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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORESHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER
ITA No.1185/Bang/2014 Assessment Year :2012-13
M/s. Toyota Kirloskar Motors Pvt. Ltd., The Income Tax Officer (TDS), Plot No. 1, Bidadi Industrial Area, Vs. Large Taxpayer Unit, Ramanagar District – 562 109. Bangalore.
APPELLANT RESPONDENT
Assessee by : Shri Padam Chand Khincha, CA Revenue by : Shri G.R. Reddy, CIT (DR-I)
Date of hearing : 11.09.2017 Date of Pronouncement : 31.10.2017
O R D E R Per Shri A.K. Garodia, Accountant Member This appeal is filed by the assessee which is directed against the order of CIT(A), LTU, Bangalore dated 20.06.2014 for Assessment Year 2012-13.
The grounds raised by the assessee are as under. “1.1 The order passed by the learned Commissioner of Income tax (Appeals), LTU, Bangalore to the extent prejudicial to the appellant is bad in law and liable to be quashed. 2.1 The learned CIT(A) LTU Bangalore has erred in confirming the action of the learned Income tax officer (TDS), LTU, Bangalore in treating the appellant as 'assessee in default' under section 201(1) without demonstrating the satisfaction of the requirements of Explanation to section 191 of the Act. 2.2 The learned CIT(A) LTU Bangalore has erred in confirming the action of the learned Income tax officer (TDS), LTU Bangalore in treating the appellant as 'assessee in default' under section 201(1) without ascertaining whether deductees have also failed to pay the tax directly.
ITA No. 1185/Bang/2014 Page 2 of 10 2.3 The learned CIT(A) LTU Bangalore has erred in not appreciating that deductor cannot be regarded as 'assessee in default' under section 201(1) without demonstrating that the deductee has also not paid the tax directly as per the mandate of Explanation to section 191 of the Act.
2.4 The learned CIT(A) LTU Bangalore has erred in not appreciating that since the deductees would have filed the return of income / paid the taxes, the appellant cannot be deemed to be 'assessee in default' under section 201 of the Act.
2.5 On facts and in the circumstances of the case and law applicable, the order passed by the CIT(A) LTU and the order passed under section 201 without satisfying the requirements of section 191 and Explanation thereof is bad in law and liable to be quashed.
3.1 Assuming without admitting that the appellant can be regarded as 'assessee in default' under section 201, the learned Income tax officer TDS, LTU, Bangalore has erred in raising the demand on the appellant to recover the tax alleged to have not deducted.
3.2 The learned CIT(A) LTU and the learned Income tax officer (TDS), LTU Bangalore has erred in not appreciating that (i) section 201 does not in any manner authorize to recover the amount of tax not deducted;
(ii) the recipient of income is liable to pay the tax directly as per the mandate of section 191 and consequently, no tax can be recovered from the deductor.
3.3 On facts and in the circumstances of the case and law applicable, no tax can be recovered from the appellant (deductor) and consequently, the demand raised on the appellant is to be held as bad in law.
Without prejudice and on merits,
4.1 The learned CIT(A) LTU, Bangalore has erred m confirming the action of Income-tax Officer, LTU (TDS), Bangalore in concluding that reversal of provisions and unutilized amount of provision totally amounting to Rs. 8,71,32,988/- is liable for deduction of tax at source.
4.2 The learned CIT(A) LTU and the Income tax Officer, LTU (TDS) Bangalore has erred in (a) treating reversal of provision for expenditure as liable to deduction of tax at source.
(b) not appreciating that the reversal of provision for expenditure were after considering the fact that those provisions were no longer required in the books of accounts.
ITA No. 1185/Bang/2014 Page 3 of 10
(c) not appreciating that reversal/ unutilized provision for expenditure is not liable for deduction of tax at source. 4.3 On facts and in the circumstances of the case and law applicable, reversal of provisions and unutilized amount of provision totally amounting to Rs. 8,71,32,988/- is not liable for deduction of tax at source. 5.1 The learned CIT(A) LTU has erred in confirming the levy of interest under section 201(1A) of the Act and interest on delay in remittance of TDS. On facts and in the circumstances of the case and law applicable, interest under section 201(1A) and interest on delay in remittance is not leviable. The appellant denies its liability to pay interest under section 201(1A) and interest on delay in remittance. 6.1 In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order passed by the learned CIT(A) LTU to the extent prejudicial to the appellant be quashed Or in the alternative a) appellant be held as not an assessee in default; b) reversal of provisions and unutilized amount of provision totally amounting to Rs. 8,71,32,988/- be held as not liable for TDS; c) interest levied under section 201(1A) be deleted; d) interest levied for delayed remittance be deleted; e) demand of Rs. 76,10,879/- be cancelled. The appellant prays accordingly.”
