TMI Blog2015 (6) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 201(1) of the Act and also charge interest under section 201(1A) of the Act. - Decided partly in favour of assesse. - ITA No Nos.229 & 230/PN/2014 - - - Dated:- 30-4-2015 - Sushma Chowla, JM And R. K. Panda, AM,JJ. For the Appellant : Shri C H Naniwadekar For the Respondent : Shri Rajesh Damor ORDER Per Sushma Chowla, JM. Both the appeals filed by the assessee are against the consolidated order of CIT(A)-2, Nashik dated 23.12.2013 relating to assessment years 2007-08 and 2008-09 passed under section 201(1)/201(1A) of the Income-tax Act, 1961. 2. Both the appeals relating to same assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The assessee has raised similar grounds of appeal in both the assessment years and the grounds of appeal in assessment year 2007-08 read as under:- Following grounds are without prejudice to each other. Non Payment of TDS on year end provision ₹ 32,52,781/- 1.0 The learned CIT(A) erred on facts and in law in treating the assessee as assessee in default within the meaning of section 201(1) 201(1A) of the Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings relating to default of the assessee vis- -vis tax deduction of tax at source, the Assessing Officer noted that during the financial year 2006-07, the assessee had paid commission of ₹ 8,03,65,000/- to Executive / Non-executive Directors. Though the assessee had deducted tax at source on payment of commission to the Executive Director of ₹ 7.60 crores, but had not deducted tax at source on payment of ₹ 43,65,000/- made to Non-executive Directors. In reply, the plea of the assessee before the Assessing Officer was that the commission payable to Nonexecutive Directors was not subjected to TDS either under section 194H or 194J of the Act. The Assessing Officer rejecting the explanation of the assessee, was of the view that commission included any payment for services rendered and where the assessee had itself classified the payment as commission and had claimed the same as expenditure, the assessee was liable to deduct tax at source under section 194J of the Act and for such non-deduction of tax at source, the assessee was held to be in default and demand under section 201(1) of the Act was raised at ₹ 2,47,059/- and interest under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med that provision was made on the basis of work completed upto end of the financial year. However, next year, the entire provision was monitored for the bills received and where no such provision was required, then for excess and / or short provision, necessary entries were made in the books of account. As per the assessee, the accounts of respective parties were credited in the next financial year after bills were passed and TDS was deducted as per applicable provisions. In the absence of exact payees and amounts payable to them not being identified before the closure of books of account, the case of the assessee was that the provisions of TDS were not applicable as held by the Mumbai Bench of the Tribunal in Industrial Development Bank of India Vs. ITO (2007) 107 ITD 45 (Mumbai). Further, submissions were made before the CIT(A), which are reproduced under para 5.2 at pages 7 to 14 of the appellate order, which are being referred to but are not being reproduced for the sake of brevity. The CIT(A) observed that the main plea of the assessee was that the provisions of section 194C, 194H, 194I and 194J, 195, etc. were not applicable where the assessee had already disallowed the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of provision made on which TDS was not deducted totaling ₹ 4,90,62,116/-. The learned Authorized Representative for the assessee pointed out that in the subsequent assessment years, the bills for ₹ 3,08,05,951/- were passed and entries to that effect were made and also tax was deducted at source, the balance provision of ₹ 1,52,98,221/- was reversed in the books of account. The learned Authorized Representative for the assessee drew our attention to the decision of Cochin Bench of the Tribunal in Agreenco Fibre Foam (P) Ltd. Vs. ITO (TDS) (supra), which has been relied upon by the CIT(A) and pointed out that under the provisions of section 194A, where any person was responsible for paying to a resident any income, then he was liable to deduct tax on such income. However, the sections under which, the assessee had made the provisions were 194C and 194J of the Act, where the provisions were different i.e. where any person was responsible for paying any sum to any other person, then if it fell within those sections, there was liability to deduct tax at source. It was fairly pointed out by the learned Authorized Representative for the assessee that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respective party accounts were credited in the next financial year after bills were passed and the TDS was deducted as per the applicable provisions of the Act. The assessee claimed that in number of cases, the exact payees and the amounts payable to them could not be identified before closure of books and in the absence of any identified payees, the provisions of TDS were not applicable. 