2016 (5) TMI 328 - AT - Income Tax

Disallowance u/s 40(a)(ia) - assessee in default under section 201 - suomoto disallowance by assessee - Held that - In the case of Pfizer Ltd. Vs. ITO (2010 (6) TMI 433 - Bombay High Court) the assessee had suomoto disallowed the entire amount of the provision created under sections 40(a)(i)/40(a)(ia), on account of non-deduction of tax. In these circumstances, because the assessee had not claimed any such expenditure in the relevant year, assessee cannot be subjected to the provisions of TDS under section 201(1). The case of the appellant is identical on facts to the case of Pfizer Ltd. Hence, the appellant cannot be treated to be in default under section 201 for non-deduction of tax at source that the amount has been suo moto disallowed by the appellant under section 40(a)(ia) of the Act in the return of income. The demand raised by the AO is therefore not justified and the same is hereby deleted. - Decided in favour of assessee.

Summary

Issues Involved:
- Disallowance of expenses under section 40(a)(ia) of the Income Tax Act
- Interpretation of TDS provisions under chapter XVII of the Act
- Levy of interest under section 201(1) and 201(1A) of the Act
- Applicability of the decision in the case of Pfizer Ltd. to the present case

Analysis:
- The revenue appealed against the CIT(A)'s order regarding the disallowance of expenses under section 40(a)(ia) of the Income Tax Act for A.Y. 2009-10. The revenue contended that the CIT(A) erred in deciding the appeal based on the decision of the ITAT in the case of M/s. Pfizer Ltd., which was under further appeal. The CIT(A) had deleted the non-deduction of tax, stating that no demand could be raised under section 201(1) due to the disallowance under section 40(a)(ia).

- The CIT(A) upheld the disallowance of expenses under section 40(a)(ia) made by the appellant. The CIT(A) noted that the liability to deduct tax at source arises at the time of credit/payment, and the appellant's argument that they paid taxes in a subsequent year did not absolve them from the levy of interest under section 201(1) and 201(1A). The CIT(A) also referred to the decision in the case of Pfizer Ltd., where it was held that TDS provisions are not applicable if the payee is not identifiable.

- The CIT(A) further cited the decision in the case of CIT Vs. Pfizer Ltd., where it was held that if an amount is suo moto disallowed under section 40(a)(ia), the provisions of section 201 do not apply. The CIT(A) found the facts of the present case similar to the Pfizer Ltd. case and held that the appellant cannot be treated as in default under section 201 for non-deduction of tax. The appeal of the revenue was dismissed, upholding the CIT(A)'s decision.

- The Tribunal concluded that the CIT(A) had correctly decided the matter and dismissed the revenue's appeal. The judgment highlighted the importance of identifying payees for TDS provisions and the significance of suo moto disallowance under section 40(a)(ia) in determining the applicability of section 201. The decision in the Pfizer Ltd. case was crucial in establishing the legal principles applied in the present case.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the reasoning behind the decision rendered by the ITAT Mumbai.