In a recent ruling, a division bench of the Allahabad High Court held that the assessee-Bank cannot be treated as assesse-in-default for non-deduction of TDS on the interest earned on FDs of NOIDA.
A bench comprising Justices Pankaj Mithal and Umesh Chandra Tripati deleted the penalty levied against the assesse under Section 271 C of the Income Tax Act.
The assessee Central Bank of India was having fixed deposits of the NOIDA. The income tax department treated the Bank as assesse-in-default on ground that it failed to deduct tax at source on the interest earned on those fixed deposits. Consequently, penalty was imposed against them.
During the course of proceedings, assessee maintained that NOIDA is an Authority under the State Act that is exempt from deduction of tax at source under Section 194-A (1) of the Income Tax Act and therefore, no penalty can be levied.
On appeal, the ITAT deleted the penalty imposed as the assessee not only had a reasonable cause for not deducting tax at source but also as NOIDA was exempt for payment of tax at source.
Aggrieved by the order, the department appealed to the High Court.
The bench noticed that in the case of Commissioner of Income Tax (TDS) and another Vs. Canara Bank a division bench of the same Court has held that NOIDA is a corporation established by the U.P. Industrial Development Act, 1976 therefore is exempt from payment of tax at source.
It further noted that Section 273 B of the Act provides that no penalty shall be imposable on the assessee for the failure referred to in Section 271 C of the Act if he proves that there was reasonable cause for the failure. “Therefore, if the assessee proves that there was reasonable cause for not deducting the tax at source, he is not liable for penalty under Section 271 C of the Act.”
In view of the above findings, the division bench dismissed the appeal upheld the ITAT verdict.
Read the full text of the Judgment below.
