9911796707
TMI Blog2022 (8) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... e method of calculation of interest u/s.201(1A). Needless to say that assessee may be given opportunity of being heard. Appeal by the assessee is allowed for statistical purposes. - ITA No.498/Bang/2020 - - - Dated:- 25-8-2022 - Shri George George K., Judicial Member And Ms. Padmavathy S, Accountant Member For the Appellant : Shri Neeraj K. Jain, Advocate For the Respondent : Shri Bijoy Kumar Panda, CIT(DR)(ITAT), Bengaluru. ORDER PER PADMAVATHY S., ACCOUNTANT MEMBER This appeal is against the order of the CIT(Appeals), Bengaluru- 14, dated 7.2.2020 for the assessment year 2013-14 on the following grounds:- 1. That on the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) [CIT(A)] erred in not holding that the impugned order passed by the assessing officer under sections 201(1) and 201(1A) of the Income Tax Act, 1961 ( the Act ) was illegal, beyond jurisdiction and bad in law. 2. That the CIT(A) erred on facts and in law in confirming the order passed by the assessing officer under sections 201(1) and 201(1A) treating the appellant as `assessee-in-default' for not deducting tax at source under section 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not appreciating that once tax is paid by the appellant by making suo-motu disallowance under section 40(a)(ia), then, the same cannot be subject to the TDS provisions again so as to demand tax under the provisions of section 201 and also levy interest under section 201(1A), rendering provisions of section 40(a)(ia) of the Act otiose. 10. Without prejudice, the CIT(A) failed to appreciate that tax was not required to be deducted on payments aggregating to Rs.1,33,59,888, pertaining to (a) purchase of materials; (b) provision made qua parties having Nil withholding certificates; and (c) provision for transport vendors on whom TDS provisions does not apply in terms of section 194C(6) of the Act. 11. That the CIT(A) erred on facts and in law in confirming the levy of interest of Rs.66,28,329 under section 201(1A) of the Act, in respect of tax allegedly deductible but not deducted and delayed remittance of tax by the appellant in respect of the aforesaid year end provisions. 12. The appellant craves leave to add, alter, amend, or vary the above grounds of appeal at or before the time of hearing. 2. The assessee is a company engaged in the business of manufacture and sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194C 9,73,15,961 19,46,319 19,09,028 37,291 8,950 1941 2,02,94,286 20,29,429 19,91,005 38,424 9,222 194J 31,48,42,587 3,14,84,259 51,65,829 2,63,18,430 63,16,423 194H 2,40,16,353 24,01,635 24,01,635 Nil - 195 36,83,938 3,68,394 4,32,448 Nil - 46,01,53,125 3,82,30,036 1,18,99,945 2,63,94,145 63,39,545 4. Aggrieved, the assessee preferred appeal before the CIT(Appeals) and explained the accounting procedure followed by the assessee. The assessee reiterated the submissions made before the AO that the provisions are made on estimate basis, though these provisions were identifiable headwise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n created for payments where parties are not identifiable 23,92,47,351 57,41,936 In view of para 9.3 of Biocon, since the parties were not identifiable, the provisions of Chapter XVII-B were not applicable and provisions of section 201 cannot be attracted. 63 2. Provision was created but no invoices received from the vendors 1,16,86,311 5,92,659 falls under scenario (c) described in Biocon. Accordingly, since no amount was ultimately found to be payable, there was no requirement to deduct TDS and hence, the provisions of section 201 were not applicable (refer Para 10.3 of Biocon). 68 3. Provision created for payments made for purchase of material - TDS not applicable 9,46,447 The aforesaid payments pertain to purchase of certain raw material which were not subject to TDS under the Act. Accordingly, the appellant rightly did not deduct TDS on the said payments and there is no noncompliance to this extent. 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licability of section 201(1) and interest u/s. 201(1A) under various scenarios. 9. The ld. DR submitted that the assessee has itself admitted that it is liable to deduct tax at source and on that basis the assessee has disallowed the impugned provisions for expenses u/s. 40(a)(ia). The ld DR therefore submitted that the assessee cannot now deny the tax deduction liability on the provisions. With regard to interest u/s. 201(1A), the ld. DR relied on the decision in the case of IBM India P. Ltd. (supra) . 10. We have considered the rival submissions and perused the material on record. The coordinate Bench of the Tribunal in the case of Biocon Ltd. (supra) has considered identical issue relating to deductibility or otherwise of tax at source on yearend provisions and has held as under:- 5. Still aggrieved, the assessee has filed this appeal before us. The assessee s contentions are that (a) The assessee is not liable to deduct tax at source from the yearend provisions (b) The Provision for expenses included the commission expenses payable to non-resident commission agents and they are not liable to tax in India in their hands. Hence the provisions of sec.195 are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged by an advocate and provide for it in the books of account as at the year end. 6.1 The accounting practice followed in this regard is that the Concerned expenses account shall be debited and Provision