Income Tax Appellate Tribunal - Hyderabad
Apsrtc Employees Thrift & Credit ... vs Department Of Income Tax on 24 August, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA Nos. 126 & 127 /Hyd/2016
Assessment Year: 2011-12 and 2012-13
Dy. Commissioner of Income- vs. M/s APSRTC Employees Thrift
tax, TDS, TDS Circle - 1(1), & Credit Society Ltd.,
Hyderabad. Hyderabad.
PAN - AAATA3057F
(Appellant) (Respondent)
Revenue by : Shri K.E. Sunil Babu
Assessee by : Shri A. Srinivas
Date of hearing 11-08-2016
Date of pronouncement 24-08-2016
O RDE R
PER S. RIFAUR RAHMAN, A.M.:
Both these appeals of the department are directed against the order dated 24/11/2015 passed by ld. CIT(A) - 8, Hyderabad for the AYs 2011-12 & 2012.
ITA No. 126/Hyd/2016 for AY 2011-122. Briefly the facts are, assessee a society is registered under the AP State Cooperative Societies Act, 1964. For verifying assessee's compliance to TDS provisions, a survey u/s 133A of the Act was conducted on the assessee on 03/11/2011. In course of survey, it was found that the society was paying interest on deposits kept with it to different categories of members such as regular members, associate members and nominal members. However, while making such interest payments, assessee society has not deducted tax at source. When assessee was called upon to explain ITA Nos.126 & 127/Hyd/2016 M/s. APS RTC Employees Thrift & Credit Society Ltd.
the reason for not deducting tax on interest payments, it was submitted by assessee that on the principle of mutuality, TDS provisions on interest payments to members would not apply in view of provision contained u/s 194A(3)(v) of the Act. AO after examining the submissions of assessee, found that during the relevant year, assessee had 851 regular members, 4880 associate members and 47 nominal members. He further noticed that while assessee pays interest @ 10% on the deposits received from regular members, it pays 9.5% interest on the deposits received from associate members and 10% interest on the deposits received from nominal members. On going through the bye-laws of the society, AO also found difference in rights and privileges between regular members on one side and associate/nominal members on the other. He, therefore, opined that exemption as contemplated u/s 194A(3)(v) would apply only to a regular member and not associate/nominal members. Though, assessee objected to such proposition of the AO and contended that as the provision contained u/s 194A(3)(v) only speaks of member without any differentiation, AO cannot make a difference between regular member and associate/nominal member while granting exemption u/s 194A(3)(v) of the Act. Assessee in support of such contention, relied upon a decision of the Hon'ble Bombay High Court in case of Jalgaon District Cooperative Society Bank Vs. Union of India (265 ITR 423). AO, however, did not find merit in the contentions of assessee. He observed that 'member' as envisaged u/s 194A(3)(v) only refers to a regular member and not all the members of the society. As far as CBDT Circular No. 9 is concerned, AO held that though it may be a fact that the said Circular has been quashed by the Hon'ble Bombay High Court, but, since the Board has not withdrawn or repealed the said Circular, it is binding on both assessee and revenue. Holding as aforesaid, AO proceeded to compute demand u/s 201(1) and 201(1A), as under:
Member FY 2010-11 Tax u/s 201(1) Interest u/s Interest paid 201(1A) Associate 14,89,26,397 1,48,92,640 35,74,233 Member 2 ITA Nos.126 & 127/Hyd/2016 M/s. APS RTC Employees Thrift & Credit Society Ltd.
Nominal 14,80,706 1,48,070 35,536
Member
Total 15,04,07,103 1,50,40,710 36,09,769
Thus, AO passed the order accordingly on 30/03/2013 raising the total demand of Rs. 1,86,50,479. Being aggrieved of the assessment order so passed, assessee preferred appeal before ld. CIT(A). The CIT(A) following his earlier order dated 10/09/2013 in assessee's own case, held that the assessee need not deduct tax.
3. In the meanwhile, the AO initiated penalty proceedings u/s 271C on the ground that the assessee is liable to deduct tax at source u/s 194A(1) on the interest on time deposits paid/credited to its Members. The assessee deductor was liable to deduct tax at source @ 10% u/s 194A of the Act. Since, the assessee has failed to do so, the assessee was in default for non deducting tax at source to the tune of Rs. 1,68,20,577/- being 10% of the amount of Rs. 16,82,05,775/-. Accordingly, AO imposed penalty of Rs.
1,68,20,577/- u/s 271C of the Act.