It was submitted by ld. AR of assessee that although so many grounds are raised but issue involved is only one as to whether the assessee can be considered as an assessee in default for not deducting TDS in respect of those provisions which were reversed. He submitted that the decision of the CIT(A) in this aspect is as per para nos. 6 to 8 of its order. He placed reliance on judgment of Hon'ble Karnataka High Court rendered in the case of Karnataka Power Transmission Corporation Limited Vs. DCIT as reported in 383 ITR 59 copy available on pages 182 to 191 of paper book. Thereafter he submitted that the relevant page is 185 of paper book where the facts are noted by Hon'ble Karnataka High Court. He pointed out that as per the facts noted in para no. 2 of the judgment, provisions were created by book entries towards contingent interest payable for assessment years 2005-06 and 2006-07 and a corresponding reversal entries were made in the books of account during the
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financial year 2007-08 and under these facts, it was held that there would be no liability to deduct tax u/s. 194A as no income has accrued to the suppliers. He further placed reliance on a Tribunal order rendered in the case of M/s. Bosch Limited Vs. ITO in ITA No. 1583/Bang/2014 dated 01.03.2016 copy available on pages 164 to 181 of paper book. Regarding the facts of this case, he drawn our attention to para no. 9 of the order where it is noted that the provisions were made at the end of the year and the same were reversed in the beginning of the next accounting year. At this juncture, a query was raised by the bench as to what is the date of reversal of the provision in the present case. In reply, the ld. AR of assessee submitted that these details are not readily available but he will obtain those details from assessee and furnish the same. Later, the ld. AR of assessee has submitted those details along with letter dated 04.10.2017 as per which the first reversal was made on 30.09.2012 of Rs. 1,37,50,381/- and the last reversal was made on 31.01.2014 of Rs. 46,46,440/- under section 194J and Rs. 64,55,074/- u/s. 194C. He has also placed reliance on another tribunal order rendered in the case of M/s. TE Connectivity India Pvt. Ltd. Vs. ITO in ITA No. 3/Bang/2015 dated 25.05.2016 copy available on pages 257 to 269 of paper book and pointed out that in this case, the Tribunal has followed the earlier tribunal order cited by him having been rendered in the case of M/s. Bosch Limited Vs. ITO(supra). He also pointed out that as per para no. 6 of this tribunal order, the facts are similar because in this case also, the provisions were made at the end of the accounting year and were reversed in the beginning of the next year. He also placed reliance on a judgment of Hon’ble Apex Court rendered in the case of CIT Vs. Eli Lilly and Co. (India) P. Ltd. as reported in 312 ITR 0225.
As against this, the ld. DR of revenue supported the order of authorities below. He also placed reliance on a Tribunal order rendered in the case of IBM India (P.) Ltd. Vs. ITO as reported in 59 taxmann.com 107 (Bangalore). He submitted a copy of this tribunal order.
We have considered the rival submissions. We find that as per the order passed by the AO u/s. 201(1) and 201(1A) of IT Act, 1961 on 11.03.2014, he
ITA No. 1185/Bang/2014 Page 5 of 10 has worked out the various payments on which the TDS was not deducted by assessee. The details of such expenses and TDS amount is as under.
Particulars of head under Reversed / Tax S.No. which tax is deducted at unutilized deductible source Payment to Overseas 1 14944451 2988890 Expenses 195 Payment to contractors 2 50513830 1010277 194C Payment towards 3 professional or Technical 21608265 2160826 services 194J Payment towards 4 34094 3409 commission 194H 5 Payment towards Rent 32348 3235 Total 87132988 6166637
The AO also added interest u/s. 201(1A) of Rs. 14,18,327/- along with interest on delayed remittance of Rs. 25,915/- and raised demand of total Rs. 76,10,879/-. Being aggrieved, the assessee placed the matter in appeal before the CIT(A) but without success. The decision of CIT(A) is as per para nos. 6 to 8 of his order which are reproduced herein below for the sake of ready reference. “6. Coming to the provisions of the IT Act, it is clear that ordinarily tax is to be deducted from the amount paid or credited to the party's account. However, subsection (2) to Sec.194C, explanation (ii) to Sec.194-I,explanation (c) to section 194J and explanation (1) to section 195 provide that even if the sums referred to under these provisions are credited to any account, whether called 'Suspense Account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of TDS shall apply accordingly. This means, in effect, that even the amounts credited to the 'provision' account instead of party account by the appellant are clearly within the liability for tax deduction under the IT Act. 6.1 With regard to the appellant's claim that the identity of the recipients was not known and, hence, it could not have deducted tax on the provisioned amounts, I find that the facts and probability largely belie this claim. It is commonsensical to expect that the appellant's creation of the provision for the services received in order to obtain a correct view of its profit at year end was not based on any arbitrary or whimsical estimate. It is clear from the provisioned
ITA No. 1185/Bang/2014 Page 6 of 10 expenses that the estimate has followed from pre-existing contracts with known parties for identified services and, hence, the accounting of amounts liable to be paid to these parties for services availed as per known terms of transaction is a specific exercise which carries with it the statutory responsibility for deducting tax at source also. The appellant cannot wriggle out of this responsibility by holding that the provisions were made without any basis towards unidentified parties for unascertained transactions. 6.2 The appellant has in its submission extracted in para 3 supra identified 4 reasons for which the provisions were made on an estimated basis without TDS deduction, The appellant was required to give the break-up of the impugned amount under these 4 categories, which is the factual evidence required to appreciate the appellant's claim. The appellant, however, has not been able to submit these details. It could only furnish the party wise details of TDS subsequently done on receipt of invoices. Without evidentiary support the appellant's claim cannot be admitted. 7. In ground no. 4 the appellant has argued that the AO erred in treating reversal of provision for expenditure and unutilized amount of provision as liable to deduction of tax at source. I am unable to agree with this claim since the AO has not discussed liability for tax deduction on the 'reversal of provision' but on the 'creation of provision' itself before the end of FY 2011-12. This, as has been held in the paras above, was a point at which the IT Act, the Tax Auditor as well as the appellant itself had clearly agreed with the liability for tax deduction. This ground, therefore, fails. 8. From the details available before me I find that in the months immediately following the close of FY 2011-12 the appellant has deducted tax from the payments made as per invoices received. In those cases where TDS has already been deducted the demand u/s 201(1) will lead to a double demand for the same amount and this is inconsistent with law and fairness. However, where the provisioned amount was higher than the invoice amount, the balance has clearly not suffered tax. Since it has been held supra that the liability for tax deduction existed on the company at the time of making the provision, the default for non-deduction of tax at source is to be limited only to the surplus over and above the invoice amount. The appellant will furnish the details in this regard to the AO who will consider them and limit the default calculation accordingly.”
In the light of these facts, we examine the applicability of various judgments on which reliance has been placed by ld. AR of assessee. The first judgment cited by him is a judgment of Hon'ble Karnataka High Court rendered in the case of Karnataka Power Transmission Corporation Limited Vs. DCIT (supra). As per
ITA No. 1185/Bang/2014 Page 7 of 10
the facts noted in para no. 2 of this judgement, it comes out that during Assessment Years 2005-06, 2006-07 and 2007-08 in question, the assessee has created provisions of Rs. 1765.75 lakhs, Rs. 1240.70 lakhs and Rs. 574.39 lakhs respectively for contingent payment of interest on belated payments to its suppliers and for the first two years, the assessee in its P & L account treated the said amount of provision as expenditure to arrive at profit but in the return of income filed for Assessment Years 2005-06 and 2006-07, the assessee did not treat the said amount of provision towards contingent interest payable as expenditure and it arrived at the taxable income without excluding such amounts of provision towards such interest and corresponding reversal entries were made in the books of accounts during the Financial Year 2007-08. Hence it is seen that in this case, provision was made in respect of contingent liability for which no deduction was claimed for computation of income although it was debited to P & L account in the first two years. In the present case, the provision is not for a contingent liability although disallowance was made by the assessee in respect of such amount of expenses from which no tax was deducted in view of the provisions of section 40(a)(ia) of the Act. In the present case, this is not case of the assessee that the provision was in respect of a contingent liability. Therefore in our considered opinion, this judgment of Hon'ble Karnataka High Court is not applicable in the facts of the present case.
The second judgment cited by ld. AR of assessee is tribunal order rendered in the case of M/s. Bosch Limited Vs. ITO (supra). As per the facts noted in para no. 9 of this tribunal order, the provisions were made at the end of the year and the same were reversed in the beginning of the next accounting year. Whereas in the present case, as per the details of reversal of provision provided by ld. AR of assessee on 04.10.2017, the first reversal of Rs. 1,37,50,381 /- in respect of Overseas expenses was made on 30.09.2012 and last reversal was made on 31.01.2014 in respect of Rs. 46,46,440/- being payments to professional or technical services and Rs. 64,55,074/- in respect of payment to contractors. Hence this is undisputed factual position that reversal in the present case is not in the beginning of the next accounting year. Part reversal is even after the end of the next accounting year. The major reversal of Rs.
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2,93,03,081/- on account of payment to contractors and Rs. 1,30,82,760/- on account of payment towards professional or technical services is on 25.02.2013 i.e. towards the end of the next accounting year. The date of reversal is very much important to decide as to whether the income has accrued to the payee or not because at para no. 9 of this tribunal order cited by ld. AR of assessee having been rendered in the case of M/s. Bosch Limited Vs. ITO (supra), the basis of this decision is this that liability for deduction of tax at source arises only when there is accrual of income in the hands of the payee. When the provision is made at the end of the accounting year and the reversal is made at the very beginning in the next accounting year then there may be a case of income not accruing to the payee and the provisions is made in the books of accounts even before the income has accrued to the payee. But in the present case, the reversal is not in the beginning of the next accounting year and therefore, it is not acceptable that the income has not accrued to be payee and still the assessee waited for this 6 months minimum to 22 months maximum for reversal of the entry. If the reversal is after income has accrued to the payee, such reversal is not relevant to decide the liability of the assessee for deducting TDS. In the facts of the present case, this tribunal order is not applicable.
The second tribunal order cited by ld. AR of assessee is the tribunal order rendered in the case of M/s. TE Connectivity India Pvt. Ltd. Vs. ITO (supra) and we have already noted that the facts in this case are similar to the facts in the case of M/s. Bosch Limited Vs. ITO (supra) because this case also, it is noted by the Tribunal that the provisions were made at the end of the accounting year and were reversed at the beginning of the next year. The Tribunal followed the earlier tribunal order rendered in the case of M/s. Bosch Limited Vs. ITO (supra). We have already seen that in the facts of the present case, this tribunal order rendered in the case of M/s. Bosch Limited Vs. ITO(supra) is not applicable and therefore, for the same reason, this tribunal order rendered in the case of M/s. TE Connectivity India Pvt. Ltd. Vs. ITO (supra) is also not applicable in the present case.
ITA No. 1185/Bang/2014 Page 9 of 10
Lastly the assessee has placed reliance on a judgment of Hon'ble Apex Court rendered in the case of CIT Vs. Eli Lilly and Co. (India) P. Ltd. (supra). In this case, it is noted by Hon’ble Apex Court that the issue in dispute was this as to whether TDS provisions which are in the nature of machinery provisions to enable collection and recovery of taxes are independent of the charging provisions which determines the assessability of income chargeable under the head "Salaries" in the hands of the recipient? As per Para no. 37 of this judgment, it was held by Hon’ble Apex Court that the TDS provisions which are in the nature of machinery provisions to enable collection and recovery of tax forms an integrated Code with the charging and computation provisions under the 1961 Act, which determines the assessability/taxability of "salaries" in the hands of the employee of the assessee and therefore section 192(1) has to be read with section 9(1)(ii) read with the Explanation thereto and it was held that if any payment of income chargeable under the head "Salaries" falls within section 9(1)(ii) then TDS provisions would stand attracted. It was further held that identification of the recipient of the salary was not in dispute in that case and therefore, the tax-deductor-assessee were duty bound to deduct tax at source u/s. 192(1) from the Home Salary/special allowance(s) paid abroad by the foreign company, particularly when no work stood performed for the foreign company and the total remuneration stood paid only on account of services rendered in India during the period in question.However the penalty proceedings u/s. 271C were quashed.
In the present case, there is no dispute regarding penalty proceedings u/s. 271C and regarding the liability u/s. 201 and 201(1A) of IT Act, this judgment of Hon’ble Apex Court does not help the assessee.
Now we examine the applicability of tribunal order rendered in the case of IBM India (P.) Ltd. Vs. ITO (supra) cited by ld. DR of revenue. In this case, it was held by tribunal that assessee would be liable to deduct tax on provision for expenses created in books of accounts. The tribunal also held that when the assessee has admitted his default u/s. 40(a)(i) and 40(a)(ia), in the proceedings u/s. 201 and 201(1A), the assessee cannot argue that there was no liability under chapter XVII-B. This tribunal order supports the case of the assessee
ITA No. 1185/Bang/2014 Page 10 of 10 because in the present case also, the assessee has made disallowance u/s 40a (ia) and it means that the assessee has admitted its default u/s. 40(a)(ia) and therefore, in the proceedings u/s. 201 and 201(1A), the assessee cannot argue that there was no liability under chapter XVII-B. Since none of the judgments cited by ld. AR of assessee is rendering any help to the assessee in the present case and the tribunal order cited by ld. DR of revenue is helping the case of revenue, we find no reason to interfere in the order of CIT(A).
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA) Judicial Member Accountant Member Bangalore, Dated, the 31st October, 2017. /MS/ Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order
Senior Private Secretary, Income Tax Appellate Tribunal, Bangalore.