Banks Entitled to De Novo Review to Prove TDS Compliance via E-Filed Form 26Q.

The Dispute: Defective Forms vs. Compliance Reality

The Conflict: The assessee (a bank) paid interest to depositors without deducting TDS because the depositors had submitted Form 15G/15H (declarations for nil tax).

The Revenue’s Stance: The Assessing Officer (AO) found that some of these physical forms were defective. Furthermore, the AO alleged that the bank failed to e-file these forms with the Department, leading to orders under Section 201 treating the bank as an “assessee-in-default.”
The Assessee’s Stance: The bank claimed it had actually complied with the rules by e-filing Form 26Q (the quarterly TDS statement) under Rule 31A. This electronic statement serves as proof that the bank informed the government about the non-deduction.

The Judicial Verdict: Substance Over Form

The Tribunal/Court ruled in favour of the Assessee (Remanded), directing a fresh look based on these grounds:

1. Right to Produce Evidence

The bank was granted another opportunity to appear before the AO to produce the Form 26Q acknowledgments. If the bank can prove that the information was transmitted to the Department electronically, the “defects” in the physical 15G/15H forms become secondary.

2. Avoiding Double Jeopardy

If the bank complied with the spirit of the law (by reporting the non-deduction in quarterly returns), treating them as an “assessee-in-default” just for a procedural error is considered excessive. The goal of Section 201 is to ensure tax collection, not to punish banks for clerical mishaps.

Transition to the Income-tax Act, 2025

As of April 2026, the new tax code has modernized these procedures:

Section 140 (New Act): Replaces the old quarterly filing requirements. For Tax Year 2026, Form 26Q has been redesigned to integrate more closely with the Annual Information Statement (AIS) of the depositor.
Digital Integration: Under the Income-tax Rules, 2026, the “defect” issue is largely minimized. Forms 15G/15H are now increasingly filed directly by the depositor via their own e-filing portal, which the bank simply “validates.”
Section 201 Equivalent: The provision to treat a deductor as an “assessee-in-default” remains a core enforcement tool, but the new Act provides clearer “immunity” if the deductor can show that the recipient has included the income in their return and paid the tax.

Key Takeaways for Banks & Deductors in 2026

Audit Your 26Q: Ensure every single Form 15G/15H accepted is correctly tagged in your quarterly return. In a 2026 audit, the Electronic Acknowledgment Number of your TDS return is your best defense.
Correcting Defects: If you discover a defect in a 15G/15H form (e.g., missing PAN or wrong date), the new rules allow you to seek a correction from the depositor before the return is processed.
The “De Novo” Advantage: If you are in litigation for past years, use this case to argue for a Remand. It allows you to introduce evidence (like e-filing acknowledgments) that you might have missed during the original high-pressure assessment.
Interest Liability: Remember that even if you are not held as an “assessee-in-default” for the tax, you might still be liable for interest (1% or 1.5% per month) if the reporting was delayed.

IN THE ITAT BANGALORE BENCH ‘A’

Karnataka Grameena Bank

Income-tax Officer^*

Prashant Maharishi, Vice President
and SOUNDARARAJAN K., Judicial Member

IT Appeal Nos. 3000 to 3003 (Bang) of 2025
[Assessment years 2016-17 to 2019-20]

MARCH 25, 2026

Dr. SHEETAL BORKAR, Adv. for the Appellant. Balusamy N., JCIT-DR for the Respondent.

ORDER

Soundararajan K., Judicial Member.- These are the appeals filed by the assessee challenging the separate orders of the Ld.CIT(A)-2, Panaji dated 30/08/2025 in respect of A.Y. 201718 and dated 23/10/2025 in respect of the A.Ys. 2016-17, 2018-19 & 2019-20 and raised the following grounds:

Assessment Year 2016-17:

Grounds of Appeal	Tax effect relating to each ground of appeal (see note below)
1. The learned CIT(A) erred in passing the order in the manner he did.	Gen
2. The learned CIT(A) erred in determining the TDS liability of Rs. 4,58,003 which is against the principle of Interest and Justice.	4,58,003
3. The learned CIT(A) failed to appreciate that ITO, TDS has failed to give proper opportunity to produce 15G/ H before completing the assessment.	4,58,003
4. The learned CIT(A) upheld the TDS liability without appreciating the submission of the appellant at the time of survey.	4,58,003
5. Without prejudice the disallowance is excessive, arbitrary and unreasonable and ought to be deleted.	Gen
6. For these and such other grounds that may be urged at the time of hearing the appellant prays that the appeal may be allowed.	Gen
Total tax effect (see note below)

Assessment Year 2017-18:

Grounds of Appeal	Tax effect relating to each ground of appeal (see note below)
1. The learned CIT(A) erred in passing the order in the manner he did.	Gen
2. The learned CIT(A) erred in determining the TDS liability of Rs. 1,07,285which is against the principle of Interest and Justice.	1,07,285
3. The learned CIT(A) failed to appreciate that ITO, TDS has failed to give proper opportunity to produce 15G/H before completing the assessment.	1,07,285
4. The learned CIT(A) upheld the TDS liability without appreciating the submission of the appellant at the time of survey.	1,07,285
5. Without prejudice the disallowance is excessive, arbitrary and unreasonable and ought to be deleted.	Gen
6. For these and such other grounds that may be urged at the time of hearing the appellant prays that the appeal may be allowed.	Gen
Total tax effect (see note below)

