TaxTMI 
TaxTMI 
2016 (2) TMI 412
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....uestion, the appellant had created provisions for a sum of Rs. 17,65,75,903/-, Rs. 12,40,70,972/- and Rs. 5,74,39,557/- respectively for contingent payment of interest on belated payments to its suppliers. For the first two years, the appellants in their profit and loss account treated the said amount of provision as expenditure to arrive at the profit. However, in the returns of income filed for the assessment year 2005-06 and 2006-07, the appellant did not treat the said amount of provision towards contingent interest payable as expenditure instead, it arrived at the taxable income without excluding such amounts of provision towards such interest. However, as these amount of provision created by book entries towards contingent interest payable for assessment years 2005-06 and 2006-07, a corresponding reversal entries were made in the books of accounts during the financial year 2007, indicating that the subject amounts of provision towards contingent interest would never be paid. 3. In respect of financial year ending on 31.03.2007, a similar provision towards contingent interest payable on belated payments were created but at the end of the year, the said amount though treated a....
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....nvoke Section 201(1) and 201(1A) of the Act. 7. The learned counsel elaborating the arguments on these three aspects would contend that primarily, the provision for contingent liability - payment of interest towards belated payments of purchase of electricity from power suppliers could not be considered as interest at all. In this background, the definition of interest as provided under Section 2(28) of the Act is relied on. It is submitted that the phrase "interest" mentioned in Section 194(A) of the Act would confine to interest payments made on deposits or loans with banks, post offices, co-operative societies etc. and not on the interest, a contingent liability for which a provision is made. 8. Next, it is argued by the learned counsel for the appellant though a provision for payment of interest towards delay in payment of purchase price was created in the books of accounts, actually and ultimately, interest was not paid. There would be no liability to deduct tax as no income accrued to the payees (suppliers) as the interest was not paid. This is a case where the appellant and the suppliers by the understanding and conduct were ad-idem that no liability to pay interest arose ....
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.... of interest made and subsequently, the entries being reversed in the account books. The TDS Officer proceeded to pass the orders on a non-est provision during the relevant point of time. This crucial point has been lost sight of by the Appellate Commissioner as well as the Tribunal while upholding the order of the TDS Officer. 13. Learned counsel in support of his contention places reliance on the following Judgments: 1. [A] KEDARNATH JUTE MFG.CO.LTD. vs. COMMISSIONER OF INCOME TAX (1971) 82 ITR 0363 2. DIRECTOR OF INCOME-TAX vs ERICSSON COMMUNICATIONS LTD. ((2015) 378 ITR 395 (Delhi) 14. Per contra, learned counsel appearing for the revenue justifies the order and would contend that during the course of survey it was found that the assessee-company has made the provision for interest on belated payment for power purchased from different power purchasers without deducting tax at source as evidenced in the Annexure - V of the 3CD report (auditor's report) for the relevant assessment years. Section 194A and the explanation thereof provides that the provision for interest is liable for deduction of tax at source. Non-compliance of the said provision provides for invoking Se....
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....sed by the Authorities as mandatory provision under Section 194A of the Act has not been complied by the Assessee. 18. It is further contended that even prior to the amendment to Section 201(1) of the Act by Finance Act, 2008, the law that existed at the relevant point of time provided for deduction of tax at source and Section 200 of the Act during the relevant period clearly attracted even in cases where the tax was not deducted. Accordingly, he submits that the order passed by the Tribunal is a well considered order, which cannot be found fault with. 19. We have considered the rival submissions made by the parties and perused the material on record. 20. It is not in dispute that the Assessee has made a provision towards contingent payment of interest to suppliers of electricity when payment of purchase price is delayed by the appellant. Though the said provision is made towards contingent interest payable as expenditure, as per the return of income filed by the Assessee, the taxable income is arrived adding back such amount of provision towards contingent interest. The assessee having noticed, payment of such interest made in the provision would never be paid in view of the u....
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....fault in respect of the tax: Provided that no penalty shall be charged under Section 221 from such person, principal officer or company unless the [Assessing] Officer is satisfied that such person or principal officer or company, as the case may be, has [without good and sufficient reasons] failed to deduct and pay the tax." 23. The expression 'any such person' referred to in Section 200 of the Act and in the cases referred to in Section 194 of the Act restricts to the person mentioned in Section 200 of the Act. Section 200[1] of the Act contemplates that 'any person deducting any sum in accordance with the provisions of Chapter - XVII, shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. Section 200[2] of the Act contemplates that any person being an employer referred to in sub-section [1A] of Section 192 shall pay, within the prescribed time, the tax deducted to the credit of the Central Government or as the Board directs. As could be seen from these provisions, prior to passing of the Finance Act, 2008, the provisions of Section 200 mandated that the amount of tax deducted should be paid to the cr....
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....ed as detailed below: Assessment Year Date of Order 2005-06 27.03.2008 2006-07 27.03.2008 2007-08 18.02.2008 Thus, it is clear the TDS Officer has passed the order based on non existent law during the interregnum period between the period of Finance Bill becoming the Finance Act by the assent of the President. 25. We have also noticed the Circular No.1/2009 dated 27.03.2009 relied on by the Revenue to point out that the said amendment by Finance Act 2008 was introduced to clarify the term 'person' envisaged in Section 200 of the Act. In fact, it was the intention of the legislature to bring the person i.e., the Principal Officer of a Company who is required to deduct any sum in accordance with the provisions of the Act under the umbrella of Section 201[1] of the Act. The same is clarified by the Finance Act, 2008 with retrospective effect from 1.6.2002. This amendment Act was not in force during the relevant assessment years in dispute at the time of passing of the orders by TDS Officer. In such circumstances, the Order of the Tribunal upholding the views of the TDS Officer and the Appellate Commissioner would go contrary to the provisions of Section 201[1] of the....
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....nd remitted the tax nor the deductee-assessee had paid the same through advance tax or self assessment tax. It is the case of the assessee that the provision which was contingent was at no time materialized as income to be liable for payment of income tax on the said provision of interest. In such circumstances, the reasoning of the Tribunal that the deductor-assessee nor the deductee-assessee had paid the tax on the provision amount and thus the provisions of Sections 201 and 201[1] of the Act are attracted is not acceptable. There is no cavil with the CBDT Circular referred to above by the Tribunal. But, the said circular in no way assists the Revenue to reject the stance taken by the Assessee i.e., reversal of the provisions during March 2007. 28. The Apex Court in the case of KEDARNATH JUTE MFG. CO. LTD.'s [supra] has held thus: "6. xxxx We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry in the books of account and although, under the law, a deduction must be allowed by the ITO, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. Whether the ass....