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Facts
The assessee, engaged in hospitality services, made year-end provisions for expenses like interest on unsecured borrowings, contractors, rent, and professional services. These provisions were debited to the P&L account, and the assessee disallowed 30% of these expenses under Section 40(a)(ia) of the Act. However, the assessee later deducted TDS and paid it upon receiving invoices in the subsequent year.
Held
The Tribunal held that treating the assessee as an "assessee in default" under Section 201(1) and levying interest under Section 201(1A) for year-end provisions cannot be sustained without verifying the subsequent deduction and deposit of TDS. Relying on judicial precedents, it was noted that TDS provisions are not triggered until liability crystallizes when payees are not identifiable at the time of provision.
Key Issues
Whether TDS provisions are triggered on year-end provisions when the payee is not identifiable, and TDS is paid in the subsequent year upon crystallization of liability? Whether interest under Section 201(1A) can be levied without proper verification of TDS deduction and payment?
Sections Cited
250, 201(1), 201(1A), 40(a)(ia), 194A, 194C, 1941, 194J, 133B(2), 221(1), 271C, 145, XVII-B
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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI ANIKESH BANERJEE
PER BENCH: This group of appeals filed by the assessee against the order of the Learned Commissioner of Income-tax (Appeals) / ADDL / JCIT(A), Ranchi [for brevity, the “Ld. CIT(A)”] order passed u/s 250 of the Income-tax Act, 1961 (for brevity, “the ACT”) for A.Ys 2016-17 to 2023-24, date of order 24/05/2025. The impugned orders emanated from the order of the Ld. ACIT (TDS(OSD), TDS Circle 2(2), Mumbai (for brevity, the “Ld. AO”) order passed u/s 201(1) / 201(1A) of the Act, date of order 26/08/2024. All the appeals have same nature of facts and have a common issue. So, all the appeals were taken together, heard together and are disposed of by this common order.
for A.Y. 2016-17 is taken as lead case.
The assessee has taken the following grounds:- “
GROUNDS OF APPEAL Ground No.
1. On the facts and circumstances of the case and in law, the learned Income Tax Officer (TDS) 2(2)(1). Mumbai (TDS officer') erred in treating the Appellant as an assessee in default under Section 201(1) of the Act for non-deduction of TDS on year-end provisions. The learned JCIT(A) further erred in confirming the action of the learned TDS officer.
Ground No. 2: On the facts and circumstances of the case and in law, the learned TDS officer erred in not appreciating that (i) TDS provisions do not apply to year-end provisions where no income is credited to the payee, (ii) No income is accrued/credited to the payee, hence liability to pay TDS does not arise:
(iii) The Appellant has suo-moto disallowed the expenditure under Section 40(a)(ia) in its tax return.
The learned JCIT(A) further erred in upholding the action of the learned TDS officer.
Ground No. 3:
On the facts and circumstances of the case and in law, the learned TDS officer erred in levying demand under section 201(1) of the Act without appreciating that the Appellant has already deducted and deposited TDS in the subsequent year upon receipt of invoices. Requiring TDS payment again would cause double TDS outflow, violating principles of natural justice. Hence the Appellant cannot be considered as assessee-in-default and related demand is erroneous, unwarranted and should be deleted.
The learned JCIT(A) further erred in upholding the action of the learned TDS officer Ground No 4:
The learned TDS officer erred in levying and computing interest under section 201 (1A) of the Act as TDS was deposited within the prescribed due dates in the following year upon receipt of invoices. Even otherwise interest should be computed only up to the date of actual TDS payment, not till the date of the order. Accordingly, interest under Section 201(1A) of the Act is erroneous, unwarranted and to be deleted. The learned JCIT(A) further erred in upholding the action of the learned TDS officer.
Ground No. 5 The initiation of penalty proceedings under Sections 221(1) and 271C is unwarranted and be dropped, given the bona fide compliance by the Appellant and absence of any deliberate default. The Appellant craves the leave to amend or alter any ground or add a new ground which may be necessary.” to 4564/Mum/2025 Saphire Food India Limited 3. The brief facts of the case are that the assessee is engaged in the business of Hotels, Restaurants and Hospitality services (KFC and Pizza Hut Restaurant). The assessee filed its returns of income on the basis of audited accounts. In this assessment year, the assessee company paid "payment of interest on unsecured borrowings, contractors, rent and payment to professional & technical services. The assessee company's net profit was determined on completion of accounts and payment of interest on unsecured borrowings, contractors, rent and payment to professional & technical services was payable, which was calculated as per accounts. The assessee-company debited this payment of interest on unsecured borrowings, contractors, rent and payment to professional and technical services in P&L Account. The assessee debited this payment of contractors and payment to professional & technical services as part of business expenses and shall have deducted the TDS u/s 194A, 194C, 194I, 194J of the Act at the time of payment to party/parties. The auditor has certified these expenses by ascertaining the amounts and identifying various payees where tax was not deducted. A spot verification was conducted by the Ld. AO U/s 133B(2) of the Act. On verification it was found that the assessee had made provision of various expenses on which the tax was deductible at source. But no tax was deducted at source during impugned financial year. The assessee during assessment proceeding conceded that no tax was deducted on year-end provisional expenses but the same was disallowed U/s 40(a)(ia) of the Act during computing of tax. It is found that the assessee claimed in profit and loss account amount to Rs. 5,70,50,582/- where no tax was deducted at source U/s 194A, 194C, 194I & 194J of the Act. So, the assessee is treated as “assessee in default” U/s 201(1) & 201(1A) and tax & interest was determined total amount to Rs. 64,51,786/-. The aggrieved assessee filed an appeal before Ld. CIT(A).
