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TMI Blog2017 (10) TMI 1565X X X X Extracts X X X X X X X X Extracts X X X X ..... in treating reversal of provision for expenditure and unutilized amount of provision as liable to deduction of tax at source unable to be agreed since the AO has not discussed liability for tax deduction on the 'reversal of provision' but on the 'creation of provision' itself before the end of FY 2011-12. This, as has been held in the paras above, was a point at which the IT Act, the Tax Auditor as well as the appellant itself had clearly agreed with the liability for tax deduction. This ground, therefore, fails. Where the provisioned amount was higher than the invoice amount, the balance has clearly not suffered tax. Since it has been held supra that the liability for tax deduction existed on the company at the time of making the provision, the default for non-deduction of tax at source is to be limited only to the surplus over and above the invoice amount. As the assessee has made disallowance u/s. 40a(ia) and it means that the assessee has admitted its default u/s. 40(a)(ia) and therefore, in the proceedings u/s. 201 and 201(1A), the assessee cannot argue that there was no liability under chapter XVII-B. Since none of the judgments cited by ld. AR of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer TDS, LTU, Bangalore has erred in raising the demand on the appellant to recover the tax alleged to have not deducted. 3.2 The learned CIT(A) LTU and the learned Income tax officer (TDS), LTU Bangalore has erred in not appreciating that (i) section 201 does not in any manner authorize to recover the amount of tax not deducted; (ii) the recipient of income is liable to pay the tax directly as per the mandate of section 191 and consequently, no tax can be recovered from the deductor. 3.3 On facts and in the circumstances of the case and law applicable, no tax can be recovered from the appellant (deductor) and consequently, the demand raised on the appellant is to be held as bad in law. Without prejudice and on merits, 4.1 The learned CIT(A) LTU, Bangalore has erred in confirming the action of Income-tax Officer, LTU (TDS), Bangalore in concluding that reversal of provisions and unutilized amount of provision totally amounting to ₹ 8,71,32,988/- is liable for deduction of tax at source. 4.2 The learned CIT(A) LTU and the Income tax Officer, LTU (TDS) Bangalore has erred in (a) treating reversal of provision for expenditure as liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions were created by book entries towards contingent interest payable for assessment years 2005-06 and 2006-07 and a corresponding reversal entries were made in the books of account during the financial year 2007-08 and under these facts, it was held that there would be no liability to deduct tax u/s. 194A as no income has accrued to the suppliers. He further placed reliance on a Tribunal order rendered in the case of M/s. Bosch Limited Vs. ITO in ITA No. 1583/Bang/2014 dated 01.03.2016 copy available on pages 164 to 181 of paper book. Regarding the facts of this case, he drawn our attention to para No. 9 of the order where it is noted that the provisions were made at the end of the year and the same were reversed in the beginning of the next accounting year. At this juncture, a query was raised by the bench as to what is the date of reversal of the provision in the present case. In reply, the ld. AR of assessee submitted that these details are not readily available but he will obtain those details from assessee and furnish the same. Later, the ld. AR of assessee has submitted those details along with letter dated 04.10.2017 as per which the first reversal was made on 30.09.2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of TDS shall apply accordingly. This means, in effect, that even the amounts credited to the 'provision' account instead of party account by the appellant are clearly within the liability for tax deduction under the IT Act. 6.1 With regard to the appellant's claim that the identity of the recipients was not known and, hence, it could not have deducted tax on the provisioned amounts, I find that the facts and probability largely belie this claim. It is commonsensical to expect that the appellant's creation of the provision for the services received in order to obtain a correct view of its profit at year end was not based on any arbitrary or whimsical estimate. It is clear from the provisioned expenses that the estimate has followed from pre-existing contracts with known parties for identified services and, hence, the accounting of amounts liable to be paid to these parties for services availed as per known terms of transaction is a specific exercise which carries with it the statutory responsibility for deducting tax at source also. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited by him is a judgment of Hon'ble Karnataka High Court rendered in the case of Karnataka Power Transmission Corporation Limited Vs. DCIT (supra). As per the facts noted in para No. 2 of this judgment, it comes out that during Assessment Years 2005-06, 2006-07 and 2007-08 in question, the assessee has created provisions of ₹ 1765.75 lakhs, ₹ 1240.70 lakhs and ₹ 574.39 lakhs respectively for contingent payment of interest on belated payments to its suppliers and for the first two years, the assessee in its P L account treated the said amount of provision as expenditure to arrive at profit but in the return of income filed for Assessment Years 2005-06 and 2006-07, the assessee did not treat the said amount of provision towards contingent interest payable as expenditure and it arrived at the taxable income without excluding such amounts of provision towards such interest and corresponding reversal entries were made in the books of accounts during the Financial Year 2007-08. Hence it is seen that in this case, provision was made in respect of contingent liability for which no deduction was claimed for computation of income although it was debited to P L acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case, the reversal is not in the beginning of the next accounting year and therefore, it is not acceptable that the income has not accrued to be payee and still the assessee waited for this 6 months minimum to 22 months maximum for reversal of the entry. If the reversal is after income has accrued to the payee, such reversal is not relevant to decide the liability of the assessee for deducting TDS. In the facts of the present case, this tribunal order is not applicable. 9. The second tribunal order cited by ld. AR of assessee is the tribunal order rendered in the case of M/s. TE Connectivity India Pvt. Ltd. Vs. ITO (supra) and we have already noted that the facts in this case are similar to the facts in the case of M/s. Bosch Limited Vs. ITO (supra) because this case also, it is noted by the Tribunal that the provisions were made at the end of the accounting year and were reversed at the beginning of the next year. The Tribunal followed the earlier tribunal order rendered in the case of M/s. Bosch Limited Vs. ITO (supra). We have already seen that in the facts of the present case, this tribunal order rendered in the case of M/s. Bosch Limited Vs. ITO(supra) is not applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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