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TMI Blog2022 (2) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... milar 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these appeals are being disposed off by way of a common order. For sake of convenience, grounds pertaining to assessment year 2012-13 are reproduced as under. 1. The order of the learned CIT(A) LTU is opposed to facts of the case and is bad in law. 2. The learned CIT(A) and ITO have erred in facts and in law by failing to appreciate that the 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. 3. The learned CIT(A) and ITO have erred in facts and in law by failing to appreciate that the obligation to deduct tax at source did not arise in respect of those items provided for on 31 March 2012 (i.e., year-end provisions) and which were subsequently reversed. 4. The learned CIT(A) erred in upholding interest levy under section 201(1A) of the Income-tax Act, 1961 ['the Act]. 5. Without prejudice to the above, the learned CIT(A) and ITO have erred in levying interest under section 201(1A) of the Act until the date of passing the order under section 201(1) of the Act; wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxes were deducted and remitted to the Government account after 31/03/2012 as indicated in the statement furnished before the Ld. ITO(TDS). It was further submitted that ₹ 4,47,09,666/- was provision created on 31/03/2012 on which no TDS was deducted as the final amount was not ascertainable. It was submitted by the assessee that subsequently the same was reversed as on 31/12/2012, upon receipt of invoices from the parties and applicable TDS was deducted, that stood deposited in the Government account. The assessee also submitted that one payment made to TATA Communications there was short deduction. It was submitted that there was one another payment pertaining to ESI corporation on which there was no liability to deduct any tax at source. The Ld. ITO(TDS) observed and held as under: In response to notice the assessee's Authorized Representative Sri. Ananth CA appeared before the undersigned and furnished the details of subsequent payments made in respect of disallowances U/s. 40(a) (ia) and 40(a) (i) of the IT Act and the case was discussed. It is noticed from the computation of income that ₹ 7,08,24,466/- was disallowed u/s. 40(a) (ia) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. With regard to the levy interest u/s. 201(1A) the appellant has strongly contested the levy. It has been submitted that at best the interest could be charged only upto the date of actual payment of TDS. However, the appellant's arguments do not take into account the fact that there has been shifting or postponement of the period of tax deduction in the method followed by the appellant in accounting for services received as a provision (without TDS) followed by payment as per invoices (with TDS). This aspect has been noted by the Hon'ble ITAT, Bangalore also in the IBM India judgment referred to supra. The Hon'ble ITAT has upheld the levy of interest u/s. 201(1A) made upto the date of passing of the impugned orders by the AO. I find no reason, therefore, to interfere with the AO's method of computation of interest. 16. For AY 2012-13 the company deducted taxes at source (albeit in the next financial year) in respect of ₹ 3,25,21,444 included in the total provision of ₹ 4,48,04,866 since invoices pertaining to this amount were received in the subsequent financial year and payments released after TDS. For the remaining provision of ₹ 1,22,83,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that it is mandatory to provide such provisions in terms of AS-29 issued by the CAI. The Ld. Counsel for the assessee submitted as under: a) That no income accrued to the payees and a mere provision was made in the books of accounts at the year end. The existence/accrual of income in the hands of payee is a pre-condition to fasten the liability of tax deduction at source in the hands of the payer. b) That though the provision was debited to the P L Account, assessee while filing the return of Income had suo moto disallowed the entire provision under section 40(a)(i)/(ia) of the Act. 6. In support he placed reliance on following decisions: Decision of Hon'ble Tribunal in case of Pfizer Ltd. vs. ITO(TDS)(OSD) reported in (2012) 28 taxmann.com 17; Decision of Hon'ble Tribunal in case of IDBI v. ITO reported in (2007) 107 ITD 45; 7. On the contrary, the Ld. CIT DR placed reliance on following decisions: Decision of coordinate bench of this Tribunal in case of IBM India (P).Ltd. vs. ITO(TDS) reported in (2015) 59 taxmann.com 107 Decision of Hon'ble Cochin Tribunal in case of Agreenco Fiber Foam (P.) Ltd. vs. ITO (TDS) reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) The recipient has paid the tax due on the income declared by him in such return of income; And the person furnishes a certificate to this effect from an accountant in such form as may be prescribed. As the section 201(1) is to be read, one must keep in mind that these provisions seeks to make good any loss of revenue, from an assessee wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 amounting to ₹ 3,25,21,444/- 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.(supra), 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. This Tribunal in case of IBM(supra) observed and held as under: The learned counsel for the Assessee at the outset brought to our notice that pending disposal of the appeals, the Assessee had furnished before the AO, details regarding the actual payment of TDS in subsequent financial year, on the provisions made in the various financial years. These details were verified by the AO. The AO has addressed a letter to the DR in which the AO after verification has found that the Assessee had deducted tax at source at the time when the provision made in one financial year is subsequently reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payee and the provisions of this section shall apply accordingly. Similar provisions/explanation is also to be found in other sections relating to TDS. Thus, it can be seen that the assessee company has failed to deduct tax at source on the provisions made by it as at 31st March within the stipulated time. The assessee company has deducted tax at source on these amounts in the subsequent year as and when