The Ld.AR argued, filed a paper book containing ages 1 to 214 which is kept in record. The Ld.AR stated that the assessee is regularly following the same accounting practice related to non-deduction of tax at source on the year-end provision of expenses. Following the section 40(a)(ia) of the Act, the assessee disallowed 30% expenses and offered to tax in the computation and rest of the amounts i.e. 70% of the expenses has been claimed as deduction. The Ld.AR stated that after getting the bills from the parties and when the payments were made in the next year, the assessee deducted TDS and paid into the government account accordingly. So, circular motion of system regularly runs every year. The Ld.AR stated that facts before the Ld.AO elaborately. He invited our attention to impugned assessment order pages 12 to 13, which is extracted below: - “4.3 in reply to the above notice, the assessee filed reply vide letter dt. 24.06.2019. On perusal of Profit and Loss Account, computation of Income and tax Audit report filed in Form No. 3CD of AY. 2016-17, it is seen that assessee has debited Rs. 5,70,50,582 in Profit & Loss account and added back 30% of Ra 5,70,50,562/- amount as disallowance u/s 40(a)(ia)l which comes to Rs. 1,71,15,175/-.“ 5. In argument in ground no-3 of the appeal the Ld. AR respectfully relied on the order of High Court of Karnataka in Subex Ltd. v. Deputy Commissioner of Income-tax [2023] 148 taxmann.com 271 (Karnataka). The observation is as follows: - “12. We may record that it was argued by Shri. Chaithnaya that assessee had deducted tax at source in subsequent year in accordance with the provisions of Chapter XVII-B and remitted within the due date and the same was not refuted. to 4564/Mum/2025 Saphire Food India Limited 13. So far as the authority in Palam Gas Service (supra), it is relevant to note that the payees were identified in that case as recorded in para 5 of that judgment. In contradistinction, in the case on hand the payees were not identified. Therefore, the said authority does not lend any support in the contentions urged on behalf of the Revenue.
In view of the law laid down in Karnataka Power Transmission Corporation Ltd. & Volvo India (P.) Ltd. (supra), we are of the considered opinion that the ITAT's order reversing DRP's Order and issuing further direction to AO is perverse. Hence, the following: ORDER (a) Appeal is allowed. (b) The first question of law is answered in favour of assessee and against the Revenue. (c) In view of first question being answered in favour of the assessee, the second question does not arise for consideration. No costs.”
The Ld. AR further respectfully relied on the order of co-ordinate bench of ITAT-Mumbai in the case of Viacom 18 Media Pvt. Ltd. vs. DCIT, & CO No. 92/Mum/2025 date of pronouncement 09/09/2025. The relevant observation of the bench is reproduced as below:- “10. A conspectus understanding of the facts that the various sample entries with the year-end provisions are estimated on the basis of contract with the vendors, summary of services performed/partly performed till year-end for which no invoices have been raised. Such provision entry is merely for the purpose of accruing the relevant expenditure as required by the accounting standards and are for the purpose of compliance with the provisions of Section 145 of the Act This provisions are immediately reversed on first day of next accounting year and it is clear from the reversal entry that the individual parties/vendors were not credited at the time of making provisions but the credit was made to "Accrual General - Expenses" and reversed on the first day of the next financial year. Thus, showing that the amount payable to individual vendor has not crystallized.
11. Considering the facts in totality, we do not find any error or infirmity in the findings of the Id. CIT(A). Accordingly, the effective ground/s raised by the revenue are dismissed and the cross- examination by the assessee becomes infructuous.
In the result, appeal of the revenue and cross-objection by the assessee are dismissed.” to 4564/Mum/2025 Saphire Food India Limited 7. The Ld.DR argued and stated that the disallowance of 30% of expenses u/s 40(a)(ia) of the Act cannot restrict imposition of tax & interest u/s 201(1) / 201(1A) of the Act. So, accordingly, the Ld. DR stands in favour of the order of the revenue authorities.
After careful consideration of the rival submissions and perusal of the material placed on record, we are of the considered view that the addition made by treating the assessee as an “assessee in default” under section 201(1) and levy of interest under section 201(1A) of the Act, insofar as it relates to year-end provision of expenses, cannot be sustained without verification of the factual aspect regarding subsequent deduction and deposit of TDS in the succeeding year. The assessee’s contention that no payee was identifiable at the time of making the year-end provision and that TDS was deducted and remitted upon crystallization of liability in the subsequent year is supported by judicial precedents—particularly the decision of the Hon’ble Karnataka High Court in Subex Ltd. (supra) and the co- ordinate bench decision in Viacom 18 Media Pvt. Ltd. (supra). These authorities hold that where year-end provisions are made only for accounting compliance and no payee is identified, TDS provisions do not get triggered until such liability crystallizes. However, as the factual verification regarding ground no-3 of the appeal of the assessee related deduction of TDS in the subsequent year has not been undertaken by the revenue authorities, the matter is remanded to the file of the Ld. AO for the limited purpose of verifying whether tax was duly deducted and deposited in the following financial year in respect of the impugned expenses. The interest U/s 201(1A) of the Act is restricted only up to the date of actual payment of tax. The assessee shall be afforded adequate opportunity of hearing and to produce all to 4564/Mum/2025 Saphire Food India Limited necessary evidence in support of its claim. Subject to the above direction, the appeal of the assessee is allowed for statistical purposes, with other grounds adjudicated in favour of the assessee.
In the result, the appeal of the assessee bearing is allowed for statistical purposes. ITAs No. 4559 to 4564/Mum/2025 10. The facts and circumstances in these appeals are identical to the facts and circumstances narrated above. Therefore, the decision arrived at above against appeal in ITA No.4558/Mum/2025, shall apply mutatis mutandis to these appeals also.
In the result, all the appeals filed by the assessee stand allowed for statistical purpose. Order pronounced in the open court on 07th November, 2025