13. The auditor of the assessee in the tax audit report had declared the amounts to be disallowed under section 40(a)(ia) of the Act. The amount disallowed, as per tax audit report was ₹ 4,90,62,115/-, which was added by the assessee in its computation of income. The claim of the assessee was that similar entries were being passed from year to year and were being accepted in the hands of the assessee. The Assessing Officer while completing assessment for the year under consideration had accepted the disallowance or allowances as mentioned in the tax audit report, which in turn was added in the computation of income. The amount was disallowed in the hands of the assessee for the reason that the tax had not been deducted at source and the provisions of section 40(a)(ia) of the Act were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12819106 1350504 13795063 2841278 30805951 Provision reversed Excess / Short Provision 6595845 2578206 6124170 15298221 278418 66063 949925 318791 1613197 TDS Deducted 14. Similar statement has been filed by the assessee for assessment year 2008-09, which is as under:- Sr. No. Particulars Amount Tax reqd to be deducted Tax deducted F.Y. 2008 - 09 Due Data Date of Payment Amount inadmissible TDS not Deducted Bills passed in subsequent FY TDS deducted Provision reversed / Excess / short 1. Conversion / Labour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which tax was deducted at source at ₹ 3,64,024/- and provision to the extent of ₹ 2.29 crores was reversed. 16. The issue which arises for our consideration is whether in such circumstances, where the amount has not been claimed as deductible in the hands of the assessee for the reason that tax had not been deducted at source, then can the provisions of section 201(1) of the Act be attracted and for such default in non-payment of demand so raised, can interest be charged under section 201(1A) of the Act. 17. We find that similar issue of liability of the assessee to deduct tax at source in respect of payments to persons whose identity was not known when the provision for such expenditure was made by the assessee, it was held that there was no requirement to deduct tax at source in respect of such provision. The said proposition was laid down by the Mumbai Bench of Tribunal in IDBI Vs. ITO (supra), which has been applied by another Mumbai Bench of Tribunal in Pfizer Ltd. Vs. ITO (supra) and it was held as under:- 8. We have considered the issue. There is no dispute with reference to the fact that assessee made provision for expenses to an extent of ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3.1994 made a provision for 'interest accrued but not due in respect of regular return bonds and claimed deduction of the same in computation of business income. The assessee further credited the said provision to the interest payable account and reflected the same in the balance sheet. The assessee did not deduct tax at source in respect of the provision so made. The Assessing Officer noticed that the assessee did not deduct tax in terms of provision so made though in terms of the provisions of section 193, particularly read with Explanation thereto, it was required to deduct tax at source from the credit to 'interest payable account' and deposit the same with the Government. The Assessing Officer was of view that the assessee knew the identity of all the bondholders as on 31-3-1994 because it was maintaining a register of bondholders, and, therefore, it could not be said that the assessee did not know the names of the persons to whom interest was to be credited. The Assessing Officer, therefore held that the assessee did not comply with provisions of section 193 and imposed penalty under section 201 upon the assessee on account of non-deduction of tax at source in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, when tax deductor cannot ascertain beneficiaries of a credit, the tax deduction mechanism cannot be put into service. Section 202 lays down that tax deduction at source provisions are without any prejudice to any other mode of recovery from assessee, which again points out to the tax deduction liability being vicarious liability in nature. Section 203(1) then lays down that for all tax deductions at source, the tad deductor has to furnish to the person to whose account such credit is given or to whom such payment is made or the cheque or warrant it 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 tax deduction at source 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. Thus, the whole scheme of tax deduction at source proceeds on the assumption that the person whose liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not