2021 (8) TMI 467 - AT - Income Tax

Penalty u/s 271C - non-deduction of tax at source on the interest accrued on bank deposits of the customers - penalty has been levied in view of liability raised under section 201(1) and 201(1A) of the Act by the Assessing Officer for holding assessee in default for non-deduction of tax at source on interest paid/accrued on bank deposits of customers - HELD THAT - We are of the opinion that when the foundation of levy of penalty under section 271C has been demolished, the penalty levied under section 271C cannot survive. Accordingly, we cancel the penalty levied by Joint/Additional Commissioner of Income-tax, in both the assessment years, i.e., AY 2014-15 and 2015-16. The grounds of the appeal of the assessee raised in both appeals are accordingly allowed.

Summary

Issues involved:
Appeal against penalty levied under section 271C of the IT Act for non-deduction of tax at source on interest accrued on bank deposits of customers.

Detailed Analysis:
1. Common Issue in Dispute: The appeals were filed by the assessee, a bank, against two separate orders passed by the Commissioner of Income-tax (Appeals) for assessment years 2014-15 and 2015-16. The common issue challenged in both appeals was the penalty levied under section 271C of the IT Act for non-deduction of tax at source on interest in bank deposits of customers who provided Form No. 15G and 15H to declare their income below the taxable limit.

2. Assessing Officer's Observations: The Assessing Officer found that customers providing Form No. 15G and 15H had income exceeding the taxable limit, which led to non-deduction of tax at source by the bank. The AO held the bank liable for TDS under section 194A of the Act and raised a liability under sections 201(1) and 201(1A) on the bank for non-deduction of tax. Consequently, a penalty was initiated under section 271C for the default.

3. Arguments and Tribunal's Decision: The assessee argued that the liability under sections 201(1) and 201(1A) had been deleted by the Tribunal in previous cases, thereby negating the basis for imposing the penalty under section 271C. The Tribunal observed that customers requesting no TDS through Form No. 15G/15H bear the responsibility to pay tax directly and held that the bank cannot be held in default under section 201. Referring to past judgments and lack of distinguishing features, the Tribunal allowed both appeals, canceling the penalty levied under section 271C for both assessment years.

4. Conclusion: The Tribunal's decision emphasized that when the foundation for imposing a penalty under section 271C was undermined by deleting the liability under sections 201(1) and 201(1A), the penalty could not be sustained. Consequently, the penalty levied by the Joint/Additional Commissioner of Income-tax for both assessment years was canceled, and the appeals of the assessee were allowed.

This detailed analysis highlights the legal proceedings, arguments presented, and the Tribunal's decision to cancel the penalty imposed under section 271C of the IT Act based on the non-deduction of tax at source on interest accrued on bank deposits of customers.