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2016 (7) TMI 735 - ITAT DELHI

2016 (7) TMI 735 - ITAT DELHI - TMI - TDS liability - penal action under section 201(1) and interest under 201(1A) - Held that:- The assessee expenses were debited on the accrual basis on monthly estimate in a common basket and not to the account of specific party/payees. As pleaded that the provisioning of expenses did not result in any constructive credit to a specific Payee and the purpose was to manage reporting on monthly results for monitoring and tax was deducted on receipt of bills/invoi .....

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nted for as and when ascertained and TDS was also deducted at that point of time. - Moreover, we find that the Department itself in the assessment year 2010-11 has accepted the accounting followed in respect of the expenses and no penal action under section 201(1) and interest under 201(1A) of the Act was considered. The learned Commissioner of Income Tax(Appeal) has followed the finding of the Tribunal in the case of Pfizer Ltd Vs. ITO(TDS) (2012 (11) TMI 164 - ITAT MUMBAI) wherein the Tri .....

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r The Appellant by Smt. Rishpal Bedi, Sr.DR For The Respondent by Sh. K.V.S.R. Krishna, CA ORDER PER O.P. KANT, A.M.: This appeal of the Revenue is directed against order dated 19/07/2013 of the Commissioner of Income-tax(Appeals), Noida for assessment year 2007-08 raising following grounds: That CIT(A) has erred in law and on facts in directing to delete the order u/s 201(1)/201(1A) of the I.T. Act passed by the Assessing Officer ignoring the fact that assessee must follow the mercantile system .....

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auditor had also pointed out that the TDS in respect of those accruals was not deducted/deposited as at March 2007. The assessee pleaded that said amounts have been considered for disallowance under section 40a(i) of the Income-tax Act, 1961 (for short the Act ) and taxed accordingly. However, according to the AO it was mandatory for the assessee to deduct tax at source on such accruals. The Assessing Officer declared the assessee in default for a sum of ₹ 23,03,672/- under section 201(1) .....

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nd deleted the orders passed by the AO under section 201(1) and 201 (1A) of the Act in respect of the provision of expenses. Aggrieved, the Revenue is in appeal before the Tribunal. 3. In the sole ground of appeal, the Revenue has challenged the deletion of order under section 201(1) and 201(1A) of the Act. 4. Before us, the learned Sr. Departmental Representative (DR) relying on the order of the Assessing Officer submitted that assessee cannot be allowed to follow hybrid system of accounting as .....

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r section 201(1A) was rightly levied by the Assessing Officer. 5. On the other hand, the learned Authorized Representative of the assessee relying on the order of the learned Commissioner of Income-tax(Appeals), submitted that there was no change in the method of accounting regularly followed by the assessee. The assessee had debited expenses on accrual and tax was deducted on actual booking of the expenses. The learned AR referred to the submission made before the Commissioner of Income Tax(App .....

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ribunal in the case of Pfizer Ltd versus ITO (TDs) (2013) 55 SOT 277 (ITAT, Mum). 6. We have heard the rival submission and perused the material on record. The learned Commissioner of Income-tax(Appeals) has made a detailed discussion on the issue in dispute in the impugned order and after providing opportunity to the Assessing Officer as well as to the assessee, has given his findings following the decision of the Tribunal in the case of Pfizer Centre Ltd. Vs. Income Tax Officer (TDS) (supra). .....

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n /accrual account which can be called a common basket and not to the account of specific party/payees. It was also pleaded that above provisioning did not result in any constructive credit to a specific payee and that prime purpose of managing books of accounts in above manner is for the purpose of management reporting on monthly results for monitoring purpose. It was also stated that the payee would raise invoice after rendering of services and it was only after due approval of services having .....

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d 2nd March, 2010 2. Decision of Bombay ITAT in the case of IDBI Vs. ITO (Mum) reported in (2007) 107 ITD 45(Mum). The appellant has submitted copy of CBDT s Circular No. 3/2010 dated 2/3/2010 as referred above which is in respect of TDS u/s. 194A on interest payable by banks. The relevant portion of the said circular is reproduced as under: As per provisions of section 194A of the Income Tax Act 1961, income tax has to be deducted at source at the time of credit of interest income to the accoun .....

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ng shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly". 2. Representations have been received from Indian Banks Association (IBA) seeking clarification regarding deduction of tax at source from payment of interest on time deposits by banks using Core- Branch Banking solutions (CBS) software. In case of banks using CBS software, interest payable on time deposits is calculated generally on daily basis or monthly b .....

