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TMI Blog2020 (7) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... U/s 201 (1) & 201(1A) of the act holding that there is no default by assessee on merits for not deducting tax at sources u/s 194 A of the act as well as the order passed by ld AO is without jurisdictions. CO of the assessee supports the order of CIT (A). Second appeal [ITA No 686] is filed by The Additional Commissioner of Income-Tax, Central Circle-1, Lucknow against the order of the Ld CIT (A) cancelling penalty u/s 271C of the act for the reason that there is no fault u/s 194A by assessee, and order based on which penalty is initiated is quashed on merits as well as on jurisdiction issue. Co of the assessee supports the order of the LD CIT (A). 2. Facts shows that, For assessment year 96 - 97, the learned assessing officer, on examination of the profit and loss account of the assessee and the details obtained during the course of hearing under section 143 (3)of that year found that assessee company has provided interest of Rs. 71,03,37,564/- on deposits collected under GFDA scheme floated by assessee and debited the same to the profit and loss account by applying the average rate of interest on the balance amount of deposits bypassing monthly credit entries in the interest pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso relied upon the views of the assessing officer of Central Circle as well as The Income Tax Officer (TDS) Ward - 2, Lucknow who also concurred with his view. Thus, according to him, such an order would have been framed only by the AO of, TDS Ward and not by the present assessing officer. Therefore, he cancelled the order passed by the assessing officer. On the merits of the case, he held that if the interest relatable to any individual depositor, whether credited directly to his account or credited to some other account like interest payable account, exceeds Rs. 2500, then only the appellant is liable to deduct tax at the time of credit or payments of interest, whichever is earlier. However if the Consolidated entry in respect of number of depositors are passed and the appellant claims that interest payable to each of the depositor is less than Rs. 2500, there is no tax withholding liability of the assessee. He explained the situation by way of an example stating that if the interest payable to number of persons is less than 2500 and that amount is credited to the consolidated interest payable account, if the interest payable to each of the person is not exceeding Rs. 2500, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in respect of matters under Chapter XVIII-B of the Income Tax Act lies with the Income Tax Officer, TDS Ward-2, Lucknow and with the Assistant Commissioner of Income Tax, Central Circle-1, Lucknow no jurisdiction was vested. 3. That the ld CIT(A) is fully justified in holding that the provisions of section 194A are not attracted on the facts and circumstances of the case." 8. Further pursuant to the above order passed for assessment year 1996 - 1997 under section 201 (1) and 201 (1A) of the act, since the assessee failed to deduct tax at source, notice under section 271C of the act was issued by The Additional Commissioner Of Income Tax, (Central), Lucknow on 24 June 1999 as to why a penalty of Rs. 7,10,33,156/- being amount of default of tax should not be levied. In response to that, assessee contested that a. The order passed by the assessing officer under section 201 (1) read with section 201 (1A) of the act is without jurisdiction. b. Assessee was not required to deduct tax at source as none of the depositors was having the interest liability of more than Rs. 2500 and therefore the provisions of section 194A of the act were not applicable. 9. The learned adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words and spirit of law in holding that the provision of section 194A were not applicable in this case. 3. That the order of the ld CIT(A) being erroneous in law as well as on the facts deserves to be vacated and that of the AO restored." 12. Assessee has filed cross objection number 16/ LUk/2004 raising following grounds:- "1. That the order passed by the ld CIT(A) is fully justified on the facts and circumstances of the case. 2. That the ld CIT(A) is fully justified in holding that the jurisdiction in respect of matters under Chapter XVIII-B of the Income Tax Act lies with the Income Tax Officer, TDS Ward-2, Lucknow and with the Assistant Commissioner of Income Tax, Central Circle-1, Lucknow no jurisdiction was vested. 