The Orissa High Court has set aside an income-tax order retaining a disallowance of ₹50.25 lakh on interest paid by an urban cooperative bank without deduction of tax at source, granting the bank another opportunity to produce Forms 15G/15H before the Assessing Authority.
The Bench of Justice Sanjeeb K. Panigrahi and Justice Murahari Sri Raman directed the authority to examine the documents and pass a fresh order in compliance with an earlier appellate direction. The dispute concerns assessment year 2017–18 and did not finally allow the expenditure or declare the tax demand nil. The bank’s claim remains subject to examination of the supporting documents.
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The dispute arose from an assessment order passed by the Deputy Commissioner of Income Tax, Circle 1(1), Cuttack.
According to the appellate findings reproduced in the High Court’s order, the bank paid ₹1,68,22,374 as interest on deposits to 587 customers without deducting TDS under Section 194A of the Income Tax Act, 1961.
The bank maintained that the customers had submitted either Form 15G or Form 15H. However, it did not furnish evidence supporting that explanation during the assessment proceedings.
The Assessing Officer consequently disallowed ₹50,46,712, representing 30% of the interest expenditure, under Section 40(a)(ia), read with Section 194A.
The amount represented an expenditure disallowance, rather than the amount of tax payable.
The bank challenged the assessment before the Commissioner of Income Tax (Appeals), National Faceless Appellate Centre, Delhi.
In its order dated November 18, 2022, the appellate authority recorded the bank’s explanation that it could not upload all the Forms 15G/15H because they were large in number.
The authority also noted that the bank had not furnished evidence showing that the forms had been filed with the Commissioner of Income Tax within the prescribed period, or specified the dates of such filing. This prevented verification of its explanation.
Nevertheless, the appellate authority directed the Assessing Officer to allow the bank to furnish the relevant forms, verify them and compute the disallowance in respect of interest payments for which Forms 15G/15H had not been obtained.
While giving effect to the appellate order, the Assessing Authority passed a further order on March 4, 2024.
It recorded that the bank had furnished a list of 587 depositors on August 1, 2023, in response to a departmental letter dated July 14, 2023.
Examination of the list revealed that 15 depositors had received interest below ₹10,000 each and were not subject to TDS under Section 194A, as recorded in that order. The total interest paid to these depositors was ₹69,624.
After excluding this amount, the authority recomputed the interest under consideration at ₹1,67,52,750 and retained a disallowance of ₹50,25,825, being 30% of that sum.
Before the High Court, the bank sought an opportunity to produce documents that, it submitted, had subsequently come into its possession. It contended that consideration of those documents could substantially reduce the demand or bring it down to nil.
Senior Advocate Jagabandhu Sahoo, assisted by Advocate Kajal Sahoo, explained that the volume of documents had prevented all 587 forms from being uploaded to the portal.
A memo filed before the Court stated that, following the first appellate order, the bank had uploaded Forms 15G/15H relating to 325 customers. Counsel submitted, on instructions, that the bank would now be able to upload all the forms and sought permission to produce them before the Assessing Authority.
The Income Tax Department submitted that, if all the forms were brought on record, the authority could examine the genuineness of the claim and pass appropriate orders.
Considering these circumstances, the High Court set aside the March 4, 2024 order passed by the Deputy Commissioner of Income Tax, Circle-2(1), Bhubaneswar.
The Bench directed the bank to appear before the authority on or before November 13, 2026, along with a certified copy of the High Court’s order and the documents it had undertaken to produce.
Upon production of the documents, the authority must examine them against the bank’s claim and pass a fresh order in compliance with the appellate order dated November 18, 2022, passed under Section 250 of the Income Tax Act.
The Court stated that the entire exercise was expected to be concluded within four weeks from the bank’s appearance. The writ petition and pending interlocutory applications, if any, were disposed of.
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