2015 (6) TMI 96 - AT - Income Tax

Tribunal rules in favor of assessee on TDS and director's commission

The Tribunal partially allowed the appeals, ruling that the assessee was not responsible for failing to deduct TDS on year-end provisions except for ... TDS on provisions made at the end of the year - The assessee claimed that in number of cases, the exact payees and the amounts payable to them could not be identified before closure of books and in the absence of any identified payees, the provisions of TDS were not applicable - Held that:- adhoc provision so made was reversed in the succeeding year in which actual expenses were booked under specific heads and TDS compliance was also made - We find no merit in the orders of authorities below that the assessee had defaulted in not deducting the tax at source out of such amounts due to non-existing payees and hence, had defaulted under section 201(1) of the Act and also interest was chargeable on such demand under section 201(1A) of the Act. Also see IDBI Vs. ITO (2006 (7) TMI 248 - ITAT BOMBAY-H ). However, for part of the amount reversed, assessee failed to reconcile the balance of ₹ 14 lakhs, hence the assessee is in default for non-deduction of tax in respect of the above said balance amounts and the Assessing Officer is directed to work out the demand under section 201(1) of the Act and also charge interest under section 201(1A) of the Act. - Decided partly in favour of assesse. Issues Involved:1. Non-payment of TDS on year-end provision.2. Non-deduction of TDS on commission paid to Non-executive Directors.3. Non-deduction of TDS on various expenses.Detailed Analysis:1. Non-payment of TDS on Year-end Provision:The assessee was treated as an 'assessee in default' under sections 201(1) and 201(1A) of the Income Tax Act for not deducting TDS on year-end provisions. The assessee argued that the provisions of sections 194C, 194H, 194J, 194I, and 195 were not applicable as the expenses were disallowed under section 40(a)(ia) and 40(a) in the computation of income. The CIT(A) held that the assessee was liable for non-deduction of TDS, resulting in a liability of Rs. 52,76,643.The Tribunal considered whether the assessee could be held liable for non-deduction of TDS when the exact payees were not identified before the closure of books. The Tribunal referenced the Mumbai Bench's decision in Pfizer Ltd. Vs. ITO, which held that TDS provisions are not applicable when the payees are not identifiable at the time of making the provision. The Tribunal concluded that the assessee could not be held liable for non-deduction of TDS for the year-end provisions and reversed the CIT(A)'s decision, except for unreconciled amounts where the assessee was prepared to pay the tax.2. Non-deduction of TDS on Commission Paid to Non-executive Directors:The Assessing Officer found that the assessee had not deducted TDS on Rs. 43,65,000 paid as commission to Non-executive Directors, which should have been done under section 194J. The CIT(A) decided this issue in favor of the assessee, and no appeal was filed by the Revenue against this decision.3. Non-deduction of TDS on Various Expenses:The Assessing Officer noted that the assessee had not deducted TDS on certain payments as pointed out by the Auditor. The assessee failed to furnish complete details, leading to a default for non-deduction of TDS amounting to Rs. 21,97,825 for the financial year 2006-07 and Rs. 14,66,299 for the financial year 2007-08.The Tribunal held that the assessee was not liable for TDS on year-end provisions where the payees were not identifiable. However, for unreconciled amounts, the assessee was held liable to pay the tax deductible along with interest under section 201(1A).Conclusion:The Tribunal allowed the appeals partly, holding that the assessee was not liable for non-deduction of TDS on year-end provisions except for unreconciled amounts. The decision of CIT(A) in favor of the assessee regarding the commission paid to Non-executive Directors was upheld. The Tribunal directed the Assessing Officer to work out the demand and interest for unreconciled amounts.