2016 (5) TMI 1566 - AT - Income Tax

TDS u/s 194A - Disallowance u/s 40(a)(ia) - Interest paid to various government and Institutional Depositors - Forms 15G/15H are not submitted to the Jurisdictional Commissioner and no evidences were produced to prove whether such forms have been obtained - HELD THAT - Considering the basic exemption limits, category of the customers are farmers and assessee had collected above 75% of the forms and also percentage of forms not submitted compared to total interest disbursal is 2.26% and percentage of interest paid on above ₹ 10,000 is 24.63%, we are of the view that the assessee has complied with the provisions of section 197A. Assessee also submitted that it has placed a system of collecting the forms from rural branches to HO and submitting the same at the time of assessment. Assessee also submitted that in the subsequent assessments, it was properly submitted the forms to Assessing Officer. Considering the above submissions, in our view, assessee is not at default and also as held in the case of Kumar Enterprises 2014 (5) TMI 426 - ITAT HYDERABAD and CIT Vs. Valibhai Khanbhai Mankad 2012 (12) TMI 413 - GUJARAT HIGH COURT that once the assessee obtained Form 15I from the sub-contractors whose contents are not disputed or whose genuineness is not doubted, then, the assessee is not liable to deduct tax from the payment made to sub-contractor. Once, assessee is not liable to deduct tax disallowance u/s 40(a)(ia) cannot be made. The assessee s breach of the requirement to furnish details to the income tax authority in the prescribed form within the prescribed time may attract other consequences but cannot result in a section 40(a)(ia) disallowances. Hence, addition made on this count is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-submission of Form 15G/15H.
2. Natural justice and procedural fairness in the appellate process.
3. Applicability of TDS provisions to interest paid to government departments and institutional depositors.
4. Procedural compliance and system efficacy in collecting Form 15G/15H.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Non-submission of Form 15G/15H:

The primary issue revolves around the disallowance of ?6,73,55,000/- under Section 40(a)(ia) due to the assessee's failure to submit Form 15G/15H to the jurisdictional Commissioner. The CIT(A) allowed partial relief by verifying some forms but upheld the disallowance of ?1,66,67,602/- due to non-submission of required forms. The Tribunal noted that the assessee had a system in place for collecting these forms and had demonstrated compliance for over 75% of the interest payments. It was held that the failure to submit the forms to the tax authority does not automatically warrant disallowance under Section 40(a)(ia) if the forms were indeed collected. The Tribunal relied on precedents, including the Gujarat High Court's decision in CIT vs. Valibhai Khanbhai Mankad, to conclude that procedural lapses in submission do not justify disallowance if the forms were genuinely obtained.

2. Natural Justice and Procedural Fairness:

The assessee contended that the CIT(A) did not provide an opportunity to respond to the remand report, which partly confirmed the disallowance. The Tribunal acknowledged this procedural lapse but focused on the substantive evidence provided by the assessee, which demonstrated a robust system for collecting Form 15G/15H. Given the substantial compliance and the specific circumstances of the assessee operating in rural areas, the Tribunal found in favor of the assessee.

3. Applicability of TDS Provisions to Interest Paid to Government Departments and Institutional Depositors:

The assessee argued that a portion of the interest disallowed represented payments to government departments and institutional depositors, which are outside the purview of TDS under Section 194A. The Tribunal noted that the assessee had not provided a detailed breakup of these payments but accepted the general argument that such payments should not attract TDS provisions. Consequently, the Tribunal found that the disallowance under Section 40(a)(ia) was not justified for these payments.

4. Procedural Compliance and System Efficacy in Collecting Form 15G/15H:

The Tribunal extensively reviewed the assessee's system for collecting Form 15G/15H and found it to be reliable. The assessee's software, used in compliance with tax deduction requirements, ensured that interest payments exceeding ?10,000/- were made only after obtaining the necessary forms. The Tribunal accepted the assessee's explanation that logistical challenges in rural areas contributed to the inability to furnish all forms. Given the high compliance rate and the nature of the assessee's operations, the Tribunal concluded that the procedural lapses did not warrant disallowance under Section 40(a)(ia).

Conclusion:

The Tribunal allowed the appeals for both assessment years 2010-11 and 2011-12, holding that the assessee had substantially complied with the provisions of Section 197A and that procedural lapses in the submission of Form 15G/15H did not justify disallowance under Section 40(a)(ia). The Tribunal emphasized the importance of substantive compliance over procedural lapses, especially given the assessee's operational context in rural areas. The decision underscores the principle that disallowances under tax provisions should be based on substantive non-compliance rather than procedural shortcomings.