2022 (4) TMI 795 - AT - Income Tax

Tribunal Modifies Order, Directs Re-examination of TDS Issues

The Tribunal modified the CIT(A)'s order, allowing the appeal for statistical purposes. The AO was directed to re-examine issues including the ... Demand u/s 201(1) and interest charged u/s 201(1A) - disallowance of certain expenditure u/s 40(a)(i) and 40(a)(ia) of the Act for not deducting tax at source from those expenses - Scope of year end provisions - HELD THAT:- It is the responsibility of the assessee to satisfy the assessing officer by preparing a list of expenses, for which payees could not be identified at the time of making provision and the reasons for the same.We notice that there are certain judicial rulings holding that there will not be TDS liability, if the payee is not identifiable. It is the responsibility of the assessee to prove that payees are not identifiable with credible reasons. Accordingly, if the assessee, in the present case, is able to prove that the payees could not be identified in respect of particular expenses, then the mechanism provided under Chapter XVII-B would fail and hence the AO is not entitled to demand tax u/s 201(1) and interest u/s 201(1A) in respect of those expenses. Assessee has claimed to have deducted tax at source at the time of accounting of invoices/payments. Accordingly, the year-end provisions may fall under anyone of the categories discussed above. Accordingly, we restore this issue to the file of AO in order to enable him to recompute the liability, if any, u/s 201(1) and interest u/s 201(1A) of the Act. We noticed earlier that the year-end provisions made by the assessee included “Commission payable to non-residents”, which is liable for deduction of tax at source u/s 195 of the Act. The provisions of sec.195 are triggered only if that payment is chargeable under the provisions of Income tax Act. We notice that the assessee has not furnished any detail to the AO/CIT(A) with regard to the applicability or otherwise of provisions of sec.195 to the above said payment. Hence we restore this issue also to the file of the AO for examining it afresh in accordance with law and in the light of discussions made supra. Issues Involved:1. Liability to deduct tax at source (TDS) on year-end provisions.2. Treatment of year-end provisions for expenses under TDS provisions.3. Applicability of TDS provisions on commission payable to non-residents.4. Impact of disallowance under Section 40(a)(i) and 40(a)(ia) on liability under Section 201.5. Practical difficulties in complying with TDS provisions on year-end provisions.Detailed Analysis:1. Liability to Deduct Tax at Source (TDS) on Year-End Provisions:The assessee challenged the demand raised by the AO under Sections 201(1) and 201(1A) for not deducting TDS on year-end provisions for expenses. The AO considered the assessee as 'assessee in default' under Section 190 and raised a demand of Rs. 1,68,91,563 and interest of Rs. 40,53,975.2. Treatment of Year-End Provisions for Expenses under TDS Provisions:The assessee argued that year-end provisions are made for known expenses and losses based on Accounting Standards, and tax was not deducted at source from these expenses. The CIT(A) held that the liability to deduct TDS arises even if the amounts are credited to a 'Provision for expenses' account instead of the concerned party's account, as per the explanations provided under Sections 194C, 194I, 194J, 194H, and 195. The CIT(A) also noted that the assessee's estimates are based on pre-existing contracts with known parties, and non-deduction of TDS is not justified.3. Applicability of TDS Provisions on Commission Payable to Non-Residents:The assessee contended that the commission expenses payable to non-resident commission agents are not liable to tax in India, and hence, the provisions of Section 195 are not applicable. The CIT(A) did not provide a specific ruling on this issue, and it was restored to the AO for fresh examination.4. Impact of Disallowance under Section 40(a)(i) and 40(a)(ia) on Liability under Section 201:The assessee argued that voluntary disallowance of expenses under Sections 40(a)(i) and 40(a)(ia) should exonerate it from liability under Section 201. The CIT(A) and Tribunal held that disallowance under Sections 40(a)(i) and 40(a)(ia) does not override the provisions of Section 201. The Tribunal cited decisions from other cases, including IBM India Pvt Ltd and Agreenco Fibre Foam P Ltd, to support this view, emphasizing that disallowance under Sections 40(a)(i) and 40(a)(ia) and liability under Section 201 are independent consequences.5. Practical Difficulties in Complying with TDS Provisions on Year-End Provisions:The assessee highlighted practical difficulties in identifying payees and estimating liabilities for year-end provisions. The Tribunal acknowledged these difficulties and provided scenarios to address them:- If the actual payment is more than the provision amount, interest under Section 201(1A) is payable on the provision amount.- If the actual payment is less than the provision amount, interest under Section 201(1A) is payable on the actual payment amount.- If no payment is required, there is no liability to deduct TDS.- If payment is not made but TDS is deducted in the succeeding year, interest under Section 201(1A) is payable.- If payment is not made and TDS is not deducted in the succeeding year, the assessee is liable to pay the demand under Section 201(1) and interest under Section 201(1A).The Tribunal restored the issue to the AO to recompute the liability under Section 201(1) and interest under Section 201(1A) based on the scenarios provided.Conclusion:The Tribunal modified the order of the CIT(A) and allowed the appeal for statistical purposes, directing the AO to re-examine the issues, especially the applicability of Section 195 on commission payable to non-residents and the practical difficulties in complying with TDS provisions on year-end provisions.