DCIT(TDS)-2(3), MUMBAI, MUMBAI vs. VIACOM 18 MEDIA PVT. LTD, MUMBAI

ORDER \nPER NARENDRA KUMAR BILLAIYA, AM:\nI.T.A. No. 961/Mum/2025 and C.O. No. 92/Mum/2025 are appeal\nby the revenue and cross-objection by the assessee preferred against the\nvery same order dated 18/12/2024 by the NFAC, Delhi [hereinafter “the\nld. CIT(A)"] pertaining to AY 2018-19.\n2. The grievance of the revenue reads as under:-\n“1. The Ld. CIT(A) has not appreciated the fact that, in the instant case, the liability\nwas ascertained and accounted by the assessee in its books of account, thus the assessee\ncompany should have made TDS on these amounts payable, even though the company\nhas not received final invoices from the related parties.\n2. The Ld. CIT(A) has erred in deciding that the assessee is not an assessee-in-default,\nwithout appreciating the fact that, provision of section 40(a)(ia) of the Act is very clear\nthat wherever there is default in payment of TDS on any amount where TDS is\napplicable, 30% of such amount will not be allowable as expenses in computing the\nincome of the assessee. Further, the provisions of section 40(a)(ia) does not negate the\nliability to deposit the TDS once the disallowance has been made. In the instant case,\nthe assessee itself has accepted the default and made the disallowance and the Auditor\nhas reported the same in Tax Audit report also.”\n3. During the course of proceedings u/s 201(1)/201(1A) of the Act,\nthe AO observed from Form 3CD report of the assessee that the assessee\ncompany has made payments of Rs.7,19,84,31,935/- on account of\nvarious expenses on which tax at source was deductible under the TDS\nprovisions of various Sections of the Act. But the assessee did not deduct\nthe tax at source. The assessee company was asked to explain why it\nshould not be treated as an assessee in default u/s 201(1)/201(1A) of the\nAct for non-deduction of tax at source on the payments related to\nSections 194C, 194J and 1941 of the Act. The assessee explained as under:-\n“The company follows mercantile system of accounting and therefore in accordance\nwith accounting standard it had made general provision for expenses at the year end\nfurther the exact amount payable to the service provider was not known as on the last\nday of the previous year ending 31.3.2018 and hence a provision was made in its book\nof account on a fair estimation basis. The reason for the same is that there are cost\nwhich are visible in foresight but cannot be quantified with precision. In other words\nalthough the factum of liability is ascertained its quantum remains unknown. In such\ncase, general accounting principle mandate, "a provision" for expenses. Such as\nexercise is an acknowledgement of the present liability, based on past experience. For\ndeduction of tax at source, the identity of the payee must be known as well as the\nquantum of payment must also be ascertainable, at the point of time when such general\nprovision is made. If one of the aforesaid item is not available then no tax can be\ndeducted at source.\nAt the time of finalizing the financial statement as at 31.03.2018, the company had\nnot received invoices from all the vendors or the quantum of payment was not\nascertainable. These being merely provision and since the amount was not ascertained,\nno tax was deducted at source on the same. The details of provision made during the\nyear other than the amount of provision on amount payable to Non residents as on\n31.03.2018 on which tax was not deducted at source are as follows.\nSection\nAmount in INR\nDomestic Payments\n194C\n4,36,41,28,046\n194H\n6,80,000\n1941\n3,45,55,372\n194J\n2,79,90,68,517\nGrand Total\n7,19,84,31,935\nThe above mentioned provision were added back to business profits in the computation\nof income of the company for a.y 2018-19 as per the provision of section 40(a)(ia) of\nthe Act. Subsequently when the actual invoices were received by the company, the\ncompany had deducted and deposited tax to the credit of Government treasury in\nsubsequent years. The provision of the Act casts an obligation on the payer to deduct\ntaxes at the time of credit of such sum to the account of the payee or at the time of\npayment, whichever is earlier. Further at the time of making provision in the books of\naccount, since the amount payable to the service provider was not actually\nquantifiable, the Company made a provision in its books on a fair estimation basis. In\nview of the above, the Company believes that tax is not required to be deducted at\nsource from the amounts credited to the provision account considering the following\nreason and relied on various case laws.