3. That the ld CIT(A) is fully justified in holding that the provisions of section 194A are not attracted on the facts and circumstances of the case." 13. The learned departmental representative vehemently supported the order of the learned assessing officer submitting that a. Assessee has failed to deduct tax at source in terms of provisions of section 194A of the income tax act. He further referred to explanation to that section stating that even if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 16. On the issue of the merits, he submitted that none of the provision depositors of interest of the GFDA scheme is more than Rs. 2500/- with respect to any of the individual clients, therefore, there is no requirement of tax deduction at source as the individual interest payment/payable to the individual deposit holder in this year did not exceed Rs. 2500/- or more. He otherwise submitted that whenever there is an excess interest paid more than the amount of Rs. 2500, assessee deduct tax at source thereon and also complies with all other provisions of filing the return before The Income Tax Officer (TDS), Lucknow. 17. He explained the manner of provisioning which is mentioned by the ld AO in first paragraph of his order. He submitted that neither the depositor and nor the exact amount of interest payable to that depositor is identified when the provision are made. Thus, there is no requirement of TDS in such circumstances. 18. He therefore submitted that the learned CIT - A has correctly deleted the demand raised under section 201 (1) and interest under section 201 (1A) of The Income Tax Act and consequent penalty under section 271C of the act. 19. On the issue of levy of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The explanation below that provides that where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. 22. By Circular No. 495, dated 22-9-1987, CBDT explained the provision stating that under the existing provisions, deduction of tax at source from interest is to be made at the time of payment or credit to the account of the payee. With a view to prevent postponement of liability relating to such deduction of tax at source, section 194A has been amended to provide that tax will be deducted at source, on accrual of interest at the end of the accounting year or at the time of credit to the account of a payee or at the time of payment, whichever is earlier. Similarly, section 195 has been amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "provisions of sub-section (1) shall not apply as the case may be aggregate of the amount of much income as the case may be the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of or to be payee does not exceed two thousand five hundred rupees." 8. Shri Thakkar submitted that in view of the above it is clear that the legislature has used the word account/ payee in singular. This means that interest credited to the account of one single depositor or the interest credited to any account in relation to that single depositor is to be taken into consideration and if interest relatable to that single depositor exceeds Rs. 2565/- there was a liability to deduct tax at source. In the case of the appellant the AO did not point out that interest liability relating to any of the depositor exceeds Rs. 2500/- and unless this is pointed out, there was no liability to deduct tax and the appellant cannot be deemed to be an assessee in default and the provisions of section 201(1A) are not at all applicable. 9. I have carefully considered the submission raised on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (2) of section 120 or any other provisions of this Act. (underlying by me). ] Therefore, it is clear that an Assessing Officer derives his jurisdiction from the orders passed by the competent authority in this regard and he cannot travel beyond the jurisdiction assigned to him. 17. An important aspect which is not to be forgotten is that prior to the centralization the Sahara Group of cases were assessed by the various Assessing Officer falling under the control of Commissioner of Income-tax, Lucknow. The Commissioner of Income Tax, Lucknow on 12.05.1988 passed an order No. 36, in which the jurisdiction of the income tax officer, TDS Ward-2, Lucknow was defined as below:- The Assessing Officer shall have jurisdiction for the purpose of Chapter XVIIB (Except sections 198, 199) and section 272BB & 273B of the Income Tax Act, 1961 within the jurisdiction of learned Commissioner of Income-tax, Lucknow charge. It is further clarified that the reference to words "Assessing Officer" in section 194C, 195, 197 of the Income Tax Act, 1961 relates to the Assessing Officer having jurisdiction to make assessments of Income Tax." 18. Thus, it is clear that by this order the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or classes of persons mentioned below:- All persons responsible for paying any income or sum of the nature mentioned in section 192 to 194, 194A, 194B, 194C, 194D, 194Em 196F, 195 and 196A and for deducting any tax in sum as income tax or for collecting tax in accordance with the provisions of section 206C, whose office (including a branch officer) within the revenue district of Lucknow. 