Year-end provision withholding tax treatment sustained where liability crystallised later and tax was deducted on receipt of invoices.

Year-end expense provisions that were not credited to identifiable payees because the amounts remained unquantified did not exempt the assessee from withholding-tax consequences where tax was later deducted when the liability crystallised and invoices were received. The assessee had also suo motu disallowed the expenditure under section 40(a)(ia) of the Income-tax Act, 1961 and paid interest under section 201(1A). On those facts, the ITAT found no infirmity in the withholding-tax treatment and no relief was granted against the impugned tax consequences.

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Issues: Whether the assessee was justified in not deducting tax at source on year-end provisions and whether the levy under section 201(1A) could be sustained in the facts of the case.

Analysis: The assessee had created year-end provisions for expenses which were not credited to identifiable payees at the year-end because the amounts were unquantified. It also suo motu disallowed the expenditure under section 40(a)(ia) of the Income-tax Act, 1961, and deducted tax in the subsequent year when the liability crystallised and the invoices were received. The Tribunal noted these facts, along with the payment of interest under section 201(1A), but ultimately found no infirmity in the action taken against the assessee.

Conclusion: The assessee failed to obtain relief against the impugned withholding tax consequences and the appeal was dismissed.

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