\n* reversal of provision in the next Financial Year\n* No constructive credit accrual of income in the hands of the payee under section 4 of\nthe I.T Act\nRelied on Decision\n* ACIT V/s Motor Industries Co (2001} 249ITR 141 ( Karnataka High Court)\n*Karataka power Transmission Corporation Limited V/s DCIT(TDS) (ITA.No 750\n758 759 of 2009) (Karnataka High Court)\n*Industrial Devolopment Bank Of India V/s ITO (2007) 107 ITD 45 (Mumbai\nTribunal)\n* M/s Apax Partner Put Ita V/s DCIT (2017) / Mum/ 2013(Mumbai\nTribunal)\n* Aditya Birla Nava Limited v/s DCIT(2014) ITA No 8427 / Mum/2010 Mumbai\nTribunal)\n* Mahindra and Mahindra Limited (ITA No 8597/Mum/2010) Mumbai tribunal\n* Telco Construction Equipment Co ltd (ITA No 478/ Bang/2012) Banglore Tribunal\nIn view of the above it is submitted that creation of a right to receive the sum in favour\nof payee is a pre-requisite for trigger of TDS provision. Mere recognition of a provision\nas per the accounting norms, of an estimated provision in the books of account would\nnot trigger the applicability of TDS provision as the payee's right to receive is inchoate\nand has not accrued into income which has become due and payable.\n4. The aforestated submissions of the assessee did not find any favour\nwith the AO for the following reasons:-\n“The submissions of the assessee, have been duly considered and perused but not found\nto be acceptable due to the following reasons;\ni. As per Audit report in Form No. 3CD column 21(b) the total amount of expenses\nclaimed Rs.7,19,84,31,935/- has been incurred and are in nature of domestic expenses\non which tax is not deducted u/s.194C, 194J, 1941 of the Income Tax Act 1961.\nii. Perusal of the Audit report in form 3CD, column No 21(b) revealed that quantum\npayables under relevant section of TDS as per the IT Act are clearly identified and\nexact amount payable to them is also ascertained. This shows that the liabilities have\nbeen crystallized and payees were identified. Hence, there is no dispute that TDS\nshould have been made on the expenses payable when payees are identified and amount\ncredited to their accounts were ascertained.\nSr No Nature of payment covered und Amount (in Rs)\nsection\n1\n194C\n4,36,41,28,046\n2\n194H\n6,80,000\n3\n1941\n3,45,55,372\n4\n194J\n2,79,90,68,517\nTotal\n7,19,84,31,935\niii. Tax deduction at source liability is a vicarious liability to pay tax on behalf of\nthe person who is to be beneficiary of the payment or credit, with a corresponding right\nto recover such tax payable from the person to whom credit is afforded or payment is\nmade. Thus, the whole scheme of tax deduction at source proceeds on the assumption\nthat the person whose liability is to pay an amount knows the identity of the beneficiary\nor the recipient of the income. It is a sine qua non for a vicarious tax deduction liability\nthat there has to be a principal tax liability in respect of the relevant income first, and\na principal tax liability can come into existence when it can be ascertained as to who\nwill receive or earn that income because the tax is on the income and in the hands of\nthe person who earns that income. Therefore, tax deduction at source mechanism can\nbe put into practice when identity of the person in whose hands it is includible as\nincome can be ascertained. In this case, the assessee company has already ascertained\nthe amounts and identified the payees and thus the assessee company should have made\nTDS on these amounts payable.\niv. The provision of section 40(a)(ia) of the Act is very clear wherein it has been\nmentioned that wherever there is default in payment of TDS on any amount where\nTDS is applicable, 30% of such amount will not be allowable as expenses in computing\nthe income of the assessee. In your case, you have defaulted in deduction of TDS on Rs\n7,19,84,31,935/-which has been claimed as expenses during the year u/s 30 to 38 of\nthe IT Act and thus the assessee has defaulted the TDS provision. This default on\nassessee part makes the company “assessee in default".