The Income Tax Appellate Tribunal (ITAT) ruled that non-appearance before the appellate authority is not a wanton act and, consequently, allowed the Tax Deducted at Source ( TDS ) liability under section 201(1) of the Income Tax Act, 1961
The assessee, identified as a securitization trust and overseen by M/s IDBI Trusteeship Service Ltd., is involved in the business of raising funds through private placement by issuing pass-through certificates. These funds are utilized to acquire a loan portfolio from financial institutions. A survey operation under section 133A (ii)(b) of the Income Tax Act, 1961, was conducted on January 2, 2019, at the assessee’s premises. During this survey, it was discovered that the assessee had paid Rs. 4,51,29,905/- under the head “Excess Interest Spread ( EIS )” in the financial year 2016-17 to the originator without deducting Tax Deducted at Source ( TDS ) under section 194LBC of the Act.
The Assessing Officer (AO) carefully examined the relevant provisions related to securitization and TDS applicable to the assessee. Subsequently, a show cause notice under sections 201(1)/201(1A) of the Income Tax Act, 1961 dated February 25, 2019, was issued by the AO. The assessee responded on March 5, 2019, providing a detailed explanation of the reasons, TDS provisions, and the nature of transactions involved in the securitization process.
The AO determined that the assessee had failed to deduct TDS on the excess interest spread ( EIS ) paid to the originator. The excess interest paid is defined as the difference between the yield on the portfolio acquired from the originator and the returns payable to the investor. The AO, after considering the relevant facts and provisions of the Income Tax Act, concluded that the assessee had defaulted under section 194LBC by not deducting TDS on the EIS paid to the originator.
Consequently, the AO assessed the TDS liability under section 201(1) of the Act at Rs. 1,35, 38,971/- and interest liability under section 201(1)(A) of the Income Tax Act, 1961at Rs. 23,75,606/-. This assessment was made through an order dated March 12, 2019, passed under sections 201(1) and 201(1A) of the Income Tax Act, 1961.
The counsel for the assessee Gunjan Kakkad asserted that there existed a valid reason for the assessee’s non-appearance before the Commissioner of Income Tax (Appeals) [CIT (A)].
The counsel for the assessee explained that the assessee was actively involved in collecting Form No. 26A from the recipients of Excess Interest Spread ( EIS ), justifying the non-appearance as a justified action.
Moreover, the counsel for the assessee emphasized that the assessee possesses a strong case on the merits of the matter and is prepared to substantiate it with material evidence. Requesting an opportunity to present the case before the lower authorities, the counsel for the assessee sought a fair chance to provide a detailed explanation.
The two member bench of the tribunal comprising Om Prakash Kant ( Accountant member ) and Pavn Kumar Gadale ( Judicial member) observed that the counsel for the assessee contested this view, asserting that the assessee was actively engaged in gathering necessary information and that the non-appearance before the appellate authority was not a deliberate act. The grounds of appeal raised by the assessee challenge the Tax Deducted at Source ( TDS ) liability under section 201(1) and the interest payable under section 201(1A), of the Income Tax Act, 1961 as determined by the assessing officer. The counsel for the assessee argued that there could be various legitimate reasons for the non-appearance that should not be overlooked.
In consideration of the principles of natural justice, the tribunal decided to afford the assessee another opportunity to present its case with supporting evidence and information. Consequently, the tribunal set aside the order of the CIT (A) and referred the entire set of disputed issues back to the CIT (A) for a fresh adjudication. The assessee was to be granted sufficient opportunity for a hearing and was expected to cooperate in providing the necessary information to facilitate the prompt resolution of the appeal.
The grounds raised by assesse was allowed
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