for expenses account shall be credited. The book rule of accounting practice is to debit Provision for Expenses account with the payment made in the succeeding year. Since the expenses are provided for on estimated basis, four possible situations shall arise in the succeeding year, when payment is made. We explain the same by way of illustrations:- Let us assume that provision for expenses is made for Rs.1000/- towards a particular expense as on 31.3.2012 and the above said amount was determined on estimated basis. (a) Situation I:- In the subsequent year, the assessee receives bill for Rs.1000/-. Accordingly, when the payment is made Provision for expenses account shall be debited with Rs.1000/-. In this situation, the Provision for expenses a/c will show NIL balance after the payment. There will not be any impact on the Profit and Loss account of the succeeding year. (b) Situation II:- In the subsequent year, the assessee receives bill for Rs.1,200/-, meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the provision for expenses so created as at the yearend immediately on the first day of succeeding year. For example, yearend provisions created as on 31.3.2012 shall be reversed on 01- 04-2012. Thereafter the expenses shall be booked as and when the invoice is accounted/payment is made in the succeeding year. This modern days practice is followed only for convenient sake only. It can be noticed that the impact on the profit and loss of the year in which provision for expenses was created and also on the profit and loss of the succeeding year would be the same as discussed in the preceding paragraph, if the actual payment is made before the closure of the succeeding year. There will be a difficulty/risk in this modern days practice if the actual payment is not made before the closure of accounting year of the succeeding year against an acknowledged liability. In that kind of situation, the assessee should provide for the same again as at the year end of the succeeding year, which may sometimes lead to tax complications. 6.3 An argument was advanced that there will be no liability to deduct tax at source on the yearend provisions made as on 31.3.2012, since the same is reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s available in all other provisions requiring deduction of tax at source. 7.2 The question as to whether the above said clause available in various TDS provisions shall apply even to Provision for expenses created at the yearend was examined by the co-ordinate bench in the case of IBM India Private Ltd vs. The ITO (TDS) (ITA Nos. 749 to 752/Bang/2012 dated 14.05.2015) and the said question was decided as under:- 29. Sec. 194C applies when payment is made to contractor. The point of time at which tax had to be deducted at source is at the time of credit to the Account of contractor or payment in cash or cheque, whoever is earlier. Sub-section (2) of Sec. 194-C lays down that where any sum referred to in sub-section (1) is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Similar provision such as Sec. 194(2) exists in Sec. 194H Explanation (ii) of the Act which applies when the payment made is in the nature of commission or brokerage, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the income tax act the tax is required to be deducted as and when assessee becomes responsible for payment of above sum to other parties. The claim of the assessee is that it is maintaining its books of account on accrual basis of accounting and therefore the amount is required to be provided for. When the expenditure incurred by the assessee, the corresponding liability definitely arises for payment of such expenditure. The amount of expenditure incurred can be determined only if, there is a recipient identified of the sum, there is a methodology available for working out the amount payable by the assessee to the recipient, there is a corresponding liability arising out of the existing contract or customs by the assessee with the recipient. If generally these ingredients are not satisfied assessee cannot be said to have incurred the expenditure. In absence of one of one of these criteria, if provision is made, it is not an ascertained liability but an unascertained liability, which does not satisfied the concept of accrual of expenditure. There may be reasons for receiving the bills by the service providers after certain time lag but that does not absolve the assessee fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force. Explanation:- For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called Interest payable account or Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of payee and the provisions of this section shall apply accordingly. A plain reading of above provision clearly shows that the person responsible to pay the interest is liable to deduct tax at source at the time of credit or payment, whichever is earlier. It is pertinent to note that the section uses the term any income by way of interest . The interest payment may constitute expenditure in the hands of the person making the payment, while it may constitute income in the hands of the payee/recipient. Since the section uses the term any income by way of interest , in our view, it should be viewed from the angle of the recipient/payee and not from the angle of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the previous year, then the expenditure cannot be claimed as a deduction. Sec. 200(1) appears in Chapter XVII-B of the Act and it provides that