para no. 2 of the order has made a mention of that decision. According to the above facts rec .....

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y or not as per section 10 (20) of the income tax Act. 13. Alternatively, it is necessary to examine that whether the case of the assessee falls under the exception of reasonable cause as provided u/s 273B of the Act. We do not have any hesitation to hold that there was a reasonable cause‟ for non deduction of tax at source on payment of interest made to Noida for following reasons:- a. ITAT has held that according to notification issued dated 22.10.1990 where it has been held that any cor .....

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assessee was having a bonafide belief that it is not required to deduct any tax at source on payment made to Noida. Ld DR as well as lower authority did not whisper a word about this aspect of the issue for non deduction of tax source. b. Prior to the decision of ITAT in the case of the assessee under similar circumstances Delhi Bench of ITAT in the case of Oriental Bank of Commerce Vs. ITO vide its order dated 15.07.2011 in ITA No. 2228/Del/2011 has held that the payment of interest by OBC to G .....

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provisions of section 194A(3)(iii)(f)of The Act. All these judicial precedents also support the proposition that various banks like assessee were carrying a view that payment of interest by bank to the development authorities is falling under the exceptions as provided u/s 194A(3)(iii)(f)of the act. Before us, no contrary decision was placed on record to demonstrate that that tax is required to be deducted on payment made to development authorities which are established by the statute. Therefor .....

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yond reasonable doubt. We are also aware about the decision of Hon. Delhi High Court in CIT Vs Fourways International, 166 Taxman 461 (Del)wherein it is held that section 273B of the Act does not make a levy of penalty u/s 271C of the Act mandatory. The assessee would not be liable to be penalized if he is able to prove that there was a reasonable cause for failing to deduct the tax. Further the Hon‟ble Andhra Pradesh High Court had a occasion to interpret the term reasonable cause in the .....

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d to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that same was the right thing to do. The cause shown has to be considered and only .....

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t made by the assessee to Noida. 17. In view of the above facts and circumstances we are of the view that the assessee cannot be subjected to penalty u/s 271C of the Act because a) There is no failure on part of the assessee to deduct tax at sources u/s 194A of the act in view of the decision of ITAT on this issue for the same years holding that there is no requirement of deduction of tax at source at all u/s 194A of the Act in view of notification dated 22.10.1990. b) There was a reasonable cau .....

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