4. Aggrieved, the assessee preferred an appeal before the CIT(A).
5. Before the CIT(A), the assessee submitted that penalty u/s.271C can be levied if there is any failure on the part of the Assessee to deduct tax at source. It was submitted that there is no requirement on part of the assessee to deduct tax by virtue of provisions of Sec. 194A(3)(v) of the Income Tax Act. This has been upheld by the then Commissioner of Income Tax Act Appeals - II, Hyderabad, vide order dated 10/09/2013. Further the Hon'ble ITAT for the same assessment year has dismissed the appeal of the Department filed against the order of the CIT - Appeals: Il, Hyderabad. Copy of the order of the ITA T enclosed. The Assessee submitted that if there is no requirement for deduction of tax at source then the question of levy of penalty u/s. 271C does not arise.
3ITA Nos.126 & 127/Hyd/2016 M/s. APS RTC Employees Thrift & Credit Society Ltd.
6. The CIT(A) observed that the CIT(A)-II, Hyderabad vide in ITA No.0066/CIT(A)-II,Hyd/2013-14, dt.10.09.2013 has decided the issue in respect of order u/s, 201(1) & 201(1A) for the AY 2011-12 in favour of the appellant. The Hon'ble ITAT, Hyderabad in ITA No.1689/2013, dt.12.08.2015 for the AY 2011-12 had upheld the order of the CIT(A)-II, Hyderabad and dismissed the Departmental appeal filed. The order u/s.271C was passed on 29.11.2013 after receipt of the above said order of CIT(A)-II, Hyderabad.
6.1 In view of the above, , the CIT(A) held that the issue relating to quantum has been adjudicated by the CIT(A)-II, Hyderabad and ITAT, Hyderabad and, therefore, the basis for levy of penalty does not lie and that Chapter XVII-B deals with collection and recovery of tax - deduction of sources. Sections 201(1) and 201(1A) are part of Chapter XVII-B and further that inn the absence of orders under 201(1) and 201(1A), the question of levying penalty u/s 271C would not obviously arise.
7. Aggrieved, the revenue is in appeal before us raising the following grounds of appeal:
"1 In the facts & circumstances of the case, the CIT(A) erred in deleting the penalty u/s 271C."
8. Considered the submissions of both the parties and perused the material facts on record as well as the orders of revenue authorities. As observed by the CIT(A), against the order passed by the AO u/s 201(1) & 201(1A), when the assessee appealed before the CIT(A)-II, who passed the order in favour of the assessee. When the revenue appealed before the ITAT against the said order, the ITAT dismissed the revenue appeal by observing as under:
"7. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. As far as factual aspect is concerned, there is no dispute that assessee during the relevant PY has paid interest to different categories of members, viz., regular members, associate members and nominal members. As could be seen, AO while allowing assessee's claim of exemption u/s 4 ITA Nos.126 & 127/Hyd/2016 M/s. APS RTC Employees Thrift & Credit Society Ltd.
194A(3)(v) in respect of interest payment to regular members, he held that interest payment to associate/nominal members are not covered under the said provision. However, on perusal of the provisions contained u/s 194A(3)(v), it is very much clear that there is no distinction made under the said provision between different categories of members. The language used u/s 194A(3)(v) is 'Member', the Hon'ble Bombay High Court in case of the Jalgaon District Central Cooperative Bank Ltd. & anr. Vs. Union of India and others (supra), while examining the provision contained u/s 194A(3)(v), held that exemption granted to a cooperative society u/s 194A(3)(v) cannot be taken away by creating a distinction between duly registered member and nominal member. The aforesaid decision of the Hon'ble Bombay High Court has been affirmed by the Hon'ble Supreme Court while dismissing SLP preferred by the department. In view of the principle laid down in the judicial precedents, as noted above, to the effect that no distinction can be made between different categories of members while applying the provisions of section 194A(3)(v) of the Act, in our view decision of ld. CIT(A) cannot be interfered with. It may be worthwhile to note here that the impugned assessment order was also subject matter of revision proceeding u/s 263 of the Act. Ld. CIT while revising the assessment order u/s 263 of the Act, held that AO should also have applied TDS provisions to registered/regular members. When assessee carried an appeal, against the aforesaid order of ld. CIT passed u/s 263, ITAT in an order passed in ITA No. 1070/Hyd/14 dt. 29/04/2015, held as under:
"On careful analysis of the said decision, it is very much clear that Hon'ble Bombay High Court while quashing the CBDT Circular No. 09 of 2002 dt. 11/09/2002 in no uncertain terms held that exemption granted to a cooperative society u/s 194A(3)(v) cannot be taken away by creating a distinction between different categories of members. It is further evident, SLP filed by the department against the aforesaid judgment of the Hon'ble Bombay High Court was also dismissed by the Hon'ble Supreme Court. Thus, as per the decision of the Hon'ble Bombay High Court as aforesaid, which was also followed by ld. CIT(A), no differentiation can be made between the members of a cooperative society while applying the exemption provision of section 194A(3)(v) of the Act. In fact, ld. CIT himself while issuing notice u/s 263 as well as in more than one place in the impugned order has held the assessment order passed to be erroneous and prejudicial to the interests of revenue on the reasoning that no differentiation between members can be made while applying TDS provision u/s 194A(3). Thus, applying the same logic, it is to be held that ld. CIT(A)'s order holding that interest payment to associate/nominal members is exempt from deduction of tax at source in view of section 194A(3)(v) would also impliedly apply to the regular members as she came to such conclusion on the principle that no differentiation can be 5 ITA Nos.126 & 127/Hyd/2016 M/s. APS RTC Employees Thrift & Credit Society Ltd.