Assessment Year 2018-19:

Grounds of Appeal	Tax effect relating to each ground of appeal (see note below)
1. The learned CIT(A) erred in passing the order in the manner he did.	Gen
2. The learned CIT(A) erred in determining the TDS liability of Rs. 1,07,285which is against the principle of Interest and Justice.	2,86,931
3. The learned CIT(A) failed to appreciate that ITO, TDS has failed to give proper opportunity to produce 15G/H before completing the assessment.	2,86,931
4. The learned CIT(A) upheld the TDS liability without appreciating the submission of the appellant at the time of survey.	2,86,931
5. Without prejudice the disallowance is excessive, arbitrary and unreasonable and ought to be deleted.	Gen
6. For these and such other grounds that may be urged at the time of hearing the appellant prays that the appeal may be allowed.	Gen
Total tax effect (see note below)

Assessment Year 2019-20:

Grounds of Appeal	Tax effect relating to each ground of appeal (see note below)
1. The learned CIT(A) erred in passing the order in the manner he did.	Gen
2. The learned CIT(A) erred in determining the TDS liability of Rs. 1,07,285which is against the principle of Interest and Justice.	4,30,841
3. The learned CIT(A) failed to appreciate that ITO, TDS has failed to give proper opportunity to produce 15G/H before completing the assessment.	4,30,841
4. The learned CIT(A) upheld the TDS liability appellant at the time of survey.	4,30,841
5. Without prejudice the disallowance is excessive, arbitrary and unreasonable and ought to be deleted.	Gen
6. For these and such other grounds that may be urged at the time of hearing the appellant prays that the appeal may be allowed.	Gen
Total tax effect (see note below)

2. The brief facts of the case are that the assessee is a banking company and TDS survey was conducted in the business premises of the assessee to verify the TDS compliance of the deductor. Some details were called for and the assessee also submitted the details and on verification, the AO had alleged that the form 15G / 15H produced by the assessee were defective and also alleged that there was no evidence to prove that the said forms were submitted to the competent authority and therefore passed an order u/s. 201(1) / 201(1A) of the Act in which the short deduction and the interest were determined.

3. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and contended that if one more opportunity has been granted, they will file the forms before the AO. The Ld.CIT(A) had dismissed the appeals on the ground that no valid and complete declarations were filed and also the law does not permit retrospective correction on post-facto submission of form 15G / 15H to regularise a default already committed.

4. As against the said order, the assessee is in appeals before this Tribunal.

5. At the time of hearing, the Ld.AR submitted that the authorities had not granted sufficient time to produce / rectify the defects in the forms 15G /15H. The Ld.AR further submitted that the assessee had furnished the statement of deduction of tax in form no. 26Q as per Rule 31A of the Act electronically to the department and therefore without considering the said submission, the order passed u/s. 201(1) / 201(1A) is not in accordance with the provisions. The Ld.AR also filed a small paper book enclosing the copy of the letter indicating that the statement in form 26Q were filed and also enclosed the acknowledgment copies of filing the form 26Q to show that the assessee had complied with the provisions.

6. The Ld.DR submitted that the form 15G / 15H filed by the assessee were defective in nature and also no evidence were produced before the AO to indicate that the statement in form 26Q were electronically filed to the department and therefore submitted that the order of the lower authorities are in order.

7. We have heard the arguments of both sides and perused the materials available on record.

8. The dispute involved in this appeal is about the defective filing of form 15G / 15H by the assessee while paying the interest to the depositors and also on the allegation that the assessee had not proved that the forms were duly e-filed to the department and therefore the authorities had not accepted the claim of the assessee and levied the differential rate of TDS along with the interest. As seen from the assessment order as well as the appellate order, the fact remains that the assessee had produced the form 15G / 15H declarations from the depositors for not deducting the tax at source. It is also admitted that the said forms contains some defects and therefore the AO had presumed that there are no forms available and levied the differential rate of TDS. The AO had also stated that there was no evidence to prove that the said forms were submitted to the competent authority of the department as prescribed.

9. Before this Tribunal, the assessee had submitted a paper book enclosing the copy of the letter, acknowledgements for filing the statements in form 26Q as well as the acknowledgment for filing the form 15G / 15H. The form 26Q is a statement prescribed under the Rule 31A and it has been filed through online to the department which was evidenced from the acknowledgment furnished by the assessee. These documents were not placed before the AO or before the Ld.CIT(A) and therefore they have no opportunity to verify the said forms and statements.

10. In such circumstances, we are of the view that an another opportunity may be granted to the assessee to appear before the AO and show that the forms were properly filed before the department as well as to produce the statement in form 26Q which was filed electronically in order to prove that the assessee had complied with the provisions and therefore the order passed u/s. 201(1) and 201(1A) of the Act is not required to be made. We, therefore set aside the orders of the lower authorities and remit this issue to the file of the AO for denovo consideration and the assessee also directed to produce the statement in form 26Q as well as forms in 15G / 15H and thereafter the AO may decide the issue afresh on merits after hearing the assessee.

11. In the result, all the appeals filed by the assessee are partly allowed for statistical purposes.