2020 (5) TMI 456 - AT - Income Tax

Penalty imposed u/s 271C - non-deduction of TDS on submission of Form No. 15G/15H in cases where interest paid exceeds basic exemption limit - HELD THAT - Section 271C provides that if any person fails to deduct whole or any part of the tax as required, then he shall be liable to pay by way of penalty a sum equal to the amount of tax which he has failed to deduct. Section 273B of the Act provides that notwithstanding the provisions contained under Section 271C, no penalty shall be imposable upon the person or the assessee for any failure referred to in the aforesaid provision if the person or the assessee concerned proves there was reasonable cause for the said failure. Assessee bank is expected to carry out basic verification of such declarations before the same are accepted and similarly, where the interest paid/credited exceeds the basic exemption limit during the relevant financial year, such declarations shouldn t form the basis for non-deduction of TDS as the same would not be in consonance with assessee s bank obligation under section 194A read with section 197A(IB) which overrides the provisions of section 197A(IA) - in terms of section 197A(1C), it has been provided that no deduction of tax shall be made in the case of an individual resident in India, who is of the age of sixty years or more at any time during the previous year, if such individual furnishes to the person responsible for paying any income of the nature referred to section 194A, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil. Coming to the specific transactions under considerations, the assessee bank has relied on the declaration in Form 15G furnished by Shri Vimal Mehta for financial year 2010-11 and 2011-12 and in Form 15H furnished by Smt Prem lata Bhateja who is over sixty years of age during the financial year 2012-13 and 2013-14 respectively and has not deducted tax while crediting/paying the interest in the respective financial years. As far as payment/credit of interest to Smt Prem Lata Bhateja who is over sixty years of age during the financial year 2012-13 and 2013-14, in terms of provisions of section 197A(1C), there is a reasonable cause for non-deducting the TDS and the assessee bank cannot be fastened with the penalty u/s 271C. There is no dispute that the information so provided in the declaration is the responsibility of the customer who is furnishing such declaration and where the assessee bank relies on such declaration, no fault can lie solely with the assessee bank except that certain basis verification is expected while accepting such declarations and uploading the same in bank IT system. In the instant case, we therefore find that where the assessee bank has relied on the declaration so furnished by the customer, there is no malafide which is reflected in the action of the assessee bank in not deducting the TDS and the assessee bank cannot be fastened with the penalty u/s 271C. Add. CIT (TDS) has dropped the penalty proceedings vide his order dated 19.10.2016 in case of another branch of the same bank and there is nothing on record which reflects the basis for taking a different view in the case of present branch of the same bank while passing the impugned order which was subsequently passed on 12.01.2017. No doubt the discretion to levy the penalty or to drop the penalty proceedings is entirely the discretion of the appropriate authority who is authorized under the statute, however, where in case of same bank, different approach is adopted by the same authority in exercise of its powers so bestowed by the statutory, the same reflect arbitrariness in absence of any distinguishing facts and circumstances so highlighted and any such arbitrary levy of penalty reflects non-application of mind by such authority and penalty so levied is liable to be deleted. We find that there exist a reasonable cause for non deducting the TDS by the assessee bank and the penalty so levied for the respective years is hereby directed to be deleted and the matter is decided in favour of the assessee bank and against the Revenue.

Issues Involved:
1. Confirmation of penalty imposed under Section 271C.
2. Non-consideration of rectified order passed under Section 154.
3. Inconsistent treatment of penalty between different branches of the same bank.
4. Good faith and bona fide belief in relying on declarations submitted in Form No. 15G/15H.

Detailed Analysis:

1. Confirmation of Penalty Imposed under Section 271C:
The assessee challenged the confirmation of penalty imposed under Section 271C, arguing that the penalty was based on the original order passed by the ACIT(TDS) without considering the subsequent rectified order. The tribunal noted that Section 271C imposes a penalty for failure to deduct tax as required, but Section 273B provides that no penalty shall be imposed if there was a reasonable cause for the failure. The tribunal referred to the Supreme Court decision in CIT v. Eli Lilly & Co. (India) (P.) Ltd., which held that penalty under Section 271C is not automatic and can be waived if there is a reasonable cause.

2. Non-Consideration of Rectified Order Passed under Section 154:
The assessee argued that the rectified order under Section 154, which reduced the demand, was not considered while imposing the penalty. The tribunal found merit in this argument, noting that the rectification order replaces the original order, and ignoring it while imposing the penalty was against the law.

3. Inconsistent Treatment of Penalty Between Different Branches of the Same Bank:
The assessee contended that another branch of the same bank had a similar case where the penalty under Section 271C was dropped by the same authority. The tribunal agreed, stating that the same treatment should have been applied to the Bapu Nagar Branch. The tribunal emphasized that different treatment of identical cases reflects arbitrariness and non-application of mind, making the penalty liable to be deleted.

4. Good Faith and Bona Fide Belief in Relying on Declarations Submitted in Form No. 15G/15H:
The assessee argued that it acted in good faith and bona fide belief by relying on the declarations submitted by customers in Form No. 15G/15H. The tribunal noted that the bank is expected to carry out basic verification of such declarations. However, it found that the bank acted without malafide intention and relied on the declarations provided by the customers. The tribunal concluded that the bank had a reasonable cause for not deducting TDS and should not be penalized under Section 271C.

Specific Transactions:
The tribunal examined specific transactions, including declarations by Shri Vimal Mehta and Smt. Prem Lata Bhateja. It found that for Smt. Prem Lata Bhateja, who was over sixty years of age, the bank had a reasonable cause for non-deduction of TDS based on the provisions of Section 197A(1C). For Shri Vimal Mehta, the tribunal acknowledged the bank's reliance on customer declarations and found no malafide intention, thus directing the deletion of the penalty.

Conclusion:
The tribunal concluded that there was a reasonable cause for the bank's failure to deduct TDS, and the penalty imposed under Section 271C should be deleted. The appeals filed by the assessee were allowed, and the matter was decided in favor of the assessee bank and against the Revenue.

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