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2025 (4) TMI 1610 - AT - Income TaxDemand u/s 201 201(1A) - assessee in default for non-deduction of TDS on certain expenses/ - HELD THAT - We note that the facts remain admitted that no expenditure incurred by the assessee as on 31.03.2015. The provision was made on the basis of estimation relating to supply of services and goods by the vendors. The facts and circumstances of the case clearly show that no invoice is received by the assessee from the vendors and no payment was made to the vendors towards services and supply of goods rendered by the vendors as on 31.03.2015. The provision was created by the assessee is only an estimation basis taking into account the quantum of services and supply of goods by the vendors. On an examination of the tabular form which clearly demonstrate the facts of the case in detail which is not disputed by the Revenue therefore in this regard we find the facts and circumstances as referred by the ld. AR in the case of Biocon Ltd. 2022 (4) TMI 795 - ITAT BANGALORE are similar and identical. The assessee received invoices from the vendors to an extent of Rs..24, 76, 17, 968/- only meaning thereby the provision created was in excess by Rs..3, 11, 71, 303/- Rs..27, 87, 89, 271 Rs..24, 76, 17, 968/- . When the payment is made the provision for expenses account shall be debited with Rs..24, 76, 17, 968/- which will leave a credit balance of Rs..3, 11, 71, 303/- in the provisions for expenses account. This remaining credit balance is transferred to profit and loss account. Accordingly the provision for expenses account is shown NIL balance and there is impact on the profit and loss account of the succeeding year by way of income of Rs..3, 11, 71, 303/-. Short deduction of TDS on the excess provision - We find force in the arguments of the ld. AR that no interest could be imposed on excess provision which remained unpaid. Further we note that the said excess provision was transferred to profit and loss account and admittedly there is an impact on the P L account in the succeeding year. Therefore we find when the said excess provision is not paid to any vendor and there is no recipient to the said amount when there is impact on P L account by way of income in our view the Assessing Officer holding short deduction and levying interest on such short deduction is not justified. Therefore we hold that there is no short deduction under section 201 of the Act and the interest under section 201(1A) calculated at 1% per month on such short deduction of TDS for a period of 85 days on the amounts which remained unpaid is not justified and it is deleted. Thus the grounds concerning the issue under section 201/201(1A) of the Act is allowed. Interest u/s 201(1A) imposed on the situation i.e. the actual payment made in the succeeding year is less than the provision amount - We note that admittedly actual payment was made less than the amount of provision made. There is no doubt the TDS was deducted by the assessee at the time of credit or at the time of making actual payment to the vendors of the assessee. We find since the yearend provision was made as on 31.03.2015 the date on which TDS was deductible shall be on 31.03.2015. Thus the assessee is liable to pay interest from that date to the date of actual deduction/payment as per the provisions of section 201(1A) of the Act on the amount of actual payment made. In the present case as already discussed above the provision of Rs..27, 87, 89, 271/- was made as on 31.03.2015 and actual payment was made to an extent of Rs..24, 76, 17, 968/-. Therefore the liability to deduct TDS shall be on the amount of actual payment only. In this scenario following the order of Biocon Ltd. 2022 (4) TMI 795 - ITAT BANGALORE we hold the tax liability upon the recipient will be on the amount to extent of Rs..24, 76, 17, 968/- and accordingly the TDS liability also on the said amount actually paid and interest under section 201(1A) of the Act is liable to be paid on Rs..24, 76, 17, 968/-.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal pertain to the applicability of provisions under sections 201(1) and 201(1A) of the Income Tax Act, 1961, specifically:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability as "assessee in default" under section 201(1) for non-deduction or short deduction of TDS on year-end provisions Legal Framework and Precedents: Section 201(1) of the Income Tax Act treats a person as "assessee in default" if they fail to deduct or pay TDS as required. The Bangalore Tribunal's decision in Biocon Ltd. v. DCIT was extensively relied upon, which elaborates on the accounting treatment of provisions and the consequent TDS implications. Court's Interpretation and Reasoning: The Tribunal examined the nature of year-end provisions created by the assessee, which were based on estimated expenses for goods and services where invoices were not yet received. The Tribunal noted that no actual payment or income accrual had occurred as on 31.03.2015, and the provisions were reversed upon receipt of invoices in the subsequent year. The Tribunal reproduced the accounting scenarios from Biocon Ltd., particularly Situation III, where the actual invoice amount received in the subsequent year was less than the provision created, resulting in a credit balance transferred to the Profit and Loss account as income. Key Evidence and Findings: The assessee created provisions amounting to Rs. 27,87,89,271/- as on 31.03.2015, out of which actual invoices received in the subsequent year amounted to Rs. 24,76,17,968/-, leaving an excess provision of Rs. 3,11,71,303/-. The excess provision was reversed and credited to the Profit and Loss account, impacting the accounts as income. Application of Law to Facts: The Tribunal held that since no payment was made on the excess provision and no income accrued to vendors at the time of provision, the assessee could not be treated as "assessee in default" for non-deduction of TDS on such excess provision. The TDS liability and interest under section 201(1A) could not be imposed on amounts which remained unpaid and only provisioned. Treatment of Competing Arguments: The Revenue contended that since the assessee created provisions and disallowed 30% of the same in its computation, it was liable to deduct TDS. The Tribunal rejected this, emphasizing the accounting and tax