ITO(TDS)-2(2)(1), MUMBAI vs. SASHWAT ENERGY PRIVATE LIMITED, MUMBAI

P a g e | CO No. 273/Mum/2025 A.Y. 2021-22 Sashwat Energy Private Limited 4. Whether on the facts and in the circumstances of the case and in law, the Ld. Addl. CIT(A) is justified in not appreciating the findings made by the AO in the order u/s 201/201(1A) of the I.T. Act, 1961 regarding assessee's default of non-deposit of TDS as the disallowance u/s. 40(a)(ia) has been made by the assessee for the same in its ITR and the TDS payable entry in the balance sheet has increased by the amount of TDS deducted during the year.

P a g e | CO No. 273/Mum/2025 A.Y. 2021-22 Sashwat Energy Private Limited 4. All the above grounds are interconnected and interlinked and therefore,being adjudicated together. During the course of survey, it was observed that in the previous year under consideration, the assessee had incurred expenses on account of Interest expense on loan of Rs. 32,39,55,000/- and professional fee/consultancy fees/Audit fee, etc of Rs. 25,00,000/-.The assessee had deducted TDS on Interest expense of Rs. 32,39,55,000/- under section 194A of the Act and Professional fees of Rs. 90,000/- u/s 194J of the Act. However, the assessee had failed to deposit the tax deducted at source after deduction in Government exchequer.On verification of details, it was observed that the deductee M/s Shapoorji Pallonji and Co Pvt Ltd.(‘SPPL’) had submitted lower deduction certificate u/s 197 of the Act which resulted in tax deducted at source @4.6% u/s 194A instead of @10%. Accordingly, the assessee had deducted TDS of Rs. 1,48,96,640/- u/s 194A of the Act and had made payment/credited of interest amount to SPPL. Further, on perusal of ITR for A.Y.2021-22 vis-à-vis computation of income furnished by the assessee, it was observed that while computing its income, the assessee had disallowed Rs.9,79,63,500/- u/s 40(a)(ia) on account of non- compliance with the provisions of Chapter XVII-B of the Act @30%. Thus, as per ITR defaults referred u/s 40(a)(ia) on accounts of payments P a g e | CO No. 273/Mum/2025 A.Y. 2021-22 Sashwat Energy Private Limited on which tax was not deducted or after deduction had not been paid was worked out to Rs. 32,65,45,000/-.

4.1 In response to the show cause notice as to why it should not be treated as “assessee in default” and order u/s 201(1)/201(1A) should not be passed for such non-compliance of TDS provisions i.e. TDS deducted of Rs. 1,49,52,541/- on payment made amounting to Rs. 32,40,45,000/- but not depositing the same into the Government Treasury, the assessee submitted that during the relevant year, the assessee company had an outstanding loan from Shapoorji & Pallonji amounting to Rs 281,60,00,000/-.The assessee company’s net-worth as on 31st March 2021 was Rs 95,11,70,000/.- Thus, the assessee was in no position to repay the loan. There was no question of assessee company’s ability to pay the interest. However, as per the accounting standards, it was forced to record the interest on loan amounting to Rs 32,38,40,000/-. The assessee Company was in noposition to service this interest. Till date, the assessee Company had not paid this interest amount to SPPL. While recording the entry for Interest, the assessee Company had erroneously recorded the TDS on interest as well amounting to Rs 1,48,96,640/-.The cash and bank balance of the assessee as on 31st March 2021 was only Rs 12,14,499/-. Thus, the P a g e | CO No. 273/Mum/2025 A.Y. 2021-22 Sashwat Energy Private Limited company did not have any money to make the TDS payment of Rs 1,48,96,640/-. SPPL. had offered the entire interest amount of Rs 1,48,96,640/- to tax in its return of income. Thus, as per the provisions of section 201(1), the assessee could not be considered as an assessee in default.

4.2 However, the AO rejected the contentions by observing that the fact remained that the assessee had deducted TDS @ 4.6% i.e. Rs. 1,48,96,640/- on total payment of Rs.32,38,40,000/- to SPPL as per certificate u/s 197 of the Actto it for F.Y.2020-21. Thus, the assessee was considered as defaulter for deducting TDS of Rs. 1,48,96,640/- and not paying the deducted amount in Government Treasury. Accordingly, Form 26A filed by the assessee was held as liable to be rejected and had no relevance while determining the TDS default of the assessee. Furthermore, it was the duty of the deductor to deposit the TDS deducted within the time specified in Rule 30. The deductee(s) cannot claim the credit of said amount in their return of income as the same will not reflect in their 26AS.The assessee was, therefore, held to be an “Assessee in Default” within the meaning of section 201 of the Act for F.Y. 2020-21 and accordingly, tax liability is computed till September, 2024. Accordingly, total TDS liability of the assessee for non-depositing P a g e | CO No. 273/Mum/2025 A.Y. 2021-22 Sashwat Energy Private Limited the TDS after deduction and interest thereon for FY 2020-21 relevant to AY 2021-22 was computed at Rs. 2,17,77,160/- which included the outstanding TDS amount of Rs. 1,49,14,890/- u/s. 201(1) of the Actand interest of Rs. 68,62,270/- u/s. 201(1A) of the Act, was chargeable till month of September, 2024.