made between members of the cooperative society. That being the case, order passed by ld. CIT(A) also covers the issue of application of section 194A(3)(v) to regular members also. Explanation 'c' to section 263(1) clearly spells out that ld. CIT can exercise his power u/s 263 to an issue which is not contested and decided in appeal proceeding. Therefore, as in the present case, the issue in dispute is clearly the subject matter of appeal before ld. CIT(A) and a decision has already been rendered by ld. CIT(A) much prior to the exercise of power u/s 263 of the Act, in our view, assessment order has merged with the order of ld. CIT(A), hence, could not have been revised by invoking the provisions of section
263. Therefore, the exercise of power u/s 263 is invalid."
In view of the aforesaid, finding no infirmity in the order of ld. CIT(A), we uphold the same by dismissing grounds raised by revenue."
As the quantum addition has been deleted by the CIT(A) and ITAT, the basis for levy of penalty does not arise and such penalty cannot withstand in the eye of law. Therefore, we do not find any infirmity in the order of the CIT(A) in cancelling the penalty levied by the AO u/s 271C of the Act, and the same is here by upheld dismissing the ground raised by the revenue.
ITA No. 127/Hyd/16 for AY 2012-139. In this appeal, the revenue has raised the following grounds of appeal:
"1. The learned CIT(Appeal) has failed to appreciate the fact that the judgment of Hon'ble Bombay High Court in the case of Jalgaon District Cooperative Bank Ltd. Vs. Union of India (2004) in 265 ITR 423 has not been decided by the Hon'ble Supreme Court on merits.
2. The learned CIT(Appeals) has failed to appreciate the fact that Board Circular No.9 of 2002 has not been repealed by the CBDT.
3. Any other ground which the appellant may urge either before or at the time of hearing."
10. The AO passed order u/s 201(1) & 201(1A) on 30/03/2015 raising a demand of Rs. 2,89,97,729/-.
6ITA Nos.126 & 127/Hyd/2016 M/s. APS RTC Employees Thrift & Credit Society Ltd.
11. On appeal before the CIT(A), the CIT(A) following the decision of the ITAT in assessee's own case for AY 2011-12, allowed the appeal of the assessee.
12. Aggrieved, the revenue is in appeal before us.
13. Considered the submissions of the both the counsels and perused material facts on record as well as the orders of revenue authorities. As the issue in dispute is squarely covered by the decision of the ITAT in assessee's own case for AY 2011-12 (supra), respectfully following the same, we uphold the order of the CIT(A) and dismiss the grounds raised by the revenue. Moreover, the grounds raised by the Department are hypothetical. Hence, they are not proper grounds to adjudicate.
14. In the result, both the appeals of the revenue are dismissed.
Pronounced in the open court on 24 th August, 2015 Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 24 th August, 2015
kv
Copy to:-
1) DCIT, Circle - 1(1) (TDS), B Block, 4 th Floor, Income Tax Towers AC Guards, Masab Tank, Hyderabad - 500 004.
2) M/s APSRTC Employees Thrift & Credit Society Ltd., Satyanarayana Reddy Marg., Azambad, Hyderabad - 500 020
3) CIT(A)-8, Hyderabad
3) CIT(TDS), Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
7ITA Nos.126 & 127/Hyd/2016 M/s. APS RTC Employees Thrift & Credit Society Ltd.
Description Date Intls 1. Draft dictated on Sr.P.S. 2. Draft placed before author Sr.P.S Draft proposed & placed before AM 3 the second Member 4 Draft discussed/approved by VP second Member 5 Approved Draft comes to the Sr.P.S. Sr.P.S./PS 6. Kept for pronouncement on Sr.P S. 7. File sent to the Bench Clerk Sr.P.S. 8 Date on which file goes to the Head Clerk 9 Date of Dispatch of order 8