\nV. Various decisions relied by the assessee company arguing that disallowance\nhas been made under section 40(a) (ia) of the IT Act in the computation of income is\nirrelevant as the assessee company has disallowed only 30% of the amounts on which\nTDS was not made and 70% of the amounts have been claimed as expenditure. Judicial\ndecisions relied by the assessee in this regard are to be seen in the context of 100%\ndisallowance existed under section 40(a)(ia) of the IT Act during the AY 2014-15 and\nbefore. Hence, this argument is not valid for the AY 2018-19 which is under\nconsideration.\n5. Therefore, in view of the above mentioned facts and reasons, the assessee\ncompany is liable to deduct TDS on 7,19,84,31,935 of domestic expenses and the\nassessee is held to be in default within the meaning of Section 201(1) for not effecting\nTDS under section 194J, 194C, 194H and 1941 on the amount of Rs.7,19,84,31,935\n/-. Further, the assessee is liable to pay the interest u/s 201 (IA) for the defaults\ncommitted by the assessee. The amount payable by the assessee on this ground is\ncomputed as follows:\nTable:\nTDS has Amount on\nwhich TDS\nhas not been\ndeducted\nAmount of Interest on\nTDS default\nlate\nTotal Default of TDS\nInterest\nInterest\ndeducted\nu/s\ncommitted\npayment\nbetween\n(D) - (B) + (C)\nApril 2017\nto March,\n2019 [24\nmonth]\n(A)\n(B)\n(C)\nDomestic\n194C\n4,36,41,28,046\n8,72,82,561\n2,09,47,815\n10,82,30,376\n194H\n6,80,000\n34,000\n8,160\n42,160\n1941\n3,45,55,372\n34,55,538\n8,29,330\n42,84,868\n194J\n2,79,90,68,517\n27,99,06,851\n6,71,77,645\n34,70,84,496\nTotal\n7,19,84,31,935\n37,06,78,950\n8,89,62,950\n45,96,41,900\n6. In view of the above, the Assessee Company is directed to pay the above default\namount of Rs.45,96,41,900/- [37,06,78,950 + 8,89,62,950] mentioned at the earliest.”\nAggrieved by the findings of the AO, the assessee preferred an\nappeal before the ld. CIT(A) and reiterated its claim of non-deduction of\ntax at source for the reasons given hereinabove. After considering the\nfacts and the submissions and drawing support from the various\ndecisions mentioned by the ld. CIT(A) at para 5.18 of his order, the ld.\nCIT(A) held that in a case where payee is not identifiable, the provisions\nof Chapter XVII-B of the Act cannot be invoked. The ld. CIT(A) further\nobserved that in the absence of an ascertainable amount and identifiable\npayee, the machinery provisions of recovering TDS does not come into\noperation because it does not aid the charge of tax u/s 4 of the Act but\ntakes a form of separate levy, independent of other provisions of the Act.\nThe ld. CIT(A) further observed that the AO has considered the amount\nof provisions as ascertainable liability on the premise that they have been\ndisclosed in the tax audit report by the assessee. However, the AO has\nfailed to understand that it is never disputed that the amounts have been\naccounted as provision made on estimated basis and credited to a\nseparate account i.e. “Accrual General - Expenses". Hence the individual\nparties/vendors were not credited at the time of creating the provision.\nThe disclosure made in the tax audit report was done to comply with the\nrequirements of the tax audit which requires the auditor to disclose the\namounts of expenses including the provision created for such expenses\nin relation to which no TDS has been deducted. The ld. CIT(A)\naccordingly deleted the impugned addition.\n6. The representatives were heard at length. Case records carefully\nperused.\n7. The business profile of the assessee is that it is into the media\nindustry and is engaged in program production, movie production,\ndistribution and marketing, Over the Top (OTT) platform and\nconducting live events where, as a business practice, there are no\nstandard rates for services procured from various vendors. Most of his\nservices which the assessee company engages in like television program\nor movie production are continuous service where costs for shooting\nadditional sequences or weekend programs are paid only on actual basis.\nSuch costs are finalized and accounted only on receipt of invoices and\nhence it is challenging to quantify the amount for such period until and\nunless invoices are received from vendor. Similarly, in case of marketing\nactivities, where ad-agencies are involved to market the program/movie\non various platforms such as print, TV, radio. The agencies in turn\nallocate and finalize the cost with these platforms and post receiving\ninvoices from these platforms. It raises invoices on advertisers. The\ninvoices and actual cost for such advertisement expenses which are\nincurred in February and March is confirmed when assessee receives\ninvoices subsequently from ad-agency.\n7.