TaxTMI 
TaxTMI 
2016 (7) TMI 735
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....deducted on certain expenses debited in profit and loss. The Assessing Officer called for the tax audit report in form No. 3 CD and observed that the auditor had also pointed out that the TDS in respect of those accruals was not deducted/deposited as at March 2007. The assessee pleaded that said amounts have been considered for disallowance under section 40a(i) of the Income-tax Act, 1961 (for short "the Act") and taxed accordingly. However, according to the AO it was mandatory for the assessee to deduct tax at source on such accruals. The Assessing Officer declared the assessee in default for a sum of Rs. 23,03,672/- under section 201(1) of the Act for short deduction of TDS and interest of Rs. 11,05,762/- under section 201(1A) of the Act. Aggrieved, the assessee filed appeal before the learned Commissioner of Income-tax (Appeals) and contended that the provisions for expenses were made without specifying or identifying the actual payee and the tax was deducted and deposited on the same expenses upon actual receipt of bills/invoices. The learned Commissioner of Income-tax (Appeals) considered the submission of the assessee and deleted the orders passed by the AO under section 201(....
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....izer Centre Ltd. Vs. Income Tax Officer (TDS) (supra). The relevant findings of the learned Commissioner of Income Tax(A) on the issue in dispute are reproduced as under: "Ground Nos: 1 to 3: It has been submitted by the appellant that it is operating in an automated ERP environment i.e. SAP and that it is following mercantile / accrual system of accounting consistently wherein as per generally accepted accounting practice the accrual in respect of expenses are recognized every month on best estimate/time scale basis i.e. credit is made to a provision /accrual account which can be called a common basket and not to the account of specific party/payees. It was also pleaded that above provisioning did not result in any constructive credit to a specific payee and that prime purpose of managing books of accounts in above manner is for the purpose of management reporting on monthly results for monitoring purpose. It was also stated that the payee would raise invoice after rendering of services and it was only after due approval of services having been rendered satisfactorily, that the credit was given to the payee account and that at this stage liability towards payees is recognized b....
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....s /payee's account takes place while calculating interest on time deposits on daily or monthly basis in the CBS software used by banks, tax need not be deducted at source on such provisioning of interest by banks for the purposes of macro monitoring only. In such cases, tax shall be deducted at source on accrual of interest at the end of financial year or at periodic intervals as per practice of the bank or as per the depositor's / payee's requirement or on maturity or on encashment of time deposits; whichever event takes place earlier; whenever the aggregate of amounts of interest income credited or paid or likely to be credited or paid during the financial year by the banks exceeds the limits specified in Section 194A. Placing reliance on above circular the appellant has argued that in the case in hand there is no constructive credit to the accounts of the payee while maintaining month wise accounts in the SAP Software which meant for management reporting of monthly results and monitoring. Accordingly, the appellant has pleaded that the above Circular, though meant for banks, the principles laid down in above Circular can be applied to the facts of the appellant's case as the ....
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.... and filed copies of the computation statements as well as the orders passed by A.O affirming the disallowance so made in the computation made under section 40(a)(ia). The learned Counsel also laced on record the statement indicating the amount of provision made under various heads and the actual amount paid in thd later year including the tax deducted at source and reconciling the amounts on this issue. 11. In view of above decision of coordinate bench, since the payee is not identifiable in this case also at the time making provision, no TDS need to be made on the above amount. Further, the entire provision has been written back in the ext year and the actual amounts paid/credited were subjected to TDS as per the detailed statements filed before the authorities on which there is no dispute. Therefore, assessee is following the provisions of TDS as and when the amounts are paid/credited to respective parties. 12. As already explained and evidenced from the computation of income as well as orders of A.O. in the assessment proceedings, the entire provision has been disallowed under section 40(a) (ia) and section 40(a)(i). Once the amount has been disallowed under t....
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....A.O. has accepted the TDS return of the appellant. On similar issues and similar facts the A.O. has accepted the contention of the assessee and has not considered the assessee as assessee in default u/s 201(1). I agree that the provisions of TDS are applicable only when the individual payee is identified. According to provisions of Section 190 of the Income Tax Act the scheme of deduction of tax at source is one of the methods of recovery of tax due from a person. The tax liability obviously lies in the hands of person who is earning the income. The provisions of Sections 191, 199, 202 and 203 clearly shows that deduction of at source is on behalf of the person who is the beneficiary of the payment or credit with corresponding liability to pay tax on such income. Therefore, the whole scheme of deduction of tax at source under Income Tax Act works on the assumption that the person whose liability is to pay the income, knows the identity of the beneficiary or the recipient of the income. In the present appeal before me the A.O. has not controverted in his Remand Report the contention of the appellant that the provisions for expenses are made in a SAP environment where in the ex....