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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI SANDEEP SINGH KARHAIL, JM
All these above appeals involved similar facts and circumstances and similar grounds, both the parties argued them together, therefore, all these appeals are disposed of by this common order. 02. ITA number 2091/M/2023 is filed for assessment year 2013 – 14 by the assessee against the Consolidated Appellate order passed by The Commissioner Of Income Tax (Appeals) – 48, Mumbai (The Learned CIT – A) dated 11/5/2023 for assessment year 2013 – 14 to assessment year 2019 – 20 wherein the appeal filed by the assessee against order passed by The Joint Commissioner Of Income Tax (OSD) (TDS) – 2 (3), Mumbai (The Learned AO ) under section 201 (1A) of The Income Tax Act, 1961 (The Act) dated 23/10/2020 where the assessee was directed to pay the interest of ₹ 1,573,084/– under that section. 03. Facts for the year shows that i. A survey under section 133A (2A) was conducted on the assessee company on 10/12/2019. ii. During survey, it was observed that the assessee has made certain year end provisions on which tax was not deducted at source. iii. The AO issued a show cause notice for non- deduction of tax at source on those provisions. iv. It was found that assessee has not deducted tax at source on payment of ₹ 3,272,481,175/– to different parties of resident in India at the time of making year-end provisions. v. However, subsequently when bill were credited, tax was deducted and paid to the account of Government. vi. In the computation of total income for assessment year 2013 – 14, assessee itself has disallowed 30% of such expenses under the provisions of section 40 (a) (ia) of the act. vii. Therefore a show cause notice was issued why should not be treated as an “assessee in default” in respect of the provisions under section 201 (1) and 201 (1A) of the act for the default committed in respect of non-compliance of tax deduction at source provisions. viii. Assessee explained its accounting entries and stated that assessee is required to prepare books of account following the mercantile system of accounting and accounting standards. Accordingly, the provision is made at the year-end on the basis of some reasonable estimate, as the invoices of the said expenses are not received by it from the respective parties. It was contended that TDS is not applicable on provision for expenses made in the books at the end of the year. It further submitted that that the payee is not known or determined and therefore TDS cannot be deducted. In the end, it stated that the actual figure on which tax is not deducted at source is only ₹ 160,550,000 which has been disallowed by the assessee at the rate of 30% of such expenditure. ix. The learned assessing officer rejected the contentions of the assessee holding that the provisions have been made by the assessee company after taking into account the quantum of work done by the payees for the company and consequent liability arising on the company to pay for such work and on the basis of the past experience, provisions has been made. He further noted that the provisions have been made section - wise against each party to whom the payment is required to be made and quantum of the provision is also worked out with respect to each of the parties. He further looked at the tax audit report and the amount payable of tax deduction at source, which are clearly identified, and exact amount payable to the parties have been ascertained. Further he found that subsequently the assessee has deducted tax at source and therefore only the interest under section 201 (1A) of the act is payable. Accordingly he computed the interest under section 201 (1A) for the period from the date provision is made in the books of account to the date of actual payment of tax deduction at source on such provisions and accordingly interest is worked out on invoice value of ₹ 160,550,000 and consequent interest under section 201 (1A) of ₹ 1,573,084/–. x. The order under section 201 (1A of the act was passed on 23/10/2020.
