2017 (5) TMI 973 - AT - Income Tax

Non-deduction of TDS on certain payments - assessee-in-default - levy of interest u/s 201(1A) - Held that - Assessee in his computation of income has suo-moto made the disallowance of said expenditure u/s 40(a)(ia). Further, the nature of expenses is Rent & Professional Expenses. Therefore, so far as the argument that these were mere provisions is difficult to accept since the assessee is making suo-moto disallowance against the same u/s 40(a)(ia) which is related with addition / disallowance consequent to failure of deduction of tax at source by the assessee. AR, during proceedings before us, stated that the assessee reversed the provisions in subsequent years and deducted TDS from actual payment as per law and deposited the same. If this is so, the assessee could not be required to deposit the same again by raising this demand. Therefore, we direct Ld. AO to verify the fact that whether the assessee, in subsequent years, has reversed the said amounts and deducted the due TDS at the time of actual payment and deposited the same to the credit of central government. If so, the said demand of ₹ 3,12,776/- raised u/s 201(1) shall stand deleted. So far interest u/s 201(IA) is concerned, we find that the assessee is liable to pay the same since we have already noted that the expenses against which TDS was deductible was not mere provisions and the payees were identifiable and the assessee himself disallowed the same u/s 40(a)(ia). Therefore, the interest demand raised u/s 201(IA) stand confirmed against which the interest, if any, already paid by the assessee shall be adjusted.

Issues Involved:
Assessment of TDS liability on certain payments, applicability of Section 201(1) and 201(1A) of the Income Tax Act, treatment of expenses as provisions, identification of payees, liability of TDS on provisions, reversal of provisions in subsequent years, disallowance of expenses under Section 40(a)(ia), relevance of judicial pronouncements, determination of interest under Section 201(1A), verification of TDS deduction in subsequent years.

Detailed Analysis:

1. Assessment of TDS Liability:
The appeal challenges the order treating the assessee as assessee-in-default under Section 201(1) for non-deduction of TDS on certain payments and consequential levy of interest under Section 201(1A) for a specific amount. The Assessing Officer noted that the assessee failed to deduct TDS on Rent & Professional fees, resulting in the demand against the assessee. The contention was that these were provisions made on an estimated basis without specific ledger entries, and the payees were not identifiable at the time of making provisions. However, the Commissioner of Income-Tax (Appeals) held that the liability to deduct TDS arises when expenses are created in the books of accounts, rejecting the assessee's stand.

2. Treatment of Expenses as Provisions:
The assessee argued that the expenses were mere provisions, subsequently reversed, and disallowed in the computation of income under Section 40(a)(ia) as the liability had not crystallized. Various judicial pronouncements were relied upon to support this contention. The contention was that the provisions were reversed in subsequent years, and TDS was deducted at the time of actual payment. The argument was that the assessee should not be treated as an assessee-in-default if TDS was deducted later.

3. Identification of Payees and Liability of TDS:
The nature of expenses being Rent & Professional Expenses, the contention that the payees were not identifiable was challenged. The bench found it difficult to accept that the payees were not identifiable since the expenses were related to specific payees for specific services. The assessee's suo-moto disallowance of the expenses under Section 40(a)(ia) was considered relevant, indicating a failure to deduct TDS. The argument that the payees were not identifiable was not satisfactory to the bench.

4. Verification of TDS Deduction in Subsequent Years:
The Tribunal directed the Assessing Officer to verify whether the assessee reversed the provisions in subsequent years, deducted TDS from actual payments, and deposited the same as required by law. If the assessee complied with these requirements, the demand raised under Section 201(1) would be deleted, providing relief to the assessee.

5. Confirmation of Interest under Section 201(1A):
Regarding the interest under Section 201(1A), it was held that the assessee was liable to pay the interest since the expenses against which TDS was deductible were not mere provisions, and the payees were identifiable. The interest demand was confirmed, with adjustments for any interest already paid by the assessee. The decision was supported by relevant case laws cited during the proceedings.

6. Final Directions and Outcome:
The Tribunal allowed the assessee's appeal for statistical purposes, directing the Assessing Officer to verify the facts and re-compute the tax demand under Section 201(1)/201(1A) based on the directions provided. The order was pronounced in open court on a specific date, concluding the legal judgment.

This detailed analysis covers the various issues involved in the legal judgment, providing a comprehensive overview of the arguments, findings, and directions given by the Tribunal in the case.

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