the same were paid by it. Thus, it is liable for charging of interest u/s. 201(1A) for delayed deduction and remittance of tax to Govt. account. (emphasis supplied) 24. In view of the above, the demand on account of tax u/s. 201(1) of the Act, in our view, will no longer survive. However the appeals will survive with regard to the liability of the Assessee to interest u/s. 201(1A) of the Act. Therefore the appeals in so far as it relates to challenge to order u/s. 201(1) of the Act have to be allowed. Respectfully following the same we also hold the present assessee cannot be treated to be an assessee in default to the extent TDS has been effectuated though in subsequent financial year. 14. Now the issue that needs to be considered is in a situatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 210 (1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the assessee claiming deduction. The reasoning of the Tribunal that the deductor nor the deductee had paid the tax on the provision amount and the provisions of Sections 201 and 201(1) of the Act are attracted is held to be not acceptable. Thus, it has been held that if no income is attributable to the payee, there is no liability to deduct tax at source in the hands of the tax deductor. The interest being not paid to the payees/suppliers and the same having been reversed in the books of accounts, it was categorically observed that there would be no liability to deduct tax as no income accrued to the payees. 16.2. In a recent decision on similar facts before Hon'ble Karnataka High Court in case of Volvo India Pvt. Ltd. vs. ITO(TDS), in ITA no. 369/2018 by order dated 15/11/2021, the Revenue argued regarding interplay of Section 40(a)(ia) and 194C would make it clear that the default by a person in compliance of the requirements of the provisions contained in Part B of Chapter-XVII of the Act leads, that when the obligation of Section 194C of the Act is not complied with, the consequences under Section 40[a][ia] will operate. The Revenue sought to rely on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as noticed, puts such defaulting person in the category of the assessee in default in respect of the tax apart from other consequences which he or it may incur. The aspect relevant for the present purpose is that section 40 of the Act, and particularly the provision contained in sub-clause (ia) of clause (a) thereof, indeed provides for one of such consequences. 16.1 section 40(a)(ia) provides for the consequences of default in the case where tax is deductible at source on any interest, commission, brokerage or fees but had not been so deducted, or had not been paid after deduction (during the previous year or in the subsequent year before expiry of the prescribed time) in the manner that the amount of such interest, commission, brokerage or fees shall not be deducted in computing the income chargeable under profits and gains of business or profession . In other words, it shall be computed as income of the assessee because of his default in not deducting the tax at source. 16.2 In the overall scheme of the provisions relating to collection and recovery of tax, it is evident that the object of legislature in introduction of the provisions like sub-clause (ia) of clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Agreenco Fiber Foam (p.) Ltd. vs. ITO(TDS) (supra) relied by the Ld. Sr. DR. 18. Further Hon'ble Kolkata Tribunal in case of Ramkrishna Vedanta Math vs. ITO reported in (2013) 55 SOT 417 decided an issue whether, a demand under section 201(1A) r.w.s. 194C can be enforced even in a situation in which the recipient of income embedded in the payments has paid due taxes thereon, and, if not, who has the onus to demonstrate that status about payment of such taxes. Relying on decision of Hon'ble Allahabad High Court's judgment in the case of Jagran Prakashan Ltd. Vs DCIT reported in (2012) 21 taxmann.com 489, the Counsel for the assessee argued that the onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primary liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Ld. Counsel therein contended that once all the details of the persons to whom payments have been made, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which seeks to make good any loss to revenue on account of lapse by the assessee tax deductor. However, the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient of income has not paid tax. Therefore, recovery provisions under section 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereon. In the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same. The provisions to make good the shortfall in collection of taxes may thus end up being invoked even when there is no shortfall in fact. On the other hand, once assessee furnishes the requisite basic information, the Assessing Officer can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income. It is not the revenue's case before us that, on the facts of this case, such an exercise by the Assessing Officer is not possible. It does put an additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ademic in nature, as we have already held that demand under section 201 cannot be raised once the entire amount has been disallowed in the computation of income under section 40(a)(i) and 40(a)(ia). In view of this even though the contention is correct being a legal issue, there is no need for adjudicating the matter as the grounds raised have been held in favour of assessee. AO is directed to delete the said demand so raised. Appeal is accordingly allowed. In the present facts, there is no loss to the revenue in the year in which provision is created, since the assessee before us is stated to have disallowed the entire provision under section 40(a)(i)/(ia) of the Act on which TDS could not be effectuated. All details of payee and the details regarding when subsequently the actual payments were effectuated on receipt of Invoice/bill, was submitted before the Ld. AO. The Ld. AO without verifying the same levied interest under section201(1A) of the Act. Then, the question that arises to our minds that, is it logical to put such assessee(deductor) into double jeopardy by casting the liability under chapter XVII-B on an assumption of non payment of taxes on income embedded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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