principles distinguishing provisions from actual payments. Conclusion: No short deduction of TDS or interest under section 201(1A) was justified on the excess provision amount that remained unpaid and was reversed in the subsequent year. Issue 2: Levy of interest under section 201(1A) on actual payments made less than provisioned amounts Legal Framework and Precedents: The Bangalore Tribunal in Biocon Ltd. clarified that when actual payments are less than provisions, TDS liability arises only on the actual payment amount, and interest under section 201(1A) is payable on such amount from the date TDS was deductible (date of provision) to the date of actual deduction/payment. Court's Interpretation and Reasoning: The Tribunal applied the above principle to the assessee's case where actual payments were less than provisions. The date of TDS deduction liability was fixed as the provision date (31.03.2015), and interest was payable on the actual payment amount for the delay in deduction/payment. Key Evidence and Findings: The actual payments made were Rs. 24,76,17,968/- against provisions of Rs. 27,87,89,271/-. The interest of Rs. 10,45,766/- under section 201(1A) was calculated on the actual payment amount and confirmed. Application of Law to Facts: The Tribunal confirmed the interest liability on the actual payment amount, rejecting the assessee's contention that no interest was payable. Treatment of Competing Arguments: The assessee argued no income accrued and hence no TDS or interest was payable; the Tribunal distinguished the excess provision scenario from the actual payment scenario and held interest was justified on actual payments. Conclusion: Interest under section 201(1A) was rightly levied on the actual payment amount where payment was less than provisioned. Issue 3: Applicability of DTAA provisions and withholding tax on non-resident vendor payments Legal Framework and Precedents: The assessee relied on provisions of DTAA, particularly Article 12 relating to royalties and fees for technical services, arguing that taxability and TDS provisions apply only upon actual payment ("paid" basis) and not on provisions. The MLI and India-Singapore DTAA were cited to support this. Court's Interpretation and Reasoning: The Tribunal acknowledged the assessee's argument but held that the DTAA provisions do not override the Income Tax Act's provisions relating to TDS deduction and interest liability. The Tribunal applied the same principles as in the resident vendor cases, following Biocon Ltd., to hold that TDS and interest are leviable on actual payments and not on provisions. Key Evidence and Findings: The assessee made provisions of Rs. 1,97,15,000/- for non-resident payments as on 31.03.2015, reversed the provision on 01.04.2015, and actual payments amounted to Rs. 1,18,63,000/-. The Assessing Officer levied TDS and interest on the balance unpaid provision, which the Tribunal deleted. Application of Law to Facts: The Tribunal held no TDS or interest was leviable on the unpaid provision amount, but interest under section 201(1A) was payable on the actual payment amount for delayed deduction/payment. Treatment of Competing Arguments: The Tribunal rejected the assessee's contention that DTAA provisions preclude TDS liability on actual payments, emphasizing that TDS provisions under the Income Tax Act apply independently. Conclusion: TDS and interest under sections 201/201(1A) apply on actual payments to non-resident vendors, not on provisions; DTAA provisions do not exempt the assessee from these liabilities. Issue 4: Limitation ground raised by the assessee The assessee did not press this ground, and it was dismissed accordingly. 3. SIGNIFICANT HOLDINGS "The effect of making provision in a year is that the 'Profit and Loss account' of the year in which the said provision is made will absorb the relevant expenses to the extent so provided for, i.e., those expenses will not get shifted to the next year when the payment is actually made. The profit and loss account of succeeding year will not be affected by the amount of provision made, if the actual payment made is equal to or in excess of the provision amount. However, if there is no requirement of making any payment or if the payment made is less than the amount provided for, then the Profit and Loss account of the succeeding year shall be affected to the extent of the amount transferred from 'Provision for expenses a/c' to the credit of Profit and loss account." "In the subsequent year, the assessee receives bill for Rs. 750/- only, meaning thereby, the provision created was in excess by Rs. 250/-. When the payment is made, the Provision for expenses account shall be debited with Rs. 750/-, which will leave a credit balance of Rs. 250/- in the Provision for Expenses account. This remaining credit balance will be transferred to the Profit and Loss account. Accordingly, the Provision for expenses account will show NIL balance and there will be an impact on the Profit and Loss account of the succeeding year by way of income of Rs. 250/-." "It is a sine qua non for a vicarious tax deduction liability that there has to be a principal tax liability in respect of the relevant income first." "Since yearend provisions are made on estimated basis, following five scenarios may emerge at the time of making actual payments in the succeeding year:- (a) The actual payment made in the succeeding year is more than the provision amount. (b) The actual payment made in the succeeding year is less than the provision amount. (c) No payment is required to be made, since it was ascertained that there is no liability to pay the Amount. Accordingly, entire amount of provision is reversed in the succeeding year. (d) Payment has not yet been made in the succeeding year, even though the liability is acknowledged. However, the TDS was deducted/paid in the succeeding year. (e) Payment has not yet been made in the succeeding year, even though the liability was acknowledged. However TDS was not deducted in the succeeding year." "The date on which TDS was deductible shall be the date of provision (year-end). The assessee shall be liable to pay interest from that date to the date of actual deduction/payment as per the provisions of section 201(1A) of the Act on the amount of actual payment made." Final determinations on each issue are:
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