2022 (8) TMI 1169 - AT - Income Tax

Tribunal remits issue for verification of evidence, expenses provision per Biocon Ltd. principles

The Tribunal remitted the issue back to the Assessing Officer for verification of evidence and factual examination of each line item of the provision for ... Default u/s 201- disallowance u/s 40(a)(ia) - deductibility or otherwise of tax at source on “year-end provisions” - not deducting tax at source under section 194C, 1941 and 194J of the Act from the year end provisions made by the appellant for payments - HELD THAT:- Break-up of provision for expenses needs to be examined factually based on evidences in order to decide the applicability of TDS provisions. We therefore remit this issue back to the AO for verification of each of the above line item of the break-up of details based on evidences and examine the issue factually for deciding the applicability of TDS provisions. AO is directed to keep in mind the ratio laid down by the coordinate bench of the Tribunal in the case of Biocon Ltd. [2022 (4) TMI 795 - ITAT BANGALORE] which is followed in assessee’s own case for the assessment year 2012-13 and 2013-14 wherein the Hon’ble Tribunal has envisaged various scenarios with regard to the liability to deduct tax at source, the levy u/s.201(1) and the method of calculation of interest u/s.201(1A). Needless to say that assessee may be given opportunity of being heard. Appeal by the assessee is allowed for statistical purposes. Issues Involved:1. Legality and jurisdiction of the order under sections 201(1) and 201(1A) of the Income Tax Act, 1961.2. Treatment of the appellant as 'assessee-in-default' for not deducting tax at source under sections 194C, 194I, and 194J.3. Obligation to deduct tax at source under Chapter XVII-B.4. Requirement to deduct tax on year-end provisions.5. Awareness of the exact amount of expense or payee details.6. Non-application of tax deduction at source (TDS) on payments with no income accrued to payees.7. Deduction and deposit of tax in subsequent years.8. Interpretation of 'credit' in various sections of the Act.9. Impact of suo-motu disallowance under section 40(a)(ia).10. Non-requirement of tax deduction on specific payments.11. Levy of interest under section 201(1A).12. Miscellaneous grounds.Detailed Analysis:1. Legality and Jurisdiction of the Order:The appellant contended that the order passed under sections 201(1) and 201(1A) was illegal, beyond jurisdiction, and bad in law. However, the Tribunal did not explicitly address this issue separately, focusing instead on the substantive issues related to tax deduction at source (TDS).2. Treatment as 'Assessee-in-Default':The CIT(A) confirmed the order treating the appellant as 'assessee-in-default' for not deducting TDS on year-end provisions. The Tribunal examined whether the appellant was liable to deduct tax at source on provisions made for expenses under sections 194C, 194I, and 194J. The CIT(A) held that the provisions created headwise indicated the appellant's liability to deduct tax, which it failed to do, thereby treating the appellant as 'assessee-in-default'.3. Obligation to Deduct Tax at Source:The appellant argued that the obligation to deduct TDS arises only if the liability is credited to the account of an identified payee and constitutes income in the hands of such payee. The Tribunal referred to the provisions of the Act, which state that even if sums are credited to any account, whether called 'suspense account' or any other name, TDS provisions apply. The Tribunal upheld the CIT(A)'s decision that the appellant was liable to deduct tax on the provisions made.4. Requirement to Deduct Tax on Year-End Provisions:The appellant contended that it merely created a provision for estimated expenses, and in the absence of invoices or claims from vendors, the liability to deduct tax did not arise. The Tribunal, relying on the decision in the case of Biocon Ltd., held that TDS provisions are triggered for amounts credited to 'Provision for expenses account' and that the appellant was liable to deduct tax at source from the year-end provision for expenses.5. Awareness of the Exact Amount of Expense or Payee Details:The appellant argued that it was not aware of the exact amount of expense or the details of payees since invoices were received in the subsequent financial year. The Tribunal noted that the provisions were made based on pre-existing contracts with known parties and identified services, thereby rejecting the appellant's claim.6. Non-Application of TDS on Payments with No Income Accrued to Payees:The appellant cited the Karnataka High Court decision in Karnataka Power Transmission Corporation Ltd., arguing that no obligation to deduct TDS existed where no income accrued to the payees. The Tribunal did not directly address this argument but emphasized that TDS provisions apply if the sums are credited to any account, including suspense accounts.7. Deduction and Deposit of Tax in Subsequent Years:The appellant claimed that tax was deducted and deposited in subsequent years when actual payments were made. The Tribunal acknowledged this practice but held that the appellant was still liable for interest under section 201(1A) due to the delay in deduction and remittance of TDS.8. Interpretation of 'Credit' in Various Sections:The appellant argued that the word 'credit' in sections 194C, 194J, and 194I refers to constructive credit, and voluntary disallowance of certain items effaces the obligation to deduct tax. The Tribunal disagreed, stating that the provisions of the Act deem credit to any account, including suspense accounts, as credit to the account of the payee, thereby triggering TDS obligations.9. Impact of Suo-Motu Disallowance under Section 40(a)(ia):The appellant argued that once tax is paid by making suo-motu disallowance under section 40(a)(ia), it cannot be subject to TDS provisions again. The Tribunal, following the decision in Biocon Ltd., held that disallowance under section 40(a)(ia) does not absolve the appellant from liability under sections 201(1) and 201(1A).10. Non-Requirement of Tax Deduction on Specific Payments:The appellant claimed that no tax deduction was required on payments aggregating to Rs.1,33,59,888, including purchases of materials, provisions for parties with Nil withholding certificates, and transport vendors covered under section 194C(6). The Tribunal remitted the issue back to the AO for verification of the evidence and factual examination of each line item.11. Levy of Interest under Section 201(1A):The CIT(A) confirmed the levy of interest of Rs.66,28,329 under section 201(1A) for tax allegedly deductible but not deducted and delayed remittance. The Tribunal upheld this decision, emphasizing that interest is payable due to the delay in deduction and remittance of TDS.12. Miscellaneous Grounds:The appellant reserved the right to add, alter, amend, or vary the grounds of appeal at or before the hearing. The Tribunal did not address these miscellaneous grounds separately.Conclusion:The Tribunal remitted the issue back to the AO for verification of evidence and factual examination of each line item of the provision for expenses. The AO was directed to keep in mind the principles laid down in the Biocon Ltd. case and the appellant's own case for earlier assessment years. The appeal was allowed for statistical purposes.