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2015 (6) TMI 96
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....eaning of section 201(1) & 201(1A) of the Income Tax Act. 2.0 The learned CIT(A) erred on the facts and in law in confirming that the provisions of section 194C, 194H, 194J, 194I & 195 of the income tax act are applicable to provision made for various expenses in the year ending 31.03.2007 (AY 2007-08), without appreciating the fact that appellant has disallowed the expenses as per Provisions of section 40(a)(ia) and 40(a) of the income Tax Act in the computation of income. The AO had accepted the disallowances in assessment order made u/s 143(3) of the Income tax Act. The learned CIT(A) ignored the facts that once the amount is disallowed u/s 40(a)(ia) and 40(a) of the income Tax Act, the same cannot be liable for TDS u/s 194C, 194H, 194J, 194I & 195. The learned CIT(A) failed to consider the case law cited in appeal proceedings 3.0 The learned CIT(A) erred in ignoring the facts that TDS has been deducted in subsequent financial year and TDS compliance was made at that point of time. The CIT(A) also ignored that TDS provisions were not applicable in few cases, provisions has been reversed subsequently and the identity of the payee at the time of making provision was not avai....
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....sed at Rs. 2,47,059/- and interest under section 201(1A) of the Act was charged at Rs. 1,18,588/-. 6. Further, the Assessing Officer noted that the Auditor had pointed out in the Audit Report that the assessee had not deducted tax at source on certain payments, for which full details of expenses and date of credit / payment was not there in the Audit Report. The Assessing Officer show caused the assessee that in the absence of such details, it was not possible to correctly quantify the TDS deductibility, but not deducted and the interest to be charged under section 201(1A) of the Act. The assessee was asked to furnish the details in respect thereof. Though, there was some explanation filed by the assessee before the Assessing Officer, but complete details were not furnished and even though the Assessing Officer asked the assessee to furnish proper details, but no compliance was made to the same. In view thereof, the Assessing Officer held the assessee to be in default in respect of non-deduction of tax at source out of several heads of expenses as tabulated at page 5 of the assessment order. The Assessing Officer consequently held the assessee to be in default for nondeduction o....
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....y disallowed the provisions under section 40(a)(ia) or 40(a)(i) of the Act. The CIT(A) noted that there were conflicting views on the issue and reliance was placed on the ratio laid down by Cochin Bench of the Tribunal in Agreenco Fibre Foam (P) Ltd. Vs. ITO (TDS) (2013) 37 CCH 033 (Cochin Trib) order dated 16.08.2013. In view thereof, the CIT(A) held that the Assessing Officer was justified in initiating the action under sections 201(1) and 201(1A) of the Act and the liability of Rs. 52,76,643/- was determined on account of non-deduction of tax at source under section 201(1) of the Act and interest charged under section 201(1A) of the Act for the financial year, was confirmed. 8. The assessee is in appeal against the order of CIT(A). 9. The learned Authorized Representative for the assessee pointed out that the assessee was a listed company and was following mercantile system of accounting, under which, it makes certain provisions for expenses, sometimes on party basis and sometimes expenditure-wise. The bills in respect of such provisions are received in the next year and necessary entries were then made to the respective accounts. The plea of the learned Authorized Represe....
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....he provisions of section 194H of the Act were paramatria to section 194A of the Act , but the payees were not identified. The learned Authorized Representative for the assessee fairly pointed out that in the case of assessee, the payees were not identified at the close of the year but the provision for the same was being made since the assessee was following mercantile system of accounting. 10. The learned Departmental Representative for the Revenue placing reliance on the orders of authorities below pointed out that even if the figures declared by the assessee at pages 15 and 42 are reconciled, there is still a difference which has not been reconciled by the assessee. 11. In rejoinder, the learned Authorized Representative for the assessee pointed out that in case there was any difference which has not been reconciled by the assessee, then the assessee is prepared to pay tax on such amounts along with interest. 12. We have heard the rival contentions and perused the record. The issue arising in the present appeal is whether where the assessee had made provision for various expenses for the year ending 31.03.2007 and had disallowed the said expenditure in the computation o....
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....ct were applicable. The assessee furnished before us statement working out the disallowance under section 40(a)(i) of the Act for assessment year 2007-08, which reads as under:- "Statement showing disallowance u/s 40(a)(i) & TDS payment Business Unit Provision on which TDS not deducted Total 194I 194C 194J 194H 195 Large Engines 19142089 3928710 19919233 2841278 45831310 Small Engines 80000 1020000 214000 1314000 ACD Pune 1039137 225940 1265077 Medium Engines 272864 272864 Valve EOU 36452 36452 Fuel Oil 201324 92966 294290 Power 175000 175000 80000 21711866 4636616 19919233 2841278 49188993 Less: As per TAT 126877 Amount disallowed 80000 21584989 4636616 19919233 2841278 49062116 TDS required....
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....s, on which TDS to the extent of Rs. 14,66,292/- was due to be deducted. In the subsequent year bills of Rs. 32,05,371/- were passed, on which tax was deducted at source at Rs. 3,64,024/- and provision to the extent of Rs. 2.29 crores was reversed. 16. The issue which arises for our consideration is whether in such circumstances, where the amount has not been claimed as deductible in the hands of the assessee for the reason that tax had not been deducted at source, then can the provisions of section 201(1) of the Act be attracted and for such default in non-payment of demand so raised, can interest be charged under section 201(1A) of the Act. 17. We find that similar issue of liability of the assessee to deduct tax at source in respect of payments to persons whose identity was not known when the provision for such expenditure was made by the assessee, it was held that there was no requirement to deduct tax at source in respect of such provision. The said proposition was laid down by the Mumbai Bench of Tribunal in IDBI Vs. ITO (supra), which has been applied by another Mumbai Bench of Tribunal in Pfizer Ltd. Vs. ITO (supra) and it was held as under:- "8. We have considered....
