TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 336
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....arise in respect of the provisions created in the books of accounts on 31 March 2012 (i.e., year-end provisions), as the receipt of such amounts by the parties was not established as on 31 March 2012. 3. The learned CIT(A) and ITO have erred in facts and in law by failing to appreciate that the obligation to deduct tax at source did not arise in respect of those items provided for on 31 March 2012 (i.e., year-end provisions) and which were subsequently reversed. 4. The learned CIT(A) erred in upholding interest levy under section 201(1A) of the Income-tax Act, 1961 ['the Act]. 5. Without prejudice to the above, the learned CIT(A) and ITO have erred in levying interest under section 201(1A) of the Act until the date of passing the order under section 201(1) of the Act; whereas even if any interest is leviable, the same ought to have been levied: (a) until the date of deduction of taxes at source and credit to the account of the Central Government in those cases where invoices were subsequently received and paid; or (b) until the date of reversal of provisions in the books of accounts in those cases where provisions were later reversed. 6. The learned CIT(A) has not adjud....
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....plicable TDS was deducted, that stood deposited in the Government account. * The assessee also submitted that one payment made to TATA Communications there was short deduction. * It was submitted that there was one another payment pertaining to ESI corporation on which there was no liability to deduct any tax at source. The Ld. ITO(TDS) observed and held as under: "In response to notice the assessee's Authorized Representative Sri. Ananth CA appeared before the undersigned and furnished the details of subsequent payments made in respect of disallowances U/s. 40(a) (ia) and 40(a) (i) of the IT Act and the case was discussed. It is noticed from the computation of income that Rs. 7,08,24,466/- was disallowed u/s. 40(a) (ia) of the IT Act. The assessee company has utilized the provision of Rs. 2,44,31,822/- for further payments and it was told that the balance of Rs. 4,63,92,644/- of provision was reversed subsequently. The details produced by the Assessee Company is virtually impossible to verify the accuracy of the amounts booked, subsequent payments and TDS details made in subsequent years. However the entire process of booking expenditure and charging of the same to the ....
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....er invoices (with TDS). This aspect has been noted by the Hon'ble ITAT, Bangalore also in the IBM India judgment referred to supra. The Hon'ble ITAT has upheld the levy of interest u/s. 201(1A) made upto the date of passing of the impugned orders by the AO. I find no reason, therefore, to interfere with the AO's method of computation of interest. 16. For AY 2012-13 the company deducted taxes at source (albeit in the next financial year) in respect of Rs. 3,25,21,444 included in the total provision of Rs. 4,48,04,866 since invoices pertaining to this amount were received in the subsequent financial year and payments released after TDS. For the remaining provision of Rs. 1,22,83,222 no TDS could be done even later since the invoices pertaining to it were not received and the amount was merely reversed. This amount is liable to Sec. 201(1) and interest u/s. 201(1A). 17. For AY 2013-14 the appellant has provided break-up and details of provisions amounting to Rs. 1,65,77,388 in respect of Bosch Ltd., which includes Rs. 1,01,59,588 in 12 number of purchase orders where the provision was inadvertently created although the invoice was received during the concerned financia....
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....had suo moto disallowed the entire provision under section 40(a)(i)/(ia) of the Act. 6. In support he placed reliance on following decisions: * Decision of Hon'ble Tribunal in case of Pfizer Ltd. vs. ITO(TDS)(OSD) reported in (2012) 28 taxmann.com 17; * Decision of Hon'ble Tribunal in case of IDBI v. ITO reported in (2007) 107 ITD 45; 7. On the contrary, the Ld. CIT DR placed reliance on following decisions: * Decision of coordinate bench of this Tribunal in case of IBM India (P).Ltd. vs. ITO(TDS) reported in (2015) 59 taxmann.com 107 * Decision of Hon'ble Cochin Tribunal in case of Agreenco Fiber Foam (P.) Ltd. vs. ITO (TDS) reported in (2013) 61 taxmann.com 155 The Ld. CIT DR submitted that suo moto disallowance of the provision under section 40(a)(i)/(ia) of the Act arises only when there exists a liability to deduct tax at source under chapter XVII-B of the Act. The assessee having on its own disallowed the expenditure cannot now turn around and say that there was no liability to deduct tax at source. 8. He thus submitted that the disability under section 40(a)(i)/(ia) and the liability under section 201(1) of the Act cannot be different and both arise o....
