The Income Tax Appellate Tribunal (ITAT), Pune Bench, has recently, in an appeal filed before it, while upholding the disallowance, held that payment to minors and unregistered firms by co-operative bank is violative of S. 194A.
The aforesaid observation was made by the Pune ITAT, when an appeal was filed before it by the Assessee, as directed against the order of the Commissioner of Income Tax (Appeals), Pune, dated 15.12.2017, emanating from the assessment order dated 19.12.2016, under section 143(3) of the Income TaxAct, 1961, for the A.Y.2014-15.
The grounds of the assessee’s appeal being that the CIT(A) and the AO has erred in law and on facts, in making disallowance of Rs.10,59,681/- on account of interest on deposits paid to “minors” and “unregistered firms” under section 40(a)(ia), holding that these category of account holders are not members of the bank and TDS under section 194A ought to have been deducted by the appellant bank, and further that the CIT(A) and the AO has erred in law and on facts, in not appreciating that both “minors (guardians of members who are major)” and “unregistered firms” are nominal members of the bank and as such are “members” as mentioned in section 194A and therefore that there was no need to deduct tax on interest paid to these members, the brief facts of the case pertaining to the aforesaid issues were that the assessee was a Co-operative Bank , who had filed return of income for A.Y. 2014-15 on 30.09.2014, declaring the total income of Rs.5,04,27,080.
Subsequently, the case of the assessee was selected for scrutiny. And, after hearing, the AR of the assessee, the AO passed an assessment order under section 143(3) of the Income Tax Act with the following additions, namely, disallowance of Advertisement Expenditure being nonbusiness expenditure of Rs.91,200/-; disallowance of claim under section 36(1), disallowance on account of non-deduction of TDS; amortization of Premium paid and Section 40(a)(ia) disallowance. And it is being aggrieved by the same that the assessee has preferred the instant appeal before the Pune Tribunal.
Hearing the opposing contentions of both sides as presented by Shri Kishor Phadke, the AR on behalf of the assessee and by Shri M.G.Jasnani, the DR on behalf of the Revenue, and thereby perusing the materials available on record, the Pune ITAT commented:
“During the assessment proceedings, the AO observed that assessee has not deducted TDS on interest income earned by minor and partnership firm. The AO observed that minor and partnership firm are not members of the assessee. Therefore, the AO held that as per section 194A of the Act, TDS was mandatory, hence, AO disallowed an amount of Rs.7,92,500/- which was interest paid to minor and Rs.2,60,181/- which was interest paid to unregistered firm. Before the ld.CIT(A), assessee had submitted that TDS was not deducted in the case of minors, because minors’ income is clubbed with their parents and parents are members, therefore, assessee was under bonafide belief that TDS deduction is not required in the case of minors. No specific submission has been made vis-à-vis interest paid to unregistered firm. As per the bylaws of the assessee, unregistered firm and minor are not eligible to be members. As per proviso to section 194A exemption is granted only to the members in case of co-operative societies.”
“In the case of the assessee, it is an admitted fact that minors and unregistered firms cannot become members of the society. Thus, assessee had paid interest to minor and unregistered firms who were not members of the assessee. This is violation of section 194A of the Act.”, the coram comprising of S.S Godara, the Judicial Member, along with Dr. Deepak P Ripote, the Accountant Member, added.
Thus, dismissing the asessee’s claims while partly allowing the appeal, the Pune ITAT held:
“In the facts and circumstances, we are of the opinion that the AO has rightly invoked provisions of section 40(a)(ia) of the Act and disallowed interest paid to minor and unregistered firm hence, the said addition is confirmed. Accordingly, ground no.4 and 5 are dismissed.”
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