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TMI Blog2016 (7) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... deductible at source under section 194A on receipt of prescribed form, the mischief provided under section 40(a)(ia) is not attracted. - Decided in favour of assessee - ITA No.1581/Hyd/2014, ITA No.1582/Hyd/2014, C.O. No.64/Hyd/2014, C.O. No.65/Hyd/2014 - - - Dated:- 6-7-2016 - Shri D. Manmohan, Vice President And Shri Pradip Kumar Kedia, Accountant Member For the Assessee : Shri T. Chaitanyakumar For the Department : Shri J. Siri Kumar, DR ORDER Per Bench The Revenue has preferred appeals for the assessment years 2007-08 and 2000-11 against the common order of the Commissioner of Income-tax(Appeals) Guntur dated 25.6.2014. The assessee has also filed its cross-objections under S.253(4) of the Act. Since issues involved as well as the order impugned are common, all these appeals are being disposed of by this common order for the sake of convenience. 2. In both the appeals of the Revenue, the solitary issue involved is that the CIT(A) is not justified in deleting the additions made by the Assessing Officer by invoking the provisions of S.40a(ia) of the Act, for non-deduction of tax on interest paid by the assessee in terms of S.194A of the Act. In its cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He accordingly inter alia disallowed the interest paid to the tune of ₹ 6,37,64,249 while framing reassessment order. 4. Assessee preferred an appeal before the CIT(A) and raised two fold objections. The assessee firstly challenged that the reopening under S.147 is not permissible since original assessment under S.143(3) was made after verifying the relevant details and after certain sums were also disallowed. No new material/evidence has come to the notice of the Assessing Officer after the completion of the assessment. The entire assessment was reopened on the basis of the very same material, which is against the ratio laid down by the Apex Court in Kelvinator India Ltd(320 ITR 561). Therefore, the action of the Assessing Officer in invoking S.147 is without jurisdiction and thus vitiated in law. 4.1. On merits, the assessee pointed out before the CIT(A) that the payment of interest was made to its members and therefore, there is no requirement of deduction of tax on such interest payments and also interest payments did not exceed ₹ 10,000 individually to each member and therefore, there was no requirement to deduct tax at source. The assessee also furnished r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT, Jaipur in the cases cited above, I am of the opinion that disallowance u/s.40(a)(ia) in the case of a cooperative bank on the grounds that Forms l5G and 15H have not been properly filled in or that have been delivered at the local Income Tax Office as against O/o.CIT(CIB), Hyderabad or ITO(CIB) Tirupati is unfair and unjust under law. The appellant s appeal on this ground is allowed. 4.3 However, as regards the legal ground challenging the assumption of jurisdiction under S.147 by the Assessing Officer, the CIT(A) rejected the grounds of the Assessee. The relevant observations of the CIT(A) in this regard are reproduced hereunder- 4.3.2 I have perused the submissions made by the appellant. In the case of Kalyanji Mavji Co. Vs. CIT (SC) 102 ITR 287, the Hon'ble Apex Court has held that the expression has reason to believe is wider than is satisfied . The reasons must have a live link with the formation of belief. The information based on which reopening is done would also include true and correct state of law derived from relevant judicial decisions either of the IT. Authorities or Courts of Law - Whether the ground on which the original assessment is based i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of legality of reopening of the assessment under S.147, assessee has preferred the cross-objections. 6. The Learned Departmental Representative for the Revenue submitted that the assessee has not filed Form 15G/15H/60, etc. towards non-deduction before the appropriate authority, i.e. Commissioner of Income-tax. He relied upon the provisions of S.194A and submitted that the assessee was under legal obligation to deduct TDS on interest payments to various depositors as mandated by law. He finally relied upon the order of the Assessing Officer and submitted that the Assessing Officer was fully justified in resorting to the provisions of S.40a(ia) for non-deduction of tax at source. 7. The learned AR for the assessee, on the other hand, vehemently emphasised that the assessee is a cooperative society and interest was paid to its members and other cooperative societies. The assessee being a cooperative society carrying on banking activities is not obliged to deduct tax at source on interest payments to its members and other cooperative societies in view of S.194A(3)(v) of the Act, and therefore, the Assessing Officer was wholly incorrect in applying the provisions of S.40a(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid interest by the cooperative society to a member thereof or to any other cooperative society. It is the case of the assessee that interest was paid to its members and other cooperative societies and therefore, it is not obliged to deduct tax at source on in the payments to its members and other cooperative societies in view of S.194A(3)(v) of the Act. Therefore, S.40A(ia) does not come in to play at all. In this context, we take note of Circular No.9 of 2002 dated 11th September, 2002 relied upon by the Assessing Officer which restricts exemption under S.194A(3)(v) only to such members, who have joined in application for registration of the cooperative society and those who are admitted to the members for the registration in accordance with bye laws and rules. We find that the Hon'ble Bombay High Court in the case of Jalgaon District Central Cooperative Bank (supra) has quashed and set aside the Board Circular No.9 of 2002 relied upon by the Assessing Officer. The relevant portion of the head-note on page 424 of the Reports(265 ITR) as follows- The Central Board of Direct taxes cannot issue a circular under Section119 of the Act which would override or detract form the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing mounts shall not be deducted in computing the income chargeable under the head profits and gains of business or profession ,- (a) In the case of any assessee - (i) ....... (ii) (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid.... (only relevant portion extracted). The provision noted above spells out that the amount cannot be allowed as deduction only in the event when tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid. In the present case, it is the case of the assessing officer that the assessee was required to deduct tax in terms of the provisions of section 194A. We note that Section 194A is further qualified by section 197A(1A) which is a non-obstante clause. Setion197A(1A) provides that l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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