2022 (2) TMI 336 - AT - Income Tax

Interest levy u/s 201(1A) - suo-motto disallowances u/s. 40(a)(i)/(ia) - Whether obligation to deduct tax at source did not 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? - HELD THAT - Present assessee filed details of bifurcation of amount estimated in respect of each payee, the month in which the actual invoice was received and the TDS deducted coupled with details of it being deposited with the Government account. ITO(TDS) did not consider the same by observing that it is voluminous and impossible to be verified. On verification of the list of payees placed we note that assessee has deducted TDS between May 2012 to December 2012 (F.Y 2012-13). Thus it is an admitted fact that TDS has been deducted at the time of making payment in respect of the provision made as on 31/03/2012 and the same has been deposited to the Government account. On identical facts and similar circumstances this Tribunal in case of IBM ltd 2015 (6) TMI 323 - ITAT BANGALORE 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. The present assessee cannot be treated to be an assessee in default to the extent TDS has been effectuated though in subsequent financial year. 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). The assessee(deductor) gets exonerated from the applicability of TDS provisions on disallowance of the expenditure in question under section 40(a)(i)/(ia) of the Act. This rational is based on the scheme of Section 40(i)/(ia), which is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee(deductor) in a situation in which income embedded in such expenditure remained untaxed due to tax withholding lapses by such assessee(deductor). In 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. 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 with the principles laid down by Hon'ble Supreme Court in case of Hindustan Coco Cola 2007 (8) TMI 12 - SUPREME COURT and keeping in view the intention of the legislature envisaged under section 40(a)(i)/(ia) of the Act. Assessee is directed to file all the relevant details once again, details of TDS deducted and paid to the Government account on payment being made in the subsequent year on reversal of the provision. At this juncture we caution the Ld. AO provisions of section 201(1) cannot be invoked, in view of the fact that there is no loss to the revenue in the present facts of the case as observed by us in the preceding paras. In case the assessee has not added back the provision created towards the expenditure to the total income in the statement of income and took advantage of provision by reducing the income of assessee then assessee is liable for interest u/s. 201(1) (1A) - Grounds raised by assessee in both the appeals stands allowed for statistical purposes

Issues Involved:
1. Obligation to deduct tax at source on year-end provisions.
2. Levy of interest under section 201(1A) of the Income-tax Act, 1961.
3. Double disadvantage for a single failure under section 40(a)(i) & 40(a)(ia).
4. Tax and interest on ESI contributions.
5. Verification of TDS details and subsequent payments.

Issue-wise Detailed Analysis:

1. Obligation to Deduct Tax at Source on Year-End Provisions:
The assessee argued that the obligation to deduct tax at source did not arise for year-end provisions created on 31 March 2012, as the receipt of such amounts by the parties was not established. The assessee also contended that such provisions were reversed subsequently. The Tribunal noted that the assessee had disallowed the entire provision under section 40(a)(i)/(ia) in the Return of Income, which indicated that no income accrued to the payees, and hence, there was no liability to deduct tax at source.

2. Levy of Interest Under Section 201(1A) of the Income-tax Act, 1961:
The CIT(A) upheld the levy of interest under section 201(1A) until the date of passing the order under section 201(1), as there was a postponement of the period of tax deduction. The Tribunal, however, observed that if the assessee has disallowed the entire provision under section 40(a)(i)/(ia), then the TDS provisions should not apply again, and interest under section 201(1A) should not be levied.

3. Double Disadvantage for a Single Failure Under Section 40(a)(i) & 40(a)(ia):
The assessee argued that it should not face a double disadvantage for a single failure, i.e., disallowance under section 40(a)(i)/(ia) and being treated as an "assessee in default" under section 201(1). The Tribunal agreed, stating that once the amount is disallowed under section 40(a)(i)/(ia), it cannot be subject to TDS provisions again, and the assessee should not be liable for interest under section 201(1A).

4. Tax and Interest on ESI Contributions:
The CIT(A) did not adjudicate on the tax and interest levied on ESI contributions. The Tribunal directed the AO to ignore the ESI contributions from the alleged quantum as there was no liability to deduct tax at source on these payments.

5. Verification of TDS Details and Subsequent Payments:
The Tribunal noted that the AO did not verify the details of TDS deducted and paid to the Government account on subsequent payments. The Tribunal directed the AO to verify the details filed by the assessee in respect of the payees and to ascertain if the payees have paid taxes on the income embedded in the payments. The Tribunal emphasized that the provisions of section 201(1) cannot be invoked if there is no loss to the revenue.

Conclusion:
The Tribunal held that the assessee cannot be treated as an "assessee in default" to the extent TDS was effectuated, even if done in the subsequent financial year. The Tribunal also ruled that interest under section 201(1A) should not be levied if the entire provision is disallowed under section 40(a)(i)/(ia). The Tribunal directed the AO to verify the details of TDS and subsequent payments and to ensure that there is no double disadvantage to the assessee. The appeals were allowed for statistical purposes.

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