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....d to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) The recipient has paid the tax due on the income declared by him in such return of income; And the person furnishes a certificate to this effect from an accountant in such form as may be prescribed." As the section 201(1) is to be read, one must keep in mind that these provisions seeks to make good any loss of revenue, from an assessee who is the payee, on account of any lapse by the recipient of such income. We draw our support from the decision of Hon'ble Kolkata Tribunal in case of Ramkrishna Vedanta Math vs. ITO reported in (2012) 24 taxmann.com 29. Hon'ble Kolkata Tribunal also held as under: "9. It is important to bear in mind that the lapse on account of non deduction of tax at source is to be visited with three different consequences - penal provisions, interest provisions and recovery provisions. The penal provisions in respect of such a lapse are set out in Section 271C. So far as penal provisions are concerned, the penalty is for la....
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....bserved and held as under: "The learned counsel for the Assessee at the outset brought to our notice that pending disposal of the appeals, the Assessee had furnished before the AO, details regarding the actual payment of TDS in subsequent financial year, on the provisions made in the various financial years. These details were verified by the AO. The AO has addressed a letter to the DR in which the AO after verification has found that the Assessee had deducted tax at source at the time when the provision made in one financial year is subsequently reversed and the expense booked in the subsequent financial year. The following are the contents of the said letter (copy filed by DR in Court), in so far as it relates to taxes deductible at source. "3. During the course of appellate proceedings before the Hon'ble ITAT the assessee company took the same plea that it had deducted tax at source in the subsequent year on all the amounts that was disallowed u/s. 40a(i) and 40a(ia) as and when these amounts were paid. The Hon'ble ITAT therefore directed that such details be produced before the Income Tax Officer (TDS) for verification. 4. At the remand stage the assessee company ....
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....of the Act, in our view, will no longer survive. However the appeals will survive with regard to the liability of the Assessee to interest u/s. 201(1A) of the Act. Therefore the appeals in so far as it relates to challenge to order u/s. 201(1) of the Act have to be allowed." Respectfully following the same we also hold the present assessee cannot be treated to be an "assessee in default" to the extent TDS has been effectuated though in subsequent financial year. 14. Now the issue that needs to be considered is in a situation where the assessee has not been treated to be an assessee in default, interest under section 201(1A) deserves be levied. In our humble opinion, the provision of TDS provisions cannot applicable where there is no claim of expenditure made by the assessee. In the present facts assessee made suo motu disallowance of the entire provision under Section 40(a)(i)/(ia) of the Act. Once the amount is disallowed u/s. 40(a)(i)/(ia) for non-deduction of tax, it cannot be subject to TDS provisions again so as to make the assessee liable to interest u/s. 201(1A). In our considerate view, the assessee(deductor) gets exonerated from the applicability of TDS provisions on d....
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....on 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax. 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra), the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer....
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....ese shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004." Emphasis supplied 16. We place reliance on the above decision to e....