Assessee approached the learned CIT – A wherein identical orders were also challenged for assessment year 2013 – 14 to 2019 – 20. The learned CIT – A passed a consolidated order on 11/5/2023. Assessee argued before the learned CIT – A that :- i. assessee is not required to deduct tax at source on the year end provisions ii. TDS provisions do not apply where the assessee has on its own disallowed the expenditure
The learned CIT – A categorically held that i. Provision for expenses created at the end of the year is subject to deduction of tax at source. He relied upon the decision of the coordinate bench in case of IBM INDIA PRIVATE LIMITED VERSUS ITO (ITA number 749 – 752, Bangalore/2012 dated 14/05/2015) as well as the decision of the coordinate bench in case Of Inter-Global Aviation Ltd versus ACIT (ITA number 5347/del/2012 dated 7/1/2020). ii. He also supported his order by the decision of the honourable high courts Punjab and Haryana, Calcutta and Madras. iii. Provision of expenses in the form of estimates has followed from pre-existing contracts with the known parties for identified services and hence the accounting of amount liable to be paid to these parties for services availed is subject to tax deduction at source. Payees, amounts, both are identified and quantified. iv. With respect to the disallowance by the assessee on its own of the expenditure on which no taxes deducted at source, such disallowance does not exonerate the assessee from the liability of interest under section 201(1A) of the act. For this proposition, he relied upon the decision of the coordinate bench in case of Agreenco Fibre form private limited versus ITO (ITA number 165/COCH/2012 dated 16 August 2013) and the decision of the Bangalore bench in case of IBM India Ltd (supra). v. each of the consequences of assessee for the TDS defaults such as ‘assessee deemed to be in default’ U/s 201 , payment of interest 201 (1A) , penalty and prosecutions are independent consequences that will follow. vi. Accordingly, he dismissed this appeal. 06. Identically he dismissed all the appeals of the assessee for assessment year 2013 – 14 to 2019 – 20 giving similar reasons. 07. Assessee aggrieved with that appellate order is in appeal before us. Assessee has raised following grounds:-
1. COMMISSIONER OF INCOME TAX (APPEALS) – 48, Mumbai erred in upholding the action of the joint Commissioner of income (OSD) –
2. (3), Mumbai in levying interest under section 201 (1A) of the income tax act, 1961 of ₹ 1,573,084/– for alleged delay in deduction of tax at source on year end provisions of ₹ 160,550,000/– for the reasons which are wrong, contrary to the facts and provisions of law
2. the CIT – A/AO failed to appreciate that the obligation to deduct tax rises only on crystallization of liability to pay expenses on receipt of invoices and not when yearend provisions are made 3. the CIT – A/AO failed to appreciate that once an amount is disallowed under section 40(a)(ia) for non-deduction of tax, it cannot be subjected to tedious provisions against which to make the assessee liable to interest under section 201 (1A) of the act 08. The learned authorized representative submitted that i. Where TDS been deducted by the assessee at the time of making payment in respect of provisions made at the end of the year and same had been deposited to the government account, assessee could not be treated to be an “assessee in default” to the extent of the tax deduction at source has been effected though in subsequent financial year. As assessee is not deemed to be in default, no interest u/s 201 (1A) is chargeable. ii. Further when once an amount is disallowed by the assessee for non-deduction of tax it cannot be subject to TDS provision again to make assessee liable to pay interest under section 201 (1A) of the act. For this proposition, he relied on the decision of the Bangalore bench of ITAT in Robert Bosch Engineering and Business Solutions (P.) Ltd.137 taxmann.com 150. iii. He further referred to the decision of the Honourable Karnataka High Court in case of Toyota Kirloskar Motor (Private) Ltd Versus Income Tax Officer (2021) 120 taxmann.com 266 to submit that where the reversal of the provisions have been made and subsequently when the tax was required to be deducted at source, the assessee has deducted tax at source and therefore the assessee cannot be fastened with the liability to deduct TDS and consequent interest. He specifically referred to paragraph number 11 of that decision. iv. He further referred to the decision of the coordinate bench in case of Pfizer Ltd versus ITO (2012) 20 taxmann.com 17 (Mumbai) for the reason that where the assessee has made the disallowance on its own which was accepted by the assessing officer therefore the above amount could not be considered to raise tax deduction at source demand under section 201 and to levy interest under section 201 (1A) of the act. v. He further submitted a section wise summary of the provisions made for each of the year starting from assessment year 2013 – 14 to assessment year 2019 – 20 vi. He further submitted that when the assessee has not claimed deduction of the expenditure, and further looking at the first proviso to section 201 where the recipient of the income has furnished the return of income and paid tax due thereon, assessee cannot be ‘deemed to be in default’. When assessee is not deemed to be in default, no interest under section 201 (1A) could be charged on the assessee. vii. He even otherwise submitted that with effect from 1/4/2015, disallowance is restricted to 30% of the sum and even if the assessee has disallowed the 100 %, interest cannot be charged if the assessee is not deemed to be in default. viii. He further submitted that for assessment year 2019 – 20, the learned assessing officer has also held that there is a provision for expenses amounting to ₹ 33,942,931/– on which tax is required to be deducted at ₹ 3,394,293/– under section 195 of The Income Tax Act. He submitted that this payment is made to the non-resident and therefore, subject to other arguments, the tax should have been deducted under section 195 of the income tax act. He submitted the jurisdiction of the Mumbai region and submitted that such Jurisdictional charges are with CIT (TDS) – 2, therefore the order passed by the learned assessing officer is without jurisdiction. He submitted that identically for assessment year 2018 – 19 also there is default noted by the learned assessing officer under section 195 of the act of a total provision of ₹ 120,762,140/–. Therefore, to that extent the interest, even otherwise, levied by the learned assessing officer is beyond his jurisdiction.
