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2016 (5) TMI 1228 - ITAT MUMBAI

2016 (5) TMI 1228 - ITAT MUMBAI - TMI - 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 pa .....

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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 fa .....

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come-Tax (Appeals) (hereinafter referred to as CIT(A) ), whereas appeals by the revenue for A.Y.2008-09 & 2009-10 have been preferred against the separate orders of CIT(A) dated 30-3- 2013. However, the revenue has also preferred appeal for A.Y.2009-2010 against another order dated 30-1-2014 of CIT(A). The assessee has also filed cross objection against the order of CIT(A) dated 31-1-2014. 2. Since the facts and issues involved in all the appeals are identical, hence, the same were heard alt .....

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g of pharmaceuticals, chemicals and animal health products. A survey under section 133A of the Act was conducted by the AO at the premises of the assessee on 8th September, 2008 and it was found that assessee had not deducted TDS in respect of accrued liabilities for which provisions were made in the profit and loss account. As a result of which, the proceedings u/s.201(1)/201(1A) were initiated against the assessee. During the course of the proceedings u/s.201(1)/201(1A) submissions were made b .....

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ar. Hence, there was no requirement of tax deduction at source in respect thereof. The assessee further stated that the year-end provisions were made purely on an estimation basis to ensure compliance with the provisions of the Companies Act, 1956 and for determination of book profits. That at that stage the parties to whom the expenses pertain to, were not known/identifiable. Thus, tax deduction at source mechanism could not be put into practice until identity of the person in whose hands it wa .....

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this issue. The revenue, thus, has come in appeal before us in relation to above issue. 6. At the outset, ld. AR of the assessee has stated that the issue of non-deduction of tax on year-end and provision is not involved, so far as the A.Y.2004-05 and 2005-06 are concerned. He, however, has stated that this issue is involved in the assessment year 2006-07 to A.Y.2009- 2010. But the department without application of mind has taken this issue for A.Y.2004-05 and 2005-06 also, since a common order .....

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d 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. Relevant observation made by the Tribunal for the sake of convenience are reproduced as under :- 11. In view of the above decision of coordinate bench, si .....

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nced from the computation of income as well as the orders of AO in the assessment proceedings, the entire provision has been disallowed under section 40(a)(ia) and section 40(a)(i). Once the amount has been disallowed under the provisions of section 40(a)(i) on the reason that tax has not been deducted, it is surprising that AO holds that the said amounts are subject to TDS provisions again so as to demand the tax under the provisions of section 201 and also levy interest under section 201(1A). .....

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order of AO were to be accepted then disallowance under section 40(a)(i) and 40(a)(ia) cannot be made and provisions to that extent may become otiose. In view of the actual disallowance under section 40(a)(i) by assessee having been accepted by AO, we are of the opinion that the same amount cannot be considered as amount covered by the provisions of section 194C 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 .....

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academic 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. 7. Since the facts and issues involv .....

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assessee s own case for the assessment year 2007-08, wherein the Tribunal has decided the issue in favour of the assessee observing as under :- 14. As briefly stated above, AO raised demand on 1.purchase of traded goods, 2.purchase of packing material and 3.clinical trials. The order of the CIT (A) on the three issues are as under: 1. Finished/Traded Goods: 11. I have carefully considered the facts of the case, various agreements with third party, submission and legal propositions made by the A .....

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nt. It is also a fact that no raw material is supplied by the appellant (purchaser) to the manufacturers. The manufacturing activities are also carried out by the manufacturers in their own premises. The manufacturers have also paid excise duties VAT/sales tax as applicable on the goods manufactured/sold. After going through the agreement and its various clauses and facts of the case in its entirety, it is concluded that the contract with the various parties are contract for purchases of traded .....

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he 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 g0o.dS without deducting tax at source This ground of appeal is allowed in favour of the appellant . 2. Purchase of Packing Material: 13. I have perused the facts of the case as well as the submissions of the appellant. I am of the opinion that t .....

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f the Appellant in complying with the provisions of Chapter XVII-B of the Act while making payment for purchase packing material without deducting tax at source. In the result this ground is allowed . 3. Clinical Trials 15. I have gone through the facts of the case and submissions of the appellant. As far as the appellant s contention that the above expenditure of ₹ 11,35,14,000/- includes an amount of ₹ 3,66,90,204/- on which TDS is not deductible on the following grounds: a) Purcha .....

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ts. AO is directed accordingly . With regard to balance expenditure amount of ₹ 7,68,21,907/- is concerned, the appellant has deducted TDS of ₹ 42,45,914/- on the same. However, it is seen that payment in question is in the nature of professional fees. In order to carry out clinic trial, the person who carries out the trial must possess medical qualification and the person should be highly qualified and should possess technical expertise. Therefore, payment made in this respect is no .....

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be allowed and balance amount needs to be recovered from the appellant. This ground of appeal is disposed off accordingly . 15. After considering the rival contentions and perusing the order of the CIT (A), we are of the opinion that there is no need to differ from the order of the CIT (A). The learned CIT (A) has followed the principles established by the Hon'ble High Court in the case of BDA Ltd vs. Income Tax Officer (TDS) 281 ITR 99 (Bom.) and CIT vs. Glenmark Pharmaceuticals Ltd, 324 IT .....

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