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.... did not, in any way, control such transfer of ownership. The assessee at the end of the relevant previous year as on 31.3.1994 made a provision for 'interest accrued but not due" in respect of regular return bonds and claimed deduction of the same in computation of business income. The assessee further credited the said provision to the interest payable account and reflected the same in the balance sheet. The assessee did not deduct tax at source in respect of the provision so made. The Assessing Officer noticed that the assessee did not deduct tax in terms of provision so made though in terms of the provisions of section 193, particularly read with Explanation thereto, it was required to deduct tax at source from the credit to 'interest payable account' and deposit the same with the Government. The Assessing Officer was of view that the assessee knew the identity of all the bondholders as on 31-3-1994 because it was maintaining a register of bondholders, and, therefore, it could not be said that the assessee did not know the names of the persons to whom interest was to be credited. The Assessing Officer, therefore held that the assessee did not comply with provisions ....
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....hat the credit for taxes deducted at source can only be given to the person from whose income the taxes are so deducted. Therefore, when tax deductor cannot ascertain beneficiaries of a credit, the tax deduction mechanism cannot be put into service. Section 202 lays down that tax deduction at source provisions are without any prejudice to any other mode of recovery from assessee, which again points out to the tax deduction liability being vicarious liability in nature. Section 203(1) then lays down that for all tax deductions at source, the tad deductor has to furnish to the person to whose account such credit is given or to whom such payment is made or the cheque or warrant it issued which presupposes that at the stage of tax deduction the tax deductor knows the name of person to whom the credit is to be given, though whether by way of credit to the account of such person or by way of credit to some other account. This again shows that tax deduction at source liability is a vicarious liability to pay tax on behalf of the person who is to be beneficiary of the payment or credit, with a corresponding right to recover such tax payable from the person to whom credit is afforded or pay....
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....ted the tax source at the time of payment i.e. on 9.6.1994 and there was no loss of revenue as such. Therefore, assessee did not have any liability to deduct tax at source in respect of provision for interest accrued but not due in respect of regular return bonds, made on 31.3.1994. When there was no obligation to deduct tax at source, there could not be any question of levy of penalty or interest. The next question for consideration in the instant case was as to whether AO could have imposed the penalty at all under section 221 upon assessee. A Coordinate Bench of the Mumbai Tribunal in the case of ITO v. Titagarh Steel Ltd (2001) 79 ITD 532, dealing with the consequences of nondeduction or short deduction of tax at source, had held that post 1-4-1989, penalty for nondeduction of tax at source or short deduction of tax at source can only be imposed under section 271C. The CBDT itself had in Circular No.551, dated 23-1-1990 accepted that until section 271C was inserted in the Act, 'no penalty was provided for failure to deduct tax at source'. It was not only merely a question of mentioning a wrong section, which could perhaps be covered by recourse to section 292B, it was a....
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....y AO, we are of the opinion that the same amount cannot be considered as amount covered by the provisions of section 194C to 194J so as to raise TDS demand again under section 201 and levy of interest under section 201(1A). Therefore, assessee's ground on this issue are to be allowed as the entire amount has been disallowed under the provisions of section 40(a)(i)/(ia) in the computation of income on the reason that TDS was not made. For this reason alone assessee's grounds can to be allowed. Considering the facts and reasons stated above assessee's grounds are allowed." 18. The CIT(A) on the other hand has relied on the ratio laid down by the Cochin Bench of the Tribunal in Agreenco Fibre Foam (P) Ltd. Vs. ITO (supra), wherein a contrary view had been taken by the Tribunal. While considering the decision of Tribunal in Pfizer Ltd. Vs. ITO (supra), it was observed by the Cochin Bench of Tribunal that the assessee in Pfizer Ltd. Vs. ITO (supra) was having branches at multifarious locations and innumerable transactions and hence, it was following the practice of making provision for expenses at the end of the year. The obvious reason for which was that it did not recei....
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.... tax at source in order to claim the relevant expenditure as deduction. 5.3 & 5.4 Section 201 provides for treating an assessee who had failed to deduct or pay the TDS amount as an assessee in default, so that the Government was empowered to collect the said amount from him. However, It was a well settled proposition that the Government shall not be entitled to recover the said amount, if the recipient has declared the said amount as his income in the income tax return filed by him and paid the tax due thereon. Thus, it is seen that the objective of provisions of sec. 201 is only to compensate the Government for the failure of an assessee to deduct or pay the TDS amount. Thus, it can be seen that the provisions of sec. 40(a)(ia) and sec. 201 operate on different objectives. We have already noticed that the provisions of sec. 40(a)(ia) do not override the provisions of sec.201 of the Act. Accordingly, it was held that the assessee was liable to deduct tax at source on interest payments, even if it has not claimed the same as deduction while computing its total income, in which case the revenue was entitled to initiate proceedings u/s 201 for such failure." 19. We find that the....