2025 (4) TMI 609 - AT - Income Tax

Assessee cannot be treated as 'assessee in default' under Section 201(1) for voluntarily disallowing expenses under Section 40(a)(ia)

Artemis Medicare Services Limited Versus ACIT, Circle 73 (1) New Delhi

ITAT Delhi ruled that an assessee cannot be treated as 'assessee in default' under Section 201(1) merely for voluntarily disallowing expenses under ... Assessee in default - TDS liability in respect of the provisions made at the end of the accounting year which was ultimately reversed in subsequent year - HELD THAT:- We find that ITAT, Delhi ‘A’ Bench in assessee’s own case for the assessment year 2012-13[2024 (1) TMI 853 - ITAT DELHI] concluded merely because the assessee had voluntarily disallowed the expenses u/s 40(a)(ia) of the Act in the return, the same would not automatically enable the ld. AO to treat it as 'assessee in default' u/s 201(1) of the Act and consequentially levy interest u/s 201(1A) of the Act. The provisions of section 40(a)(ia) and section 201(1) / 201(1A) of the Act are mutually exclusive. In any case, there is no estoppel against the statute. Thus, assessee cannot be treated as ‘assessee in default’ u/s. 201(1) of the Act and no interest is chargeable u/s. 201(1A) of the Act on the same. Assessee appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:1. Whether the assessee can be considered an 'assessee in default' under Section 201 and 201(1A) of the Income Tax Act, 1961, for failing to deduct tax at source (TDS) on certain year-end provisions that were reversed in the subsequent year.2. Whether the imposition of interest under Section 201(1A) of the Income Tax Act, 1961, is justified when the TDS was deducted and deposited in the subsequent year upon actual payment.3. Whether the demand for TDS and interest from the assessee is arbitrary, unjust, and bad in law when the provisions were reversed and TDS was subsequently deducted and deposited.ISSUE-WISE DETAILED ANALYSIS1. Assessee in Default under Sections 201 and 201(1A)Relevant Legal Framework and Precedents: The relevant sections of the Income Tax Act, 1961, are Sections 201 and 201(1A), which deal with the consequences of failure to deduct or pay TDS. The Tribunal referred to previous decisions, including the assessee's own case for the assessment year 2012-13 and the case of HT Mobile Solutions Limited, which addressed similar issues.Court's Interpretation and Reasoning: The Tribunal noted that the assessee had not credited the corresponding liability for expenses to the account of the concerned vendors, making the payees non-identifiable. Thus, the applicability of TDS provisions was questioned. The Tribunal emphasized that the provisions of Section 40(a)(ia) and Section 201(1)/201(1A) are mutually exclusive.Key Evidence and Findings: The Tribunal observed that the assessee had voluntarily disallowed the expenses in the computation of income for the financial year 2013-14 and had subsequently deducted and deposited TDS in the next financial year.Application of Law to Facts: The Tribunal applied the principle that without identifiable payees, the machinery provisions for TDS recovery fail, as established in precedents like UCO Bank vs. Union of India and Ericson Communications Ltd.Treatment of Competing Arguments: The Tribunal considered the revenue's argument that the assessee should be treated as in default but found it unconvincing due to the lack of identifiable payees and the subsequent TDS compliance.Conclusions: The Tribunal concluded that the assessee could not be treated as an 'assessee in default' under Section 201(1) and that no interest under Section 201(1A) was chargeable.2. Imposition of Interest under Section 201(1A)Relevant Legal Framework and Precedents: Interest under Section 201(1A) is imposed for delayed payment of TDS. The Tribunal referenced the assessee's previous case and the case of HT Mobile Solutions Limited, which dealt with similar circumstances.Court's Interpretation and Reasoning: The Tribunal reasoned that since the TDS was eventually deducted and deposited, and the provisions were reversed, the imposition of interest was not justified.Key Evidence and Findings: The Tribunal noted that the TDS was deducted and deposited in the subsequent year, and the provisions were reversed, aligning with accounting standards and practices.Application of Law to Facts: The Tribunal applied the legal principle that interest under Section 201(1A) should not be imposed when there is no default in the ultimate TDS payment.Treatment of Competing Arguments: The Tribunal found the revenue's reliance on the imposition of interest unpersuasive due to the subsequent compliance by the assessee.Conclusions: The Tribunal held that no interest under Section 201(1A) was chargeable due to the eventual compliance by the assessee.SIGNIFICANT HOLDINGSThe Tribunal established the following core principles:1. The assessee cannot be treated as an 'assessee in default' under Section 201(1) when the payees are non-identifiable, and the provisions are reversed in the subsequent year with TDS compliance.2. Interest under Section 201(1A) is not chargeable when TDS is ultimately deducted and deposited, even if it occurs in the subsequent year.Final Determinations: The Tribunal allowed the assessee's appeal, ruling that the assessee was not in default under Sections 201(1) and 201(1A), and no interest was chargeable.