KAYA LTD,MUMBAI vs. DCIT (TDS) RG 2(1), MUMBAI

The captioned appeal by the assessee for Assessment Year [AY] 2012-13 assails the order of the Ld. Commissioner of Income-Tax (Appeals)- 59 [CIT(A)], Mumbai dated 23/03/2016 qua treating assessee as assessee-in-default to the extent of Rs.3,12,776/- within the meaning of Section 201(1) of the Income Tax Act for non-deduction of TDS on certain payments and consequential levy of interest u/s 201(1A) for Rs.1,12,598/-.

Briefly stated, the assessee, being resident corporate assessee engaged in providing skincare services and holding TAN-MUMK-13061- G, was subjected to an order u/s 201(1) read with section 201(1A) of the Income Tax Act, 1961 vide Assessing Officer [AO] order dated 26/03/2014. The Ld. AO, upon perusal of Tax Audit Report for impugned AY, noticed that the assessee made provision of Rent & Professional fees amounting to Rs.14,41,875/- & Rs.16,85,877/- respectively but failed to deduct TDS of Rs.1,44,188/- and Rs.1,68,588/- from the said payment which resulted into raising of impugned demand of Rs.3,12,776/- against the assessee u/s 201(1) and consequential interest demand @1% for 36 months u/s 201(1A) amounting to Rs.1,12,598/-. Both the demands were contested before Ld. CIT(A) where the assesse contended that these were mere adhoc provisions only on estimated basis without there being any specific entries in the respective ledger accounts of the payee. Further, the assessee reversed Kaya Limited Assessment Year 2012-13 the said provisions in the succeeding years and deducted due TDS whenever actual payments of rent / professional fees were credited / paid by him to respective payees. Moreover, the respective payees were not identifiable / not available with the assessee at the time of making provisions and therefore, there was no liability of TDS against the same. Further, the assessee himself treating these amounts as provisions disallowed the same in the computation of income. Reliance was placed on various judicial pronouncements for various contentions. However, not convinced, Ld. CIT(A) rejected the assessee’s stand by noting that the liability to deducted TDS was fastened on the assessee the moment the provisions of expenses were created in the books of accounts. Aggrieved the assessee is in appeal before us. 3. The Ld. Counsel for Assessee [AR], raising similar pleas and while drawing our attention to the computation of income placed in the paper- book, contended that these were a mere provisions which were subsequently reversed by the assessee. The assessee disallowed the same in the computation of income u/s 40(a)(ia) as the liability in respect thereof had not crystallized and therefore, the question of TDS did not arise at all and the lower authorities have erred in treating the assessee as assessee-in-default. Reliance has been placed on following judicial pronouncement for various contentions:-

Per contra Ld. DR placed reliance on the findings of Ld.CIT(A) and asserted that the impugned expenses were not