Canara Bank Vs ACIT (ITAT Mumbai)
The recent appeal filed by Canara Bank against the Assistant Commissioner of Income Tax (ACIT) before the Income Tax Appellate Tribunal (ITAT) Mumbai sheds light on the complexities surrounding the rectification of Tax Deducted at Source (TDS) demands. The appeal, stemming from an order dated 21-08-2023 issued by the National Faceless Appeal Centre (NFAC), Delhi, pertains to the assessment year 2020-21.
The crux of the matter revolves around the challenge to a demand of Rs. 1,64,95,826/- under section 200A for short deduction of TDS on interest payments made to Vodafone India Ltd., along with an interest under section 201(1A) amounting to Rs. 21,44,454/-. The dispute arises from the interpretation of lower TDS certificates issued by Vodafone India Ltd. (VIL) to Canara Bank.
During the financial year 2019-2020, Vodafone India Ltd. deposited funds with Canara Bank, furnishing a lower TDS Certificate (LDC) dated 22-05-2019. This certificate authorized TDS deductions at a reduced rate of 3% on interest payments up to Rs. 30 Crores. However, on 22-10-2019, VIL issued another certificate modifying the earlier limit to ‘0’, thus necessitating TDS deductions at a higher rate. Canara Bank subsequently deducted TDS at 1.50% on interest payments up to Rs. 30 Crores, as per the revised certificate, and at 10% on the remaining interest.
The dispute arises from the discrepancy in TDS deductions between the original and revised certificates, leading to a demand for short deduction of TDS and consequent interest under section 201(1A). Canara Bank contends that it acted in compliance with the certificates issued by VIL and fulfilled its TDS obligations accordingly. Moreover, it emphasizes that VIL has declared the interest income and produced a Certificate in Form 26A, absolving Canara Bank of any liability under section 201(1).
In its order, the ITAT Mumbai acknowledged the necessity for the assessing officer (AO) to afford the taxpayer an opportunity to explain the circumstances surrounding the issuance of the TDS certificates. It noted that the AO should have provided Canara Bank with an opportunity before rectifying the TDS demand under section 154. Moreover, it emphasized the significance of the Certificate in Form 26A provided by VIL, which indicated the inclusion of interest income in its tax returns.
The ITAT Mumbai directed the matter to be remanded back to the AO for reconsideration, emphasizing the importance of affording Canara Bank a fair hearing and verifying the Certificate in Form 26A furnished by VIL. It underscored the principle that if the recipient has paid tax on the income and produced a certificate to that effect, no demand under section 201(1) should be enforced.
In conclusion, the decision in Canara Bank Vs ACIT (ITAT Mumbai) highlights the importance of procedural fairness in tax assessments, emphasizing the necessity for authorities to afford taxpayers a fair hearing and consider all relevant documentation before issuing demands for TDS deficiencies.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the assessee against order dated 21-08-2023, passed by National Faceless Appeal Centre (NFAC), Delhi against order u/s. 200A for the assessment year 2020-21.
2. In the grounds raised, the assessee has challenged demand of Rs. 1,64,95,826/- u/s. 200A towards short deduction of TDS on interest payment made to Vodafone India Ltd. an interest u/s. 201(1A) amounting to Rs. 21,44,454/- which has been created by the AO in his order passed u/s. 144.
3. The brief facts are that the assessee has the branch of M/s. Canara Bank. During the financial year, 2019-2020, Vodafone India Ltd. (VIL) had placed with the assessee branch. The bank was provided with a lower TDS Certificate (LDC) dated 22-05-2019 by the depositor M/s Vodafone Idea Ltd. As per the said certificate, TDS on any interest upto Rs 30 Cr paid to the said depositor should be effected @ 3% On 19-10- 2019, the deposit was pre closed by the depositor and an interest of Rs 23,56,54,961 was paid after effecting a TDS of Rs 70,69,649/- The depositor produced another certificate u/s 197 on 22-10-2019. In the second certificate, though was dated 30-09-2019, was submitted to the Appellant Bank only on 22-10-2019. In the second certificate, the limit of the earlier certificate dated 22-05-2019 was modified to Rs ‘0’. It is on this basis, the impugned order has been passed by considering an amount of Rs 1,64,95,846/-being the 7% of the interest paid as the short deduction of TDS. Before us, the assessee has submitted the following facts:-
“During the year 2019-20, Vodafone Idea Limited (PAN AAACB2100P) (“the Customer”) (“the deductee”) had placed deposits with the Appellant. On 30-05-2019 the Appellant received a certificate u/s 197 (Certificate Ref. No. 197(1)/AAACB2100P/2019-20/1 dated 22-05-2019) from the Customer wherein the Income Tax Department had permitted the Appellant to make remittance of interest up to Rs. 30 Crores at a lower rate of TDS ie TDS at the rate of 3% for the period 22-05-2019 to 31-03-2020 vide Certificate No. 1AF0519EDL dated 22-05-2019. Based on such lower deduction certificate, on 19-10-2019, the Appellant had deducted TDS at the rate of 3% on the interest paid amounting to Rs. 23,56,54,961/- on the prematurely closed term deposit.
Subsequently, on 22-10-2019, the Appellant received a certificate u/s 197 (Certificate Ref. No. 197(1)/AAACB2100P/2019-2020/10 dated 30-09-2019) from the Customer wherein the limit in earlier Certificate No. 1AF0519EDL dated 22-05-2019 was modified to ‘0’ but the rate of TDS remained unchanged at 3% and the validity period was revised from 22-05-2019 to 29-09-2019. Further, a new limit of Rs. 30 Crores was set with a lower TDS rate of 1.50% for the period 30-09-2019 to 31-03-2020 vide Certificate No. 1AA1019AFS At the year end, the Appellant deducted TDS at t he rate of 1.50% on the interest accrued up to Rs. 30 Crores (for the period 30-09-2019 to 31-03-2020) based on the Certificate No. 1AA1019AFS and on the balance interest i.e. Rs. 23,93,42,984/-, TDS was deducted at 10% u/s 194A by the Appellant.
Summary of interest paid & TDS deducted under the Appellant’s TAN for the interest paid / credited to the Customer during the year 2019-20 are given below