have any liability to deduct tax at source in respect of provision for interest accrued but not due in respect of regular return bonds, made on 31.3.1994. When there was no obligation to deduct tax at source, there could not be any question of levy of penalty or interest. The next question for consideration in the instant case was as to whether AO could have imposed the penalty at all under section 221 upon assessee. A Coordinate Bench of the Mumbai Tribunal in the case of ITO v. Titagarh Steel Ltd (2001) 79 ITD 532, dealing with the consequences of nondeduction or short deduction of tax at source, had held that post 1-4-1989, penalty for nondeduction of tax at source or short deduction of tax at source can only be imposed under section 271C. The CBDT itself had in Circular No.551, dated 23-1-1990 accepted that until section 271C was inserted in the Act, 'no penalty was provided for failure to deduct tax at source'. It was not only merely a question of mentioning a wrong section, which could perhaps be covered by recourse to section 292B, it was also important to bear in mind that the impugned penalty was levied by an Officer of the rank of the Income Tax Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C to 194J so as to raise TDS demand again under section 201 and levy of interest under section 201(1A). Therefore, assessee's ground on this issue are to be allowed as the entire amount has been disallowed under the provisions of section 40(a)(i)/(ia) in the computation of income on the reason that TDS was not made. For this reason alone assessee's grounds can to be allowed. Considering the facts and reasons stated above assessee's grounds are allowed. 18. The CIT(A) on the other hand has relied on the ratio laid down by the Cochin Bench of the Tribunal in Agreenco Fibre Foam (P) Ltd. Vs. ITO (supra), wherein a contrary view had been taken by the Tribunal. While considering the decision of Tribunal in Pfizer Ltd. Vs. ITO (supra), it was observed by the Cochin Bench of Tribunal that the assessee in Pfizer Ltd. Vs. ITO (supra) was having branches at multifarious locations and innumerable transactions and hence, it was following the practice of making provision for expenses at the end of the year. The obvious reason for which was that it did not receive all the bills by the time the accounts were finalized. The adhoc provision so made was reversed in the succeeding yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee who had failed to deduct or pay the TDS amount as an assessee in default, so that the Government was empowered to collect the said amount from him. However, It was a well settled proposition that the Government shall not be entitled to recover the said amount, if the recipient has declared the said amount as his income in the income tax return filed by him and paid the tax due thereon. Thus, it is seen that the objective of provisions of sec. 201 is only to compensate the Government for the failure of an assessee to deduct or pay the TDS amount. Thus, it can be seen that the provisions of sec. 40(a)(ia) and sec. 201 operate on different objectives. We have already noticed that the provisions of sec. 40(a)(ia) do not override the provisions of sec.201 of the Act. Accordingly, it was held that the assessee was liable to deduct tax at source on interest payments, even if it has not claimed the same as deduction while computing its total income, in which case the revenue was entitled to initiate proceedings u/s 201 for such failure. 19. We find that the facts of the present case before us are similar to the facts before the Mumbai Bench of Tribunal in Pfizer Ltd. Vs. ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in IDBI Vs. ITO (supra) is squarely applicable to the facts of the case and there was no merit in the orders of authorities below. However, as pointed out by the learned Departmental Representative for the Revenue, there is a default vis-a-vis provision made at the end of the year and the bills passed and those reversed in the succeeding year. The perusal of details reflect that as against the provision made in assessment year 2007-08 of ₹ 4.91 crores, the assessee in the succeeding had passed bills totaling ₹ 3.08 crores, on which tax was deducted at source and had reversed entries to the extent of ₹ 1.53 crores i.e. totaling ₹ 4.60 crores. The balance of approximately ₹ 30 lakhs has not been explained by the assessee and the learned Authorized Representative for the assessee fairly conceded that the said difference could not be reconciled and in view of the said default, the assessee was prepared to pay the tax deductible on such provision. Similarly, in assessment year 2008-09 as against the provision of ₹ 2.75 crores, the assessee had passed bills totaling ₹ 32 lakhs and had reversed entries to the extent of ₹ 2.29 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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