In view of the above argument, he submitted that interest charged by the learned assessing officer under section 201 (1A) of the act deserves to be deleted.
The learned departmental representative vehemently supported the order of the learned lower authorities and submitted that i. when the assessee is required to deduct tax at source under the various provisions of the tax deduction at source provisions, the assessee is liable to pay interest under section 201 (1A) of the act till the time when such taxes are deducted at the rate of 1% for every month or part of month. This is the clear-cut mandate of the provisions of section 201 (1A) of the act. ii. He submitted that on plain reading of the provisions of section 201, there is no reference to any disallowance under section 40 (a) (ia) of the act. According to him the payment of interest, the disallowance of expenditure are two different consequences provided by the law. There is no provision to mitigate liability of payment of interest if the assessee has disallowed such expenditure. Therefore, the judicial precedent cited by the assessee does not support the case of the assessee. iii. He submitted that learned AO has a jurisdiction to passed the order for payment of interest under section 201 (1A) of the act with respect to the failure to deduct tax at source under section 195 of the act as he is working under CIT TDS only. iv. The argument of the assessee is not proper that no taxes required to be deducted at source on the year end provision for the simple reason there is an identified payee, amount, nature of services, and subsequent deduction of tax at source by the assessee when the amount is paid to the recipient clearly shows that it is a failure on part of the assessee to not to deduct tax at source at the time of credit of the sum as provision to any account. v. Interest u/s 201 (1A) is mandatory in nature. vi. There is a revenue loss to government when tax due is not deposited in time. 11. We have carefully considered the rival contention and perused the orders of the lower authorities. In this case involved is that assessee is making the year end provisions on which tax is required to be deducted by the assessee but has not been deducted. For the reason that assessee has not deducted tax at source, it has disallowed the above sum in computation of total income for respective assessment years. Subsequently when bills are received, assessee has deducted tax at source and deposited it to the credit of the government. The LD AO has raised the demand of interest u/s 201 (1A) form the end of the month in which tax is deductible, until the date of deposit of tax. Here the assessee is not treated as an assessee in default for the recovery of the tax deduction at source itself because the same has been deposited by the assessee subsequently in some of the cases. In some of the cases as per the chart submitted by the assessee, there is no reversal or only partial reversal. But that is not the dispute. Only dispute is where interest charged by the ld AO and confirmed by the ld CIT (A) is correct or not.
According to the provisions of section 201 (1A) of the act, if any person does not deduct tax at sources as per provision of chapter of Deduction and collection of tax at source, he shall be liable to pay simple interest at the rate of 1% for every month or part of the month on the amount of such tax, from the date on which such tax was deductible to the date on which such tax is deducted.
The provisions of subsection (1A) are without prejudice to the provisions of subsection (1). Therefore it is not required that assessee should be “deemed to be in default” first before charging any interest. Thus there is no requirement that only when the assessee is deemed to be default under section 201 (1) of the act, then only assessee can be saddled with the responsibility of the payment of interest under section 201 (1A) of the act.
Further, on plain reading of the provisions of section 201 (1A) of the act it does not have any relations with the computation of the total income of the assessee. Whether the assessee disallowed any sum under section 40 (a) (ia) of the act or not, the payment of interest liability is independent of such disallowance.
With respect to the jurisdiction of the learned assessing officer, we find that The Joint Commissioner of Income Tax (OSD) (TDS) is working within the jurisdiction of the Commissioner of Income Tax (TDS). Therefore, we do not find any force in the argument of the assessee that the working of the interest and consequent liability raised by the assessing officer with respect to tax deduction at source under section 195 of the act is beyond his jurisdiction.