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sitor s /payee s account takes place while calculating interest on time deposits on daily or monthly basis in the CBS software used by banks, tax need not be deducted at source on such provisioning of interest by banks for the purposes of macro monitoring only. In such cases, tax shall be deducted at source on accrual of interest at the end of financial year or at periodic intervals as per practice of the bank or as per the depositor s / payee s requirement or on maturity or on encashment of tim .....

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monitoring. Accordingly, the appellant has pleaded that the above Circular, though meant for banks, the principles laid down in above Circular can be applied to the facts of the appellant s case as the appellant is also making provisional entries because of SAP System for preparing monthly Profit and Loss Accounts and Balance Sheet for internal control and monitoring of operations. Further, the appellant has also filed copy of computation of income for the year under consideration in which enti .....

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this regard the appellant has placed its reliance on very recent decision of Hon ble ITAT C Bench, Mumbai in ITA No.1667/Mum/2010 dated 31/10/2012 in the case of M/s. Pfyzer Ltd. Vs. Income Tax Officer(TDS), Mumbai where in facts are exactly same as that of the assessee. The relevant portion of ITAT order is reproduced as under:- 5. The learned Counsel reiterated the submission made before A.O. and CIT(A) to submit that assessee is in the practice of making provision for expenses at the end of t .....

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of account and the reliance on the Board's Circular No. 288 of 1980were relied upon. It was the contention that it is not a constructive payment made to any payee as per the provisions of the Act and when assessee is making payment, it was following the TDS provisions. It was further submitted that when payee is not known or determined, TDS cannot be made and relied on the order of the ITAT in the case of Industrial Development Bank of India Vs. Income Tax Officer, 107 ITR 45(Mum). 6. It wa .....

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iew of above decision of coordinate bench, since the payee is not identifiable in this case also at the time making provision, no TDS need to be made on the above amount. Further, the entire provision has been written back in the ext year and the actual amounts paid/credited were subjected to TDS as per the detailed statements filed before the authorities on which there is no dispute. Therefore, assessee is following the provisions of TDS as and when the amounts are paid/credited to respective p .....

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also levy interest under section 201(1 A). We are unable to understand the logic of AO in considering the same as covered by the provisions of section 194C to 194J. Assessee as stated has already disallowed the entire amount in the computation of income as no TDS has been made. Once an amount was disallowed under section 40(a)(i)/(ia) on the basis of the audit report of the Chartered Accountant, the same amount cannot be subject to the provision of TDS under section 201(1) on the reason that as .....

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on 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 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. 13.Assessee has raised one more contention that interest under section 201(1 A) should be levied till the date of payment and not till .....

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llowed . Further the appellant has also drawn my attention to the order of A.O. dated 7/2/2013 in assessee s own case for Assessment Year 2010-11 wherein A.O. has accepted the TDS return of the appellant. On similar issues and similar facts the A.O. has accepted the contention of the assessee and has not considered the assessee as assessee in default u/s 201(1). I agree that the provisions of TDS are applicable only when the individual payee is identified. According to provisions of Section 190 .....

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ax Act works on the assumption that the person whose liability is to pay the income, knows the identity of the beneficiary or the recipient of the income. In the present appeal before me the A.O. has not controverted in his Remand Report the contention of the appellant that the provisions for expenses are made in a SAP environment where in the expenses are booked in order to facilitate management reporting and at this point there is no constructive recognition of liability to the payee. The year .....

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and also the CBDT s Circular No.03/2010 dated 2/3/2010 as cited and relied upon by the appellant and find that the facts of the present appeal is squarely covered by the above judgment of Mumbai Tribunal. So far as CBDT s Circular No. 03/2010 dated 2/3/2010 is concerned the same is applicable to banks only. However, the principle behind the said Circular tends to cover the issue involved in the present appeal. Moreover, the A.O. herself in subsequent assessment year i.e. A.Y. 2010-11 has accept .....

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re allowed. Consequently, order passed by A.O. u/s. 201(1)/2Q1(1 A) is directed to be deleted. 7. We find that in the case of the assessee expenses were debited on the accrual basis on monthly estimate in a common basket and not to the account of specific party/payees. It was pleaded that the provisioning of expenses did not result in any constructive credit to a specific Payee and the purpose was to manage reporting on monthly results for monitoring and tax was deducted on receipt of bills/invo .....

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