2017 (1) TMI 721 - AT - Income Tax

Payee Identification Critical for Tax Deduction: Tribunal Directs Reconsideration

M/s Apollo Tyres Limited Versus Deputy Commissioner of Income Tax, TDS Circle, Gurgaon.

The tribunal set aside the lower authorities' orders and directed the matter to be reconsidered by the Assessing Officer. It was emphasized that tax ... Year end provision - Order u/s 201 and 201(1A) - non deduction of tds - whether the assessee can be said to be in default for not deducting the TDS in respect of a provision made at the year end? - Held that:- ITAT, Chennai Bench in the case of Dishnet Wireless Ltd. (2015 (7) TMI 778 - ITAT CHENNAI ) has held that in the case of the year end provision where the party/payee is identifiable, the TDS is to be deducted and where the party is not identifiable, no TDS is deductible. Similar view has been taken by the ITAT Mumbai Bench in the case of Industrial Development Bank of India (2006 (7) TMI 248 - ITAT BOMBAY-H ). After considering the scheme of Chapter XVII-B with regard to tax deduction at source, we agree with the views expressed by ITAT Mumbai Bench and ITAT Chennai Bench. As per the scheme of TDS under Chapter XVII-B Section 199, the credit for the TDS is to be given to the deductee. Thus, the identification of the person from whose account income tax was deducted at source is a pre-requisite condition so as to make the provision for Chapter XVII-B workable. Tax deducted at source is considered to be tax paid on behalf of the person from whose income the deduction was made and, therefore, the credit for the same is to be given to such person. When the payee is not identifiable, to whose account the credit for such TDS is to be given. Thus we set aside the orders of authorities below on this point and restore the matter to the file of AO for both the years under consideration to verify whether the payee is identifiable and the amount payable to him is ascertainable. Then the assessee would be required to deduct tax at source in respect of such provision. However, in case payee is not identifiable, the provision of Chapter XVII-B i.e., tax deduction at source, cannot be pressed into service and, therefore, the assessee is not required to deduct tax at source in such a case. The Assessing Officer will readjudicate the issue afresh after examining the above facts. Needless to mention that he will allow adequate opportunity of being heard to the assessee while giving effect to our order. Issues Involved:1. Treatment of the appellant as an 'assessee in default' for non-deduction of tax at source on various provisions.2. Whether the CIT(A)'s order is perverse in law due to lack of factual findings.3. Deduction of tax at source on provision for conference expenses.4. Deduction of tax at source on provision for business development initiative expenses.5. Deduction of tax at source on provision for business development conferences.6. Deduction of tax at source on provision for product publicity expenses outside India.7. Deduction of tax at source on provision for commission paid to domestic selling agents.8. Deduction of tax at source on provision for commission paid to selling agents for clearing and forwarding.9. Levy of interest under section 201(1A) of the Income Tax Act.10. Charging an ad-hoc rate for computing alleged liability on deducting tax at source in respect to the year-end provision.Issue-wise Detailed Analysis:1. Treatment of the Appellant as an 'Assessee in Default':The appellant was treated as an 'assessee in default' under Section 201(1) of the Income Tax Act, 1961, for non-deduction of tax at source on provisions amounting to INR 15,07,25,637/-. The Assessing Officer (AO) raised a demand of INR 1,04,02,197/- and interest under Section 201(1A) amounting to INR 38,48,924/-.2. Perverse Order by CIT(A):The appellant contended that the CIT(A)'s order was perverse in law as it did not provide factual findings to ascertain the true nature of individual transactions and was silent on the details and evidence furnished by the appellant.3. Provision for Conference Expenses:The AO held that tax should have been deducted at source on a provision of INR 4,00,00,000/- for conference expenses. The appellant argued that the parties to whom the expenses were to be paid were not identifiable at the time of making the provision, and therefore, tax could not have been deducted. Additionally, the provision was reversed in the subsequent year, and tax was deducted on actual expenses, leading to double taxation.4. Provision for Business Development Initiative Expenses:The AO held that tax should have been deducted on a provision of INR 1,25,61,825/- for business development initiative expenses. The appellant argued that these expenses were not ascertainable at the time of finalizing the books, making it impossible to deduct tax. The provision was reversed in the subsequent year, and tax was deducted on actual expenses, resulting in double taxation.5. Provision for Business Development Conferences:The AO held that tax should have been deducted on a provision of INR 5,00,00,000/- for business development conferences. The appellant argued that the provision was reversed and adjusted based on actual expenditure incurred in the subsequent year, and tax was deducted on actual expenses, leading to double taxation.6. Provision for Product Publicity Expenses Outside India:The AO held that tax should have been deducted on a provision of INR 4,58,14,000/- for product publicity expenses outside India. The appellant argued that there was no 'income' element in the expenses paid to foreign dealers on a cost-to-cost basis as reimbursement. The provision was adjusted based on actual expenditure incurred in the subsequent year, and tax was deducted on actual expenses, leading to double taxation.7. Provision for Commission Paid to Domestic Selling Agents:The AO held that tax should have been deducted on a provision of INR 19,64,000/- for commission paid to domestic selling agents. The appellant argued that the provision was reversed and adjusted based on actual expenditure incurred in the subsequent year, and tax was deducted on actual expenses, leading to double taxation.8. Provision for Commission Paid to Selling Agents for Clearing and Forwarding:The AO held that tax should have been deducted on a provision of INR 3,85,812/- for commission paid to selling agents for clearing and forwarding. The appellant argued that the provision was adjusted based on actual expenditure incurred in the subsequent year, and tax was deducted on actual expenses, leading to double taxation.9. Levy of Interest under Section 201(1A):The appellant contested the levy of interest under Section 201(1A) of the Income Tax Act, arguing that the provisions were reversed, and tax was deducted on actual expenses, resulting in no loss to the revenue.10. Charging an Ad-hoc Rate for Computing Alleged Liability:The appellant contested the AO's method of charging an ad-hoc rate for computing the alleged liability on deducting tax at source in respect to the year-end provision.Judgment:The tribunal considered the submissions from both sides, including the cited decisions. It was noted that the scheme of Chapter XVII-B of the Income Tax Act requires tax deduction at source when the payee is identifiable and the amount payable is ascertainable. The tribunal agreed with the views expressed by the ITAT Mumbai Bench and ITAT Chennai Bench that tax deduction at source cannot be enforced when the payee is not identifiable. The orders of the authorities below were set aside, and the matter was restored to the file of the Assessing Officer for fresh adjudication. The Assessing Officer was directed to verify whether the payee is identifiable and the amount payable is ascertainable. If the payee is not identifiable, the provisions of Chapter XVII-B cannot be applied, and the assessee is not required to deduct tax at source. The appeals were allowed for statistical purposes.Decision Pronounced:The decision was pronounced in the open Court on 10.01.2017.