any person deducting any sum in accordance with the foregoing provisions of this Chapter i.e., Chapter-XVII-B shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. Sec.201(1) of the Act is triggered when if any such person referred to in section 200 does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax. The contention of the learned DR that the assessee having admitted its default u/s 40(a)(i) 40(a)(ia) of the Act, cannot in proceedings u/s 201(1) of the Act, be heard to say that there was no default under Chapter XVII-B of the Act is therefore correct. The disability u/s 40(a)(i) 40(a)(ia) of the Act and the liability u/s 201(1) of the Act cannot be different and they arise out of the same default. Once there is disallowance u/s 40(a)(i) 40(a)(ia) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur , be deemed to be an assessee in default within the meaning of sub-section (1) of section 201, in respect of such tax. In view of the above said explanation given under sec.191 of the Act, the provisions of sec.201 are triggered when the assessee is deemed to be an assessee in default . Further this explanation makes it very clear that this liability is without prejudice to any other consequences which he may incur . The assessee can escape from the disallowance to be made u/s 40(a)(i)/40(a)(ia), if he is not treated as an assessee in default . In our considered view, the converse is not true, i.e., if the assessee makes disallowance u/s 40(a)(i)/40(a)(ia), he will not be exonerated from the liability u/s 201 of the Act. 8.5 Another pertinent point to be noted is that the disallowance required to be made u/s 40(a)(i)/40(a)(ia); penalty to be levied u/s 271C/271CA are the direct liabilities, i.e., liabilities which are directly imposed upon the assessee due to his failure. On the contrary, the demand raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x at source at the time of accounting the invoices/bills or at the time of making payment in the succeeding year. It was further held that the assessee would be liable to pay interest u/s 201(1A) of the Act, in view of the delay in deduction/remittance of TDS amount. Following the above said decision, we also hold so. 9.1 The Ld A.R expressed the view that there are certain practical difficulties involved in complying with the provisions of TDS. He prayed that the Tribunal may clarify the law on the practical difficulties. We shall address them one by one. The first difficulty pointed out by him is that the payees are not identifiable in respect of certain expenses, even though the same has been included in the yearend provisions. We have noticed earlier that the provision for expenses have been created by the assessee for the liability towards (a) Contract expenses covered by sec. 194C (b) Professional fees covered by sec. 194J (c) Rent expenses covered by sec. 194I (d) Commission expenses covered by sec.194H (e) Payments to non-residents covered by sec. 195 The Ld CIT(A) rejected this submission of the assessee with the following observations:- 4.2 With r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether the bank is liable to deduct TDS on the interest income credited to the above said Fixed deposit. The bank s case was that the Registrar General was merely a custodian of the funds on behalf of the High Court and the Registrar General per se was neither an assessee nor he was beneficiary entitled to receive any interest on the fixed deposits. Under these facts, the Hon ble Delhi High Court held that if TDS is deducted that would amount to recovery of tax without corresponding income being assessed in the hands of any assessee. In the absence of ascertainable assessee, the machinery of recovering tax by deduction of tax at source breaks down because it does not aid the charge of tax u/s 4 of the Act, but takes a form of a separate levy, independent of other provisions of the Act, which is not permissible. Therefore, it can be seen that the decision of the Hon‟ble Delhi High Court has been rendered in the peculiar facts prevailing in that case. (b) The next decision is of Hon‟ble Karnataka High Court in the case of Karnataka Power Transmission Corporation Ltd (383 ITR 59). In this case, the assessee before Hon ble High Court of Karnataka made provision towa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce annually on a date other than the date of closure of accounts but the assessee will have no means to find out as to who could be the recipients of 'interest due but not payable' in respect of 'regular return bonds' because while assessee's liability to pay interest @ 16 per cent is certain and is to be made as on 31st March, i.e., on the end of the relevant accounting year, the bonds in question being freely transferable, it cannot ascertain as to who will be the registered bondholder as on 15th May of that year. The assessee cannot be expected to have clairvoyance of knowing, as on 31st March, as to who will own the bonds on 15th May of that year. Therefore, in such a situation while the assessee certainly has the liability to pay the interest for the period till the end of the relevant accounting year, the assessee certainly does not know for sure as to who will be entitled to receive this interest In our humble understanding, conceptually, liability of TDS is in the nature of a vicarious or substitutionary liability which presupposes existence of a principal or primary liability. Chapter XVII-B is titled 'Collection and recovery of tax--Deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the cheque or warrant is issued which presupposes that at the stage of tax deduction the tax deductor knows the name of person to whom the credit is to be given though whether by way of credit to the account of such person or by way of credit to some other account. This again shows that TDS liability is a vicarious liability to pay tax on behalf of the person who is to be beneficiary of the payment or credit, with a corresponding right to recover such tax payable from the person to whom credit is afforded or payment is made. It would be thus seen that the whole scheme of TDS proceeds on the assumption that the person whose liability is to pay an income knows the identity of the beneficiary or the recipient of the income. 