21. This last order also shows that in respect of the assessee belonging to the Sahara Group, the functions under Chapter XVIIB were assigned to Income Tax Officer, TDS Ward-2, Lucknow. 22. At this stage it will be helpful if the provisions of section 127 of the Act may also be looked into which state as below"- (1) The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him. (und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . M/s. Shabi Advertisisng, 1, Kapoorthala, Aliganj, Lucknow Do 7. M/s. Sahara India Housing Corp. Ltd, 1, Kapoorthala, Aliganj, Lucknow Do 8. M/s. Sahara India Mutual Benefit Co Ltd, 1, Kapoorthala, Aliganj, Lucknow Do 9. Sri Ishtiaq Ahmed, Sahara India Bhawan, Aliganj, Lucknow ACIT, Circle-2(3), Lucknow 10. Sri Uttam Kumar Bose, 1, Kapoorthala, Aliganj, Lucknow Do 11. Swapna Roy, Sahara India Bhawan, Lucknow Do 12. Sri Om Prakash Srivastava, 1, Kapoorthala, Aliganj, Lucknow Do 13. Sri JB Roy, 1, Kapoorthala, Aliganj, Lucknow Do 14. Sri Sanjay Bahadur Do 15. M/s. Sahara India Airlines Ltd, 1, Kapoorthala, Aliganj, Lucknow Do 26. It is pertinent to note that whereas the commissioner of Income Tax, Lucknow transferred the cases from various Assessing Officers to Central Circle-III, Lucknow, he did not transfer the cases from Income Tax Officer, TDS Ward-2, Lucknow to Central Circle-III, Lucknow. Explanation below section 127 states that the word "case" in relation to any persons means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that M/s. Sahara India Financial Corporation Ltd for FY 1995-96 filed annual return in Form No. 24 before the ACIT, Central Circle, Lucknow on 06.06.1996. The AO, Central Circle, Lucknow on 04.05.1997 transferred the said return to ITO, TDS Ward-2, Lucknow and thereafter the ITO, TDS Ward-2, Lucknow passed an order u/s 201(1A). (6) On 18.02.2000 the ITO, TDS Ward-2, Lucknow issued a show cause notice u/s 201(1) and 201(1A) of the Act to Sahara India Ltd, for FY 1990-91 asking the said assessee to show cause as to why it should not be deemed to be an assessee in default for not deducting tax at source u/s 194B of the IT Act. Thus, the Assessing Officers of Central Circle also properly understood that the jurisdiction under Chapter XVIIB did not vest with them and unnecessarily they have assumed the jurisdiction in the case of the appellant in this year. 29. To summarize, I hold that there was no legal obligation upon the appellant do deduct tax at source. Further, the AO did not have any jurisdiction to pass an order u/s 201(1) and 201(1A) of the Act." [Note para no 24 is not mentioned in the order of CIT (A)] 25. The order passed by the learned CIT - A has considered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - A cancelling the penalty under section 271C of the income tax act is also dismissed for the reason that, there is no default by the assessee under section 194A of the income tax act relating to deduction of tax at source on interest paid for the year. Further the action of penalty was initiated based on the order under section 201 (one) and 201 (1A of the act passed by the learned assistant Commissioner of income tax, central circle - one, Lucknow was also found to be without jurisdiction. Therefore, when the penalty itself was initiated on an order, which was not passed by a proper jurisdictional officer, penalty initiated based on that order, even otherwise, could not survive. Thus, the learned CIT - A quashed the order of the penalty under section 271C of the act also. We do not find any infirmity in the order of the learned CIT - A and therefore the appeal filed by The Additional Commissioner of Income Tax (Central) Lucknow is dismissed. 29. As the CO filed by the assessee is only supportive in nature to the order of the learned CIT - A, it is allowed. 30. In the result both the appeals filed by the revenue are dismissed and COs of the assessee are allowed. 31. These order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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