2022 (2) TMI 336 - AT - Income Tax

TDS compliance crucial: Tribunal rules against interest levy, directs AO to prevent double disadvantage

M/s Robert Bosch Engineering and Business Solutions Pvt. Ltd. Versus The Income Tax Officer (TDS) / (OSD) LTU, Bangalore

M/s Robert Bosch Engineering and Business Solutions Pvt. Ltd. Versus The Income Tax Officer (TDS) / (OSD) LTU, Bangalore - TMI Issues Involved:1. Obligation to deduct tax at source on year-end provisions.2. Levy of interest under section 201(1A) of the Income-tax Act, 1961.3. Double disadvantage for a single failure under section 40(a)(i) & 40(a)(ia).4. Tax and interest on ESI contributions.5. Verification of TDS details and subsequent payments.Issue-wise Detailed Analysis:1. Obligation to Deduct Tax at Source on Year-End Provisions:The assessee argued that the obligation to deduct tax at source did not arise for year-end provisions created on 31 March 2012, as the receipt of such amounts by the parties was not established. The assessee also contended that such provisions were reversed subsequently. The Tribunal noted that the assessee had disallowed the entire provision under section 40(a)(i)/(ia) in the Return of Income, which indicated that no income accrued to the payees, and hence, there was no liability to deduct tax at source.2. Levy of Interest Under Section 201(1A) of the Income-tax Act, 1961:The CIT(A) upheld the levy of interest under section 201(1A) until the date of passing the order under section 201(1), as there was a postponement of the period of tax deduction. The Tribunal, however, observed that if the assessee has disallowed the entire provision under section 40(a)(i)/(ia), then the TDS provisions should not apply again, and interest under section 201(1A) should not be levied.3. Double Disadvantage for a Single Failure Under Section 40(a)(i) & 40(a)(ia):The assessee argued that it should not face a double disadvantage for a single failure, i.e., disallowance under section 40(a)(i)/(ia) and being treated as an 'assessee in default' under section 201(1). The Tribunal agreed, stating that once the amount is disallowed under section 40(a)(i)/(ia), it cannot be subject to TDS provisions again, and the assessee should not be liable for interest under section 201(1A).4. Tax and Interest on ESI Contributions:The CIT(A) did not adjudicate on the tax and interest levied on ESI contributions. The Tribunal directed the AO to ignore the ESI contributions from the alleged quantum as there was no liability to deduct tax at source on these payments.5. Verification of TDS Details and Subsequent Payments:The Tribunal noted that the AO did not verify the details of TDS deducted and paid to the Government account on subsequent payments. The Tribunal directed the AO to verify the details filed by the assessee in respect of the payees and to ascertain if the payees have paid taxes on the income embedded in the payments. The Tribunal emphasized that the provisions of section 201(1) cannot be invoked if there is no loss to the revenue.Conclusion:The Tribunal held that the assessee cannot be treated as an 'assessee in default' to the extent TDS was effectuated, even if done in the subsequent financial year. The Tribunal also ruled that interest under section 201(1A) should not be levied if the entire provision is disallowed under section 40(a)(i)/(ia). The Tribunal directed the AO to verify the details of TDS and subsequent payments and to ensure that there is no double disadvantage to the assessee. The appeals were allowed for statistical purposes.