TaxTMI 
TaxTMI 
2022 (3) TMI 1676
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....ent year 2012-13. It is submitted that the issue raised in all the appeals are common relating to holding the assessee to be 'assessee in default' and levy of interest under section 201(1A). Accordingly, all these appeals are being disposed by way of a common order. 2. Brief facts of the case are as under: During the assessment year 2012-13, the assessee created aggregate provision of Rs. 158,25,21,633/- towards various expenses. While computing the total income assessable for the assessment year 2012-13, the assessee suo moto disallowed the entire provision so created under Sections 40(a)(i)/(ia) of the Act. The Ld.AO initiated proceedings under Section 201 of the Act and passed an order dated 25.03.2014 deeming the assessee to be an assessee-in-default for non-deduction of tax at source on which provision created to the extent of Rs. 44,95,92,282/-, on the ground that the same was liable for tax deduction at source. The Officer also levied consequential interest of Rs. 1,07,90,215/- under Section 201(1A) of the Act. 2.1. During the assessment year 2012-13 in ITA no. 1151, the assessee created aggregate provision of Rs. 49,16,35,934/- towards various expenses. While....
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....vity has passed another order in ITA No. 3/Bang/2015 Dated:25/05/2016 which is different from the earlier order of the ITAT and is in favour of the assessee. The Hon'ble ITAT, Bangalore in ITA No. 3/Bang/2015 dt. 25.05.2016 in the case of M/s. TE Connectivity India Pvt. Ltd. in Para 6 has stated as under : "The issue in appeal relates to the liability of the assessee company to deduct tax at source on provisions made as at the end of the accounting year. The undisputed fact is that the provisions, made at the end of the accounting year are reversed in the beginning of the next year. No payees are identified. The exact amount of liability also cannot be quantified. The provisions are made merely on for Management Information System. In our considered opinion, liability to deduct tax at source does not arise. In identical circumstances, the Hon'ble Tribunal in the case of M/s. Bosch Ltd. Vs. ITO in ITA No. 1583/Bang/2014 dt. 01.03.2016 to which one of us i.e. the Accountant Member is the author of the order, held as follows...... "........Thus, having regard to the ratio laid down by the Hon'ble ex Court, it cannot be said that income had accrue....
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....ke the provisions of section 201(1) and 201(1A) of the Act ignoring the words 'any income by way of interest. Respectfully following the above order, we hold that the assessee- company is not liable to deduct tax at source as no income has accrued in. the hands of the payee." Considering the above order which is later in date and also keeping the decision of Vegetable Products in mind, for judicial prudence, respectfully following the decision of the Hon'ble ITAT, Bangalore in the case of M/s. TE Connectivity India Private Ltd., referred (supra), the appeal is allowed. Ground no. 2. Interest levied under Section 201(1A) of the Act - Rs. 1.62 crores The Learned AO has erred in levying interest under Section 201(1A) amounting to Rs. 16,201,719 on the aforementioned demand which is consequential in nature. Ground no.3 Interest levied under section 201(1A) of the Act for the intermittent period between the period of accounting and date of actual payment of TDS - Rs. 4,436,352 The learned AO ought to have appreciated that the liability to deduct tax arises only on crystallized expenses and therefore the prov....
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....ations that on account of the disallowance made, there was no loss to revenue." 4. Aggrieved by the order of Ld.CIT(A), the assessee preferred appeal before this Tribunal. Before us, the Ld.AR submitted that assessee is held to be "assessee in default" for non-deduction of TDS on the provision. 4.1 ITA no. 1644 The details of the Provision of Rs. 40,62,42,479/- on which TDS was not effectuated are as under : Ground No. Particulars Amount disallowed Details furnished before the Assessing Officer Additional details furnished before the CIT(A) 1-5 Commission: Rs. 40,62,43,479/-(break-up as under) Rebate under stock and sell model Rs. 16,32,79,058/- TDS not applicable TDS not applicable (refer page 16 of the paper book) Sales promotion/d ell reward and ecognition expenses Rs. 12,97,03,478/- TDS not applicable TDS not appliable as it pertains to purchasenof materialsand supplies(refer page 16ofthepaperbook) Other expense classified under Commission and Rebate Rs. 1,09,13,895/- - TDS deducted and....
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....pplicable. ● ACIT v. Motor Industries Co. (reported in [2001] 115 Taxman 222 (Karnataka) ● Karnataka Power Transmission Corporation Ltd. reported in [2016] 67 taxmann.com 259 (Karnataka) ● PCIT v. Sanghi Infrastructure Ltd. (reported in [2018] 96 taxmann.com 370 (Gujarat)) Toyota Kirloskar Motor (P.) Ltd. (Order dated 24.03.2021 passed by the Hon'ble High Court of Karnataka in ITA No. 245/2018) ● Bosch Ltd. v. ITO in ITA No. 1583/Bang/2014 by order dated 01.03.2016 ● TE Connectivity India Pvt. Ltd. v. ITO in ITA No. 3/Bang/2015 by order dated 25.05.2016 6. The Ld.AR further submitted that for year under consideration has assessee suo moto disallowed the entire provision created during the year under consideration, irrespective of the fact whether the said amount includes income only or partly in the hands of the payee u/s. 40(a)(i)/(ia). It is further submitted that in the subsequent assessment year, on making actual payment by assessee, TDS has been deducted and remitted to the Government account wherever applicable. It is the argument of the Ld.AR that upon doing so, assessee is ....
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....ociation v. UOI reported in (2002) 124 Taxman 628 ● Decision of Hon'ble Andhra Pradesh and Telangana High Court in case CIT v. United Breweries Ltd. reported in (2017) 80 taxmann.com 123; ●Decision of Coordinate Bench of this Tribunal in case of ACIT v. Acer India (P.) Ltd. by Order dated 05.10.2018 passed by this Hon'ble Tribunal in ITA No. 1940/Bang/2018). On the contrary, the Ld.DR submitted that even though the amount of expenses have not been crystallised, TDS was liable to be done on the provisioned amount. We have perused the submissions advanced by both sides in the light of records placed before us. 9. Admittedly, the entire provisioned amount being Rs. 158,25,21,633/- has been suo moto disallowed by the assessee in the computation income for the year under consideration u/s. 40(a)(ia) of the Act. Under such circumstances, no benefit has accrued to the assessee to that extent which already stands disallowed while computing the taxable income. 10. It is not the case of the revenue that with the help of the provisioned amount assessee has been able to reduce the profits thereby any benefit has been drawn. We place reliance on the decisi....
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....lt in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed 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 mi....
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....t. On identical facts and similar circumstances this Tribunal in case of IBM ltd.(supra), appreciated the arguments advanced by assessee therein to discharge assessee from the from being called as, 'assessee in default", under section 201(1) of the Act to the extent the TDS was effectuated. This Tribunal in case of IBM(supra) observed 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....
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....d time. The assessee company has deducted tax at source on these amounts in the subsequent year as and when the same were paid by it. Thus, it is liable for charging of interest u/s. 201(1A) for delayed deduction and remittance of tax to Govt. account." (emphasis supplied) 24. In view of the above, the demand on account of tax u/s.201(1) 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 a....
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.... in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 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....
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....ion 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these 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 ta....
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....it has been held that if no income is attributable to the payee, there is no liability to deduct tax at source in the hands of the tax deductor. The interest being not paid to the payees/suppliers and the same having been reversed in the books of accounts, it was categorically observed that there would be no liability to deduct tax as no income accrued to the payees. 16.2. In a recent decision on similar facts before Hon'ble Karnataka High 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: ....
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....ularly the provision contained in sub-clause (ia) of clause (a) thereof, indeed provides for one of such consequences. 16.1 section 40(a)(ia) provides for the consequences of default in the case where tax is deductible at source on any interest, commission, brokerage or fees but had not been so deducted, or had not been paid after deduction (during the previous year or in the subsequent year before expiry of the prescribed time) in the manner that the 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 requirement....
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....er section 201(1A) r.w.s. 194 C can be enforced even in a situation in which the recipient of income embedded in the payments has paid due taxes thereon, and, if not, who has the onus to demonstrate that status about payment of such taxes. Relying on decision of Hon'ble Allahabad High Court's judgment in the case of Jagran Prakashan Ltd Vs DCIT reported in (2012) 21 taxmann.com 489, the Counsel for the assessee argued that the onus is on the revenue to demonstrate that the 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 Jaga....
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....recipient of income has not paid tax. Therefore, recovery provisions under section 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereon. In the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same. The provisions to make good the shortfall in collection 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." 19. Hon'ble Mumbai Tribunal in case of Pfizer Ltd vs....
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....a legal issue, there is no need for adjudicating the matter as the grounds raised have been held in favour of assessee. AO is directed to delete the said demand so raised. Appeal is accordingly allowed." In the present facts, there is no loss to the revenue in the year in which provision is created, since the assessee before us is stated to have disallowed the entire provision under section 40(a)(i)/(ia) of the Act on which TDS could not be effectuated. All details of payee 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 section 201(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....
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....ion. 13. On the issue of applicability of TDS provisions on the commission and Rebate payment by assessee, we note that the relevant observations of the agreement has not been looked into by the Ld.AO. It is the submissions of the Ld.Counsel that it is a nonexclusive right granted to the dealer on principal-to-principal basis and that there is no principal agent relationship, for which provisions of TDS could be applied on such payments. It is also noted that wherever the payment of commission included the element of income in the hands of the recipient, TDS has been effectuated by assessee. Coordinate Benches of this Tribunal. 14. However, in respect of the amount shown as rebate and commissioned to the dealers, the agreement has not been looked into by the authorities below. In the event any amount provisioned as commission / rebate falls under the purview of TDS provisions, the disallowance cannot be simply made for the reason that no TDS has been effectuated as the assessee has suo moto disallowed the entire provisioned amount for each year under consideration u/s. 40(a)(ia) of the Act. 15. We also draw our support from the decision of Hon'ble Supreme Court in case....