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, and a principal tax liability can come into existence when it can be ascertained as to who will receive or earn that income because the tax on the income and in the hands of the person who earns that income. In this view of the matter, TDS mechanism cannot be put into practice until identity of the person in whose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clear that even when such a practice is adopted the credit will be deemed to be credit to the payee's account. In our considered view, fiction embodied in the Explanation is only applicable in situations in which tax deduction liability is sought to be escaped by crediting interest to some other account other than that of recipient of interest. In our considered view, Explanation to Section. 193 cannot be invoked in a case where the person who is to receive the interest cannot be identified at the stage at which the provision for interest accrued but not due is made. This position is also accepted by the CBDT, as evident from its letter dt. 5th July, 1996 addressed to the Tata Iron and Steel Co. Ltd. (Letter No. 275/126/96 IT (B)], which, inter alia, states as follows: I am directed to refer to your letter ref. 3A 13-21/1460 dt. 23rd May, 1996, on the above subject, and to say that difference between the issue price of Rs. 5,000 and face value of Rs. 25,500 is in the nature of interest subject to provisions of Sections 193/193A. Although the company would be making provisions for interest on year to year basis in their books of account, there will be no deduction of tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if the assessee, in the present case, is able to prove that the payees could not be identified in respect of particular expenses, then the mechanism provided under Chapter XVII-B would fail and hence the AO is not entitled to demand tax u/s 201(1) and interest u/s 201(1A) in respect of those expenses. 10. The second practical difficulty expressed by Ld A.R is that the yearend provisions are made on estimated basis and hence there might be difference between the estimate so made and the actual payments finally made. Under these circumstances, the question that arises is how the provisions of sec.201 could be applied. In our view, the Ld A.R has raised a valid point. Since the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India (supra), wherein it was held that 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. In this scenario, the principal tax liability upon the recipient will be on the amount of Rs.800/- only. Accordingly, the TDS liability will also on the above said amount actually paid and consequently, the interest u/s 201(1A) shall be leviable on Rs.800/-. 10.3 The third scenario is that no payment was required to be made in the succeeding year, since it was ascertained that there was no liability to pay the Amount. Accordingly, entire amount of provision was reversed in the succeeding year. In this scenario, there will no liability to deduct tax at source from the amount of provision created as on 31.3.2012, as it was found that the said amount is not payable at all to anyone. Hence this provision amount cannot be linked to any payee, in which case, there will not be any liability to deduct tax at source from the provision amount. Hence, in our view, the provisions of sec.201 will not be applicable in this scenario. 10.4 The fourth scenario is that the payment was not yet made in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion created for parties covered under section 172 of the Act vi. Provision created for parties covered under section 194C(6) of the Act vii. Provision created for parties to whom payment was made on receipt of Invoice in subsequent year after deduction of TDS 13. The above break-up of provision for expenses needs to be examined factually based on evidences in order to decide the applicability of TDS provisions. We therefore remit this issue back to the AO for verification of each of the above line item of the break-up of details based on evidences and examine the issue factually for deciding the applicability of TDS provisions. The AO is directed to keep in mind the ratio laid down by the coordinate bench of the Tribunal in the case of Biocon Ltd. (supra) which is followed in assessee s own case for the assessment year 2012-13 and 2013-14 wherein the Hon ble Tribunal has envisaged various scenarios with regard to the liability to deduct tax at source, the levy u/s.201(1) and the method of calculation of interest u/s.201(1A). Needless to say that assessee may be given opportunity of being heard. 14. In the result, the appeal by the assessee is allowed for statistical ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