6.1 Per contra, the ld.AR has repeated the same arguments claiming that the assessee was not in a position to repay the loan and interest. Since no interest payments were made during the year, the appellants did not deduct any TDS on the interest. The assessee had merely recorded an interest entry in the books as per requirement of the Accounting Standards. The interest of TDS entry of Rs. 1,48,96,640/- was inadvertently recorded in the books; however, no such TDS was deducted as no payment was made. Also, bank statements were provided to show that there was no interest payment to SPPL. The interest income P a g e | CO No. 273/Mum/2025 A.Y. 2021-22 Sashwat Energy Private Limited of Rs. 32,38,40,000/- had been considered by SPPL in its return of income. A total tax of Rs. 128,57,99,996/- was paid on the returned income. Annexure A of Form 26A showed that the income was included in total income and tax thereon had been duly paid. The assessee had also paid the applicable interest of Rs. 22,35,720/- u/s. 201(1A) from the date on which tax was deductible till the date of filing the return of income by the payee. A copy of Form 26A was submitted before the lower authorities. It is submitted that the first proviso to section 201 of the Act states deductor shall not be deemed to be an assessee in default if the payee: i) has furnished his return of income u/s. 139; ii) has taken into account such sum for computing income in such return of income; andiii) has paid the tax due on the income declared by him in such return of income.

P a g e | CO No. 273/Mum/2025 A.Y. 2021-22 Sashwat Energy Private Limited 7.1 Section 201(1) of the Act envisages that where an assessee does not deduct or does not pay after so deducting fails to pay the whole or any part of the tax as required under the Act, then such an assessee shall be deemed to be an assessee in default in respect of such tax. Further, in terms of section 201(1A) of the Act, an assessee is liable to pay simple interest if the assessee does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under the Act. In the present case, as per the Revenue the assessee was required to deduct tax in terms of section 194A of the Act. As per section 194A, an assessee who is responsible for paying to a resident any income by way of interest other than interest on securities, shall deduct income- tax thereon at the prescribed rates at the time of payment or at the time of credit of such income to the account of the payee, whichever is earlier. The Assessing Officer held that the assessee had defaulted in not deducting the tax at source as required under section 194A of the Act. It is argued that no demand visualized under section 201(1) of the Act is liable to be enforced after the tax deductor satisfies the AO that taxes due have been paid by the deductee assessee. The assessee has asserted all along that notwithstanding that it was being held to be an assessee in default, there could be no recovery of tax alleged to be in default once again from the P a g e | CO No. 273/Mum/2025 A.Y. 2021-22 Sashwat Energy Private Limited appellant considering that SPPL had already paid taxes on the income stated to have been received from the appellant.

7.2 Having regard to the parity of reasoning laid down by the Hon'ble Supreme court in the case of Hindustan Coca Cola Beverage P. Ltd. v CIT, (2007) 293 ITR 226 (SC) and as declared by the CBDT in its circular dated 29.1.1997 , the aforesaid claim by the assessee is required to be evaluated. We find that the aforesaid settled position in law has also been legislatively recognized by insertion of a proviso in sub-section (1) of section 201 of the Act by the Finance Act, 2012. Thus, the settled position in law is that if the deductee/payee has paid the tax, no recovery can be made from the person responsible for paying of income from which he failed to deduct tax at source. In a case where the deductee/payee has paid the tax on such income, the person responsible for paying the income is no longer required to deduct or deposit any tax at source. If the assessee succeeds in demonstrating that the deductee assessee, i.e. SPPL had paid taxes due on the impugned income, no liability contemplated by section 201(1) of the Act can be fastened on the assessee. In view of the aforesaid, in our view, having regard to the judgment of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage P. Ltd. (supra) as also CBDT Circular P a g e | CO No. 273/Mum/2025 A.Y. 2021-22 Sashwat Energy Private Limited dated 29.1.2007, once taxes on the subjected sums have been recovered from the payee assessee, thereafter assessee cannot be treated as an assessee in default under section 201(1) of the Act for non-deduction of tax at source on such amount. The grounds in this regard are dismissed.

7.3 In so far as the liability to pay interest under section 201(1A) of the Act for any delay in deduction and subsequent deposit of tax is concerned, the payer is liable to pay interest under section 201(1A) on the amount of non/short deduction of tax from the date on which such tax was deductible to the date on which the payee has discharged his tax liability directly.The amended section 201 provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in dealt in respect of such tax if such resident payee- (i) Has furnished his return of income under section 139; (ii) Has taken into account such sum for computing income in such return of income ; and (iii) Has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed. The date of payment of taxes by the resident payee shall be deemed to be the date on which return has been furnished by the payer.

P a g e | CO No. 273/Mum/2025 A.Y. 2021-22 Sashwat Energy Private Limited 7.4 Further, where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee.

Sd/- Sd/- SANDEEP GOSAIN PRABHASH SHANKAR (न्यातयक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER)