State Bank Of Patiala, Chandigarh vs Department Of Income Tax

The ACI T (TDS), Vs The State Bank of Patiala, 2 n d Floor, CR Building, SCO 3A, Sector 7-C, Sector 17-E, Chandigarh. Chandigarh. PAN: PTLSI2979B

(Appellant) (Respondent)

Appellant by : Shri Manjit Singh Respondent by : Shri Vishal Mohan

Date of Hearing : 26.2.2015 Date of Pronouncement : 27.2.2015

PER BHAVNESH SAINI,JM

This appeal by revenue is directed against the order of ld.

CIT(Appeals), Chandigarh dated 30.10.2014 for assessment year

2011-12 challenging the cancellation of penalty under section

271C of the Act.

2. Briefly the facts of the case are that the person responsible

(PR) had not deducted tax at source on payments of interest to

the following four societies :

1. Haryana Rural Roads and Infrastructure Development Agency (HARRIDA)

2. Punjab ICT Education Society (Director General School Education Punjab)

3. Haryana State Council for Science & Technology

4. Shri Aurobindo Society 2

3. The assessee explained the reasons for non deduction of

tax at source but the Assessing Officer rejected the claim and

created demand under section 201(1) and (1A) of the Act.

Penalty proceedings under section 271C were also initiated and

vide separate order, the Assessing Officer held that person

responsible was liable for penalty under the above provisions.

The assessee challenged the levy of penalty before ld.

CIT(Appeals) and filed the written submissions which were taken

into consideration and the ld. CIT(Appeals) cancelled the

penalty. His findings in para 3.3 to 4 of the appellate order are

reproduced as under :

3.3 I have considered facts of the case. For the sake of ready reference, provisions of section 194A(3)(iii)(f) are reproduced below:

"194A. Interest other than "Interest on securities".

(3) The provisions of sub-section (1) shall not apply-

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(iii) to such income credited or paid to-

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f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette; The notification issued by the Central Government u/s 194A mentions various societies and entry at S.No. 40 (notification No. SO 3489 dated 22.10.1970) is as under:

"Any undertaking or body including a society registered under the Societies Registration Act, 1860 (XXI of 1890) financed wholly by the Government"

It has been pointed out in the appellate proceedings that the appellant was not liable to deduct tax at source on interest paid to the following three societies, details of which are as under:

i) Haryana Rural Roads and Infrastructure Development Agency (HARRIDA), formed as a Society registered under Societies Registration Act 1860, for the purpose of implementing Infrastructure Projects especially Roads under Pradhan Mantri Gram Sarak Yojna.

3 ii) Punjab ICT Education Society (Director General School Education Punjab), a non profit Organization registered under Societies Registration Act 1860 with an aim to provide Computer Education in .all districts of Punjab covering Gout. Schools.

Hi) Haryana State Council for Science &, Technology incorporated in 1986 under Societies Registration Act 1860 to promote Science & technology and its utilization for achievement of socio-economic objectives in the state of Haryana."

3.3.1 The Ld. Counsel has submitted that all the above societies had declared these funds received as grants and so tax was not required to be deducted at source on interest on these funds in view of the provisions of section 194A(3)(iii)(f) read with the aforesaid notification No. SO 3489 dated 22.10.1970, since these societies were registered under the Societies Registration Act 1860 and financed wholly by the Government; as held by Hon'ble ITAT, Chandigarh in the case of State Bank of Patiala, Kusumpti, Shimla, vide order dated 20.05.2014 in ITA No. 269- 271/Chd/2014. It was also held by Hon'ble Tribunal in this case that if the assessee had genuine belief that it was not required to deduct tax, penalty u/s 271C was not leviable.

3.3.2 Regarding Shri Aurobindo Society, the appellant has filed a copy of certificate No. 547-49 dated 26.04.2006 issued by Director of Income Tax (Exemption) Kolkata from F.No. DIT(E)/86/8E/7/61-62 regarding exemption u/s 80G(5)(vi) of the Act valid for A.Y. 2011-12. The appellant has also filed a copy of return of income of Shri Aurobindo Society for A.Y. 2012- 13 as per which the total income was 'nil'. In any case, the appellant was under bonafide belief that it was not required to deduct tax on payment made to this society and so penalty u/s 271C was not leviable in view of the decision of Hon'ble ITAT, Chandigarh in the case of State Bank of Patiala, Kusumpti, Shimla (supra).

3.3.3 The Ld. Counsel has pointed out that appeal was not filed by the appellant against order u/s 201(1)/(1A) of the Act because the recipients of interest had claimed refund of the amounts deducted by the appellant.

3.3.4 In view of above discussion, it is held that the PR was not liable for penalty under section 271C of the Act. The penalty le vied is accordingly cancelled. Grounds of appeal taken by the appellant are allowed.

4. In the result, the appeal is allowed.

4. We have heard ld. Representatives of both the parties and

perused the findings of authorities below. The ld. DR relied 4

upon order of the Assessing Officer. On the other hand, ld.

counsel for the assessee reiterated the submissions made before

authorities below. He has relied upon order of ITAT Chandigarh

Bench in I TA No. 267 to 271/CHD/2014 in the case of ITO Vs

State Bank of Patiala, Kusumpti, Shimla (supra) and relied upon

judgement of Hon'ble Himachal Pradesh in the case of CI T (TDS)

Chandigarh Vs State Bank of Patiala, Shimla in I TA No. 17/2014

dated 31.12.2014.

5. On consideration of the facts of the case, in the light of the

findings of ld. CIT(Appeals) and the above decisions, we do not

find any merit in the appeal of revenue. The ld. CIT(Appeals)

found that in case of three of the societies, the assessee was not

liable to deduct tax at source. In the case of Shri Aurobindo

Society, the exemption certificate under section 80G(5)(vi) was

also filed. It would, therefore, prove that assessee had a

reasonable cause for failure to deduct tax at source under

section 201(1) of the Act. In the case of State Bank of Patiala,

Kusumpati, Shimla (supra), I TAT Chandigarh Bench dismissed

the departmental appeal confirming the order of the ld.

CIT(Appeals) in canceling the penalty under section 271C of the

Act. The facts are identical in the case of State Bank of Patiala,

Shimla (supra). Hon'ble Himachal Pradesh High Court dismissed

departmental appeal finding no substantial question of law.

These facts would clearly support the findings of ld.

CIT(Appeals) that assessee had a genuine belief that it would not

require to deduct tax at source. The case of the assessee,

therefore, squarely falls under the provisions of Section 273B of 5

the Act and penalty is not leviable because assessee is able to

prove that there was a reasonable cause for the said failure.

6. Considering the totality of the facts and circumstances, we

do not find any merit in the departmental appeal. The same is

accordingly, dismissed.

7. In the result, departmental appeal is dismissed.

Order pronounced in the Open Court on 27 t h

February,2015.

Sd/- Sd/-

(T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 27 t h February ,2015. 'Poonam' Copy to:

The Appellant, The Respondent, The CIT(A), The CIT,DR

Assistant Registrar, ITA T Chandigarh