2016 (5) TMI 1228 - AT - Income Tax

Non-deduction of tax at source on year end provision - Held that - Tribunal for the A.Y.2007-08 in assessee s own case, wherein the Tribunal while relying upon another decision of coordinate bench of the Tribunal in the case of IDBI Vs. ITO, (2006 (7) TMI 248 - ITAT BOMBAY-H ) has held that since the payee is not identifiable at the time of making of provision and further the entire provision has been written back in the next year and the actual amounts paid/credited were subjected to TDS as and when the liability was crystalised or the payments were made and even when the assessee himself had disallowed the entire amount in the computation of income upon which no TDS was deducted, in that event proceeding u/s.201(1) and the levy of interest u/s.201(1A) was not justified. Thus appeals of the revenue relating to disallowance made on account of nondeduction of TDS on year-end and provision are hereby dismissed. - Decided in favour of assessee Non-deduction of tax at source on purchase of traded goods and packing material - Held that - The provisions of Chapter XVII B of the Act cannot be said to be applicable on purchase of finished/traded goods Accordingly, there is no default on the part of tile Appellant in complying with the provisions of Chapter XVII-B of the Act while making payment for purchase of finished/traded goods and Purchase of Packing Material without deducting tax at source This ground of appeal is allowed in favour of the appellant. - Decided in favour of assessee

Summary

Issues Involved:
1. Non-deduction of tax at source on year-end provisions.
2. Non-deduction of tax at source on purchase of traded goods and packing material.
3. Levy of interest under section 201(1A).
4. Validity of two separate orders passed by the AO for the same assessment year.

Issue-wise Detailed Analysis:

1. Non-deduction of Tax at Source on Year-end Provisions:
The assessee, engaged in manufacturing and trading of pharmaceuticals, chemicals, and animal health products, was found during a survey to have not deducted TDS on accrued liabilities for which provisions were made in the profit and loss account. The AO initiated proceedings under sections 201(1) and 201(1A) of the Act, raising demands for tax and interest. The assessee argued before the CIT(A) that these were mere estimations reversed in the subsequent year, and since the parties were not identifiable at the time of making provisions, TDS was not applicable. The CIT(A), relying on the Tribunal's order in the assessee’s own case for A.Y.2007-08, decided in favor of the assessee. The Tribunal upheld this decision, noting that since the payee was not identifiable at the time of making the provision and the entire provision was written back in the next year with actual amounts subjected to TDS, the proceedings under sections 201(1) and 201(1A) were not justified.

2. Non-deduction of Tax at Source on Purchase of Traded Goods and Packing Material:
The AO raised demands on the purchase of traded goods, packing material, and clinical trials. The CIT(A) ruled in favor of the assessee, concluding that the contracts for the purchase of traded goods were not works contracts and thus not subject to TDS. This decision was supported by the Tribunal, which referenced the jurisdictional High Court decisions in similar cases. For packing material, the CIT(A) referred to the High Court’s decision in BDA Ltd vs. ITO, holding that TDS was not required. Regarding clinical trials, the CIT(A) directed the AO to verify the breakup of expenses and concluded that payments for professional/technical services were subject to TDS under section 194J, allowing credit for taxes already paid. The Tribunal affirmed the CIT(A)'s order based on established legal principles.

3. Levy of Interest under Section 201(1A):
Given the dismissal of the revenue's grounds regarding non-deduction of TDS, the Tribunal ruled that no interest under section 201(1A) was required.

4. Validity of Two Separate Orders Passed by the AO for the Same Assessment Year:
The assessee contended that two separate orders passed by the AO for A.Y.2009-2010 on the same issue were not sustainable. The CIT(A) rejected this contention, noting differences in the amounts mentioned in the orders. However, since the Tribunal dismissed the revenue's appeals for A.Y.2009-2010, the cross-objection by the assessee was rendered academic and dismissed as infructuous.

Conclusion:
The appeals of the revenue and the cross-objection of the assessee were dismissed. The Tribunal upheld the CIT(A)'s decisions, affirming that TDS was not required on year-end provisions and purchases of traded goods and packing material, and no interest under section 201(1A) was applicable. The cross-objection regarding the validity of two separate orders for the same assessment year was dismissed as academic.