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....gh Court in case of Volvo India Pvt. Ltd. vs. ITO(TDS), in ITA no. 369/2018 by order dated 15/11/2021, the Revenue argued regarding interplay of Section 40(a)(ia) and 194C would make it clear that the default by a person in compliance of the requirements of the provisions contained in Part B of Chapter-XVII of the Act leads, that when the obligation of Section 194C of the Act is not complied with, the consequences under Section 40[a][ia] will operate. The Revenue sought to rely on the decision of Hon'ble Supreme Court in case of Shree Choudhary Transport Company vs. ITO reported in (2021) 118 taxmann.com 47. Hon'ble Karnataka High Court considered the decision of Hon'ble Supreme Court in favour of assessee by observing as under: "10. It is ex-facie apparent that the contention of the assessee inasmuch as non-identification of the payees in the provisions and the disallowance of deduction expenditure under Section 40(a)(ia) of the Act has not been rightly appreciated by the Tribunal. In this scenario, the judgment of the Hon'ble Apex Court in the case of Shree Choudhary Transport Company': would not be of any assistance to the Revenue unless the material aspect....
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....amount of such interest, commission, brokerage or fees shall not be deducted in computing the income chargeable under "profits and gains of business or profession". In other words, it shall be computed as income of the assessee because of his default in not deducting the tax at source. 16.2 In the overall scheme of the provisions relating to collection and recovery of tax, it is evident that the object of legislature in introduction of the provisions like sub-clause (ia) of clause (a) of section 40 had been to ensure strict and punctual compliance of the requirement of deducting tax at source. In other words, the consequences, as provided therein, had the underlying objective of ensuring compliance of the requirements of TDS. It is also noteworthy that in the proviso added to clause (ia) of section 40(a) of the Act, it was provided that where in respect of the sum referable to TDS requirement, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid in any subsequent year after the expiry of the time prescribed in section 200(1), such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has ....
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.... taxes have not been recovered from the person who had the primary liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Ld. Counsel therein contended that once all the details of the persons to whom payments have been made, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. It was the submission of the Ld. Counsel therein that, as a result of decision of Hon'ble Allahabad High Court's judgment in the case of Jagaran Prakashan (supra), there is a paradigm shift in the interpretation of Section 201(1). Hon'ble Kolkata Tribunal observed as under: "8. The plea is indeed well taken. Learned counsel is quite right in his submission that, as a result of the judgment of Hon'ble Allahabad High Court in Jagran Prakashan's case (supra) and in the absence of anything contrary thereto from Hon'ble jurisdictional High Court, there is a paradigm shift in the manner in which re....
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....of taxes may thus end up being invoked even when there is no shortfall in fact. On the other hand, once assessee furnishes the requisite basic information, the Assessing Officer can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income. It is not the revenue's case before us that, on the facts of this case, such an exercise by the Assessing Officer is not possible. It does put an additional burden on the Assessing Officer before he can invoke Section 201(1) but that's how Hon'ble High Court has visualized the scheme of Act and that's how, therefore, it meets the end of justice." 18. Hon'ble Mumbai Tribunal in case of Pfizer Ltd. vs. ITO (TDS)(OSD)(supra) on identical issue and similar facts held as under: "12. As already explained and evidenced from the computation of income as well as the orders of AO 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 the provisions of section 40(a)(i) on the reason that tax has not been deducted, it is surprising that AO holds that the said amou....
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.... and the details regarding when subsequently the actual payments were effectuated on receipt of Invoice/bill, was submitted before the Ld. AO. The Ld. AO without verifying the same levied interest under section201(1A) of the Act. Then, the question that arises to our minds that, is it logical to put such assessee(deductor) into double jeopardy by casting the liability under chapter XVII-B on an assumption of non payment of taxes on income embedded in the receipt by an assessee(payee)? We answer this question in negative. 20. On the amount on which TDS could not be effectuated due to non receipt of invoices, the Ld. AO will first have to ascertain if the payee has paid taxes on the income embedded therein. This is the pre condition for levying interest u/s. 201(1A) of the Act. 21. In our considered opinion applicability of section 201(1A) needs verification of payment of tax by the recipient (payee) at the end of the Ld. AO since the Ld. AO failed to carry out necessary verification in respect of the payees, the details of which were provided by assessee. In the interest of justice, we direct the Ld. AO to verify the details filed by assessee in respect of the payee in accordance ....