2017 (10) TMI 1565 - AT - Income Tax

TDS u/s 194A - default u/s. 201(1) and 201(1A) - efault u/s. 40(a)(i) and 40(a)(ia) - whether the assessee can be considered as an assessee in default for not deducting TDS in respect of those provisions which were reversed? - HELD THAT - It is commonsensical to expect that the appellant's creation of the provision for the services received in order to obtain a correct view of its profit at year end was not based on any arbitrary or whimsical estimate. It is clear from the provisioned expenses that the estimate has followed from pre-existing contracts with known parties for identified services and, hence, the accounting of amounts liable to be paid to these parties for services availed as per known terms of transaction is a specific exercise which carries with it the statutory responsibility for deducting tax at source also. The appellant cannot wriggle out of this responsibility by holding that the provisions were made without any basis towards unidentified parties for unascertained transactions. Appellant argument that the AO erred in treating reversal of provision for expenditure and unutilized amount of provision as liable to deduction of tax at source unable to be agreed since the AO has not discussed liability for tax deduction on the 'reversal of provision' but on the 'creation of provision' itself before the end of FY 2011-12. This, as has been held in the paras above, was a point at which the IT Act, the Tax Auditor as well as the appellant itself had clearly agreed with the liability for tax deduction. This ground, therefore, fails. Where the provisioned amount was higher than the invoice amount, the balance has clearly not suffered tax. Since it has been held supra that the liability for tax deduction existed on the company at the time of making the provision, the default for non-deduction of tax at source is to be limited only to the surplus over and above the invoice amount. As the assessee has made disallowance u/s. 40a(ia) and it means that the assessee has admitted its default u/s. 40(a)(ia) and therefore, in the proceedings u/s. 201 and 201(1A), the assessee cannot argue that there was no liability under chapter XVII-B. Since none of the judgments cited by ld. AR of assessee is rendering any help to the assessee in the present case and the tribunal order cited by ld. DR of revenue is helping the case of revenue, we find no reason to interfere in the order of CIT(A). - Decided against assessee.

Summary

Issues Involved:
1. Whether the assessee can be considered as an 'assessee in default' under section 201(1) for not deducting TDS on provisions that were reversed.
2. Whether the demand raised on the appellant for recovery of the tax alleged to have not been deducted is valid.
3. Whether the reversal of provisions and unutilized amounts of provision are liable for deduction of tax at source.
4. Whether the levy of interest under section 201(1A) and interest on delayed remittance of TDS is justified.

Detailed Analysis:

1. Assessee in Default under Section 201(1):
The assessee argued that it should not be treated as an 'assessee in default' under section 201(1) without demonstrating that the deductees had also failed to pay the tax directly. The CIT(A) confirmed the action of the Income Tax Officer (TDS) in treating the appellant as an 'assessee in default' under section 201(1) without ascertaining whether the deductees had paid the tax directly. The Tribunal found that the CIT(A) correctly held that the liability for TDS arises even if sums are credited to any account in the books of the person liable to pay such income, as per the provisions of the IT Act.

2. Validity of Demand for Recovery of Tax:
The appellant contended that section 201 does not authorize the recovery of the amount of tax not deducted and that the recipient of income is liable to pay the tax directly. The Tribunal, however, upheld the CIT(A)'s decision that the appellant cannot escape the responsibility of deducting tax at source by claiming that the provisions were made without any basis towards unidentified parties for unascertained transactions.

3. Reversal of Provisions and Unutilized Amounts:
The appellant argued that the reversal of provisions and unutilized amounts should not be liable for TDS. The CIT(A) rejected this claim, stating that the liability for tax deduction arises at the time of creating the provision, not at the time of reversal. The Tribunal agreed with the CIT(A) that the reversal of provision does not negate the initial liability for TDS.

4. Levy of Interest under Section 201(1A):
The appellant challenged the levy of interest under section 201(1A) and interest on delayed remittance of TDS. The Tribunal upheld the CIT(A)'s decision, stating that interest under section 201(1A) is applicable for the period of delay in remitting the TDS, and the appellant's liability to pay this interest is justified.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, confirming the CIT(A)'s decision on all grounds. The Tribunal found that the appellant was rightly treated as an 'assessee in default' under section 201(1) for not deducting TDS on provisions that were later reversed. The demand raised for recovery of tax and the levy of interest under section 201(1A) were also upheld. The Tribunal emphasized that the liability for TDS arises at the time of creating the provision, and reversal of the provision does not negate this liability.