Now coming to the decision of Bangalore tribunal in 137 taxmann.com 150 (Bangalore) wherein the learned authorized representative has relied upon the paragraph number 19 of that order, wherein it has been held that there is no loss to the revenue in the year in which the provision is created, since the assessee before us is stated to have disallowed the entire provision on which TDS could not be effected. That decision also relied up on the decision of the coordinate bench in case of Pfizer Ltd (supra). If there is a loss to revenue, those decisions do not apply to this case. We state that in this case the taxes required to be deducted at source at end of the year, i.e. On 31st of March at the close of the year, such tax is required to be deposit on or before 31 st May . In all these defaults noted by the learned assessing officer, there is no deposit of such tax either by the payee or by the payer on or before 31st may. Later on the taxes paid to the credit of the government, when such bill or invoices received and consequent amount of time allowable for deposit of tax deduction at source, therefore, till the time tax should have been paid by the assessee to the government, and time by which such taxes are deposited, the revenue is deprived of the amount of tax deduction at source. Therefore, there is an interest loss to the revenue to that extent because of late deposit of tax at source. Therefore, there is a considerable loss to the revenue. Further, the disallowance of the expenditure is out of the total income of the assessee, which does not have any relation with the tax deduction at source and its payment, because it is a tax of the payee and not the payer. It may be looked from different angle also, if the assessee has incurred losses and disallowed the sum on which no tax is deducted at source, and never such tax is deposited, payee will suffer and will have to deposit tax on their own and interest thereon. Thus, late deposit of TDS does not have a loss of revenue for GOI bit also for the recipient of income. This aspect is not discussed in those decisions and hence, same are distinguishable.
Assessee has also relied upon the decision of the honourable Karnataka High Court in case of Toyota Kirloskar Motor Private Limited [120 taxmann.com 266]. We find that the facts of that decision are different. Because in paragraph number 11, it is stated that the provision was created during the course of the year and reversal of entry was also made in the same accounting year. It further held that in absence of any income accruing to anyone under the act, the liability to deduct TDS on the assessee could not have been fastened. We find that in the present case, the liability of TDS is fastened on the assessee according to the provisions of chapter XVII of The Income Tax Act which itself speaks about the Collection And Recovery Of Taxes. Further, in the hands of the recipient of the income, it shall be taxed on the basis of the method of accounting employed by it. Even otherwise, the provisions of tax deduction at source does not relate to the taxing event as far as time is concerned either of the deductor or of the payee.
Even otherwise, the honourable Supreme Court in case of Singapore Airlines Ltd. [2022] 144 taxmann.com 221 (SC) wherein paragraph number 64 of that order the honourable Supreme Court has upheld the levy of interest under section 201 (1A) of the act, even after the recipient or the payee, anyone of them has paid the tax, the interest liability survives. Therefore, the interest liability under section 201 (1A) is upheld by the honourable Supreme Court; therefore, the above decision does not come to the rescue of the assessee.
Hon Supreme court in Hindustan Coca cola Limited in [2007] 163 Taxman 355 (SC)/[2007] 293 ITR 226 (SC) has held that :- “10. Be that as it may, the Circular No. 275/201/95-IT(B), dated 29-1-1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares "no demand visualized under section 201(1) of the Income-tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under section 201(1A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalty under section 271C of the Income-tax Act."
In the instant case, the appellant had paid the interest under section 201(1A) of the Act and there is no dispute that the tax due had been paid by Page 15 of 17 deductee-assessee (M/s. Pradeep Oil Corporation). It is not disputed before us that the circular is applicable to the facts situation on hand.
Thus it is clear that liability of interest u/s 201 (1A) of the act is mandatory as held above.
We also draw support from the decision of Honourable Jurisdictional high court in PENTAGON ENGINEERING PVT. LTD. V. COMMISSIONER OF INCOME TAX. [1995] 212 ITR 92 (Bombay) where in it has been held that interest u/s 201 (1A) is mandatory. It was held that use of the word "shall" in section 201(1A) makes the liability to pay interest in circumstances mentioned mandatory and there is no precondition of consideration of " reasonable cause" for non-payment in time of tax deducted under section 192. Therefore, the Tribunal was right in law in taking the view that the ITO was not required to take into consideration the "reasonable cause" for non- payment of taxes deducted under section 192. 22. In the result, we confirm the appellate order passed by the CIT (A) for assessment year 2013 – 14 and dismiss all the grounds raised
by the assessee in this appeal.
23. As the facts and circumstances of the case for other assessment years, except the amounts, are similar, we do not find any merit in any of the appeals of the assessee; accordingly appeals for assessment year 2014 – 15 to assessment year 2019 – 20 are also dismissed for similar reasons.
In the result all, the appeals filed by the assessee are dismissed.
Order pronounced in the open court on 31.10.2023.