ACIT, NEW DELHI vs. M/S. MOSER BAER PHOTOVOLTAIC LTD., DELHI

The issue in question is whether tax has to be deducted at source of an amount provided in the books of account on estimate basis on the last day of the financial year for the purpose of accounting which amount is reversed on the very next day which is the first day of the next financial year. Ld.CIT(A) had followed the order of his predecessors in the assessee’s own case for the A.Y. 2010-11. The Revenue has accepted this decision of the Ld.CIT(A) and has not filed an appeal. The findings of the Ld.CIT(A) are at para 4.3 from pages 5 to 7 of his order which is not extracted for the sake of brevity.

After hearing rival contentions I find that the issue is no more res integra. The Hon’ble Delhi High Court in the case of DIT vs. Ericsson Communication Ltd. 378 ITR 395 (Del.) held as followed. “Held, dismissing the appeal, that assessee had denied any obligation for payment of royalty to its holding company in respect of a period prior to Sept.8, 2000 (i.e. the date of issuance of Press Note (2000 series) by the Govt. of India). The ITA 1852/Del/2015 A.Y. 2011-12 (FY 2010-11) Moser Baer Photovoltaic Ltd. entries passed by the assessee in its books of accounts were indisputably reversed and consequently its effect nullified. The assessee had also not charged the amount of royalty for the relevant period as an expense in its books. This was in conformity with the assessee’s view that no amount was payable to its holding company during the period in question. There was no allegation that this position asserted by the assessee was not bonafide, it was not the case of the revenue that nullifying the entries passed by the assessee was a subterfuge to avoid any obligation. The assessee neither paid royalty during the period nor reflected the royalty as payable. In such circumstances, it was difficult to accept that there was any income chargeable to tax which had accrued in favour of the holding company. In any view the assessee could not be held to have acknowledged the same by crediting the account of its holding company, as admittedly, that entry had been reversed. Mere passing of book entries which were reversed would not give rise to an obligation on the assessee to deduct tax at source, as clearly, there was no debt that could be said to be acknowledged. It was also not disputed that the holding company had not claimed royalty payable from the assessee and concededly no royalty for the period had been paid. In the absence of any income chargeable to tax arising on account of royalty in the hands of the holding company at the material time, the question of withholding tax at source would not arise.”