2024 (6) TMI 644 - AT - Income Tax

Addition u/s 43B - TCS payable in the Audit report - Whether CIT (A) and AO have erred in making addition u/s 43B of TCS payable which is neither an allowable expense nor has been claimed by the Appellant in his return? - This is a case of tax collected at source by the assessee from the buyer - assessee is engaged in the business of trading in Scrap and the provisions of section 206C(1) of the Act 61, is applicable on him for collection of provisions of section 206C(1) of the Act 61, is applicable on him for collection of tax at specified percentage of consideration of sales, as income tax. HELD THAT - From the reading of various sub sections of sec 206C of the Act 61, it is clear that the tax collected by the assessee, under the provisions of this section, is the income tax portion of the buyer of the goods, which is collected by the assessee from the buyer, to be subsequently credited to the account of the Central Government within stipulated time frame provided by the statute. Sub section (6A) further provides that in case of failure of the assessee he shall be deemed to be an assessee in default in respect of the tax. The case of the assessee is covered by sub section (8), of the said section where the assessee has not paid the tax to the credit of the Central Government, after the collection, then the tax amount along with interest shall be a charge upon all assets of the person. TCS amount is income tax of the buyer of goods collected by the assessee (seller) for subsequent payment of the amount so collected to the credit of the Central Government, and the assessee is simply holding the said amount as custodian of the Government, till the time of actual deposit. In the instant case, before us the assessee has declared sales in audited profit and loss account at Rs. 9.91 crores (which is excluding TCS) (as confirmed by the AR during hearing of the case) and since the TCS is not credited in the accounts, the question of debit of the said amount in profit and loss account, also does not arise. TCS amount is not a sum payable by the assessee, it is the income tax of the buyers, collected and retained, by the assessee as per provisions of section 206C of the Act 61, and recorded through journal entries, and held by the assessee as custodian of the Government, and the same is duly reflected as liability in the audited balance sheet as at 31/03/2022. Since, the said amount of income tax of the buyers, cannot be debited in profit and loss account and claimed as a deduction, the assessee, it is not hit by the provisions of section 43B and the addition is liable to be deleted. Appeal of assessee allowed.

Summary

Issues involved:
The judgment involves the interpretation of provisions u/s 43B of the Income Tax Act 1961 regarding the disallowance of TCS payable amount in the audit report.

Issue 1: Disallowance of TCS payable amount

The appeal was against the order of the JCIT(A) - 12, Mumbai, passed u/s 250 of the Act 61, dated 15/09/2023, arising from the order of the CPC Bangalore u/s 143(1) of the Act 61. The grounds of appeal by the assessee challenged the addition of Rs. 4,83,000/- in the returned income on account of TCS payable in the audit report. The dispute centered around the reporting of TCS payable amount in the tax audit report (TAR) by the auditor, leading to the disallowance u/s 43B of the Act 61.

Issue 2: Correctness of TCS collection figure

During the first appellate proceedings, the assessee contended that there was an error in reporting the TCS collection figure in the TAR, which should have been Rs. 4,10,834/- instead of Rs. 4,83,000/-. The assessee argued that since the amount was not claimed as a deduction in the profit and loss account, it should not be disallowed under section 43B of the Act 61. However, the first appellate authority upheld the addition, emphasizing that the assessee should have rectified the error in the audit report in a timely manner.

Issue 3: Legal interpretation of TCS provisions

The Tribunal analyzed the provisions of section 206C(1) of the Act 61, which require the seller to collect tax at source from the buyer. It was highlighted that the TCS amount collected by the assessee is essentially the income tax of the buyer, held by the assessee as a custodian for the government. The Tribunal clarified that since the TCS amount was not debited in the profit and loss account and was held as a liability in the balance sheet, it should not be disallowed under section 43B of the Act 61.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the addition of Rs. 4,10,834/-, as it was held that the TCS amount collected was not a sum payable by the assessee but the income tax of the buyers, held in trust for the government. The judgment emphasized the distinction between TCS amounts held as custodian and actual payable sums, leading to the deletion of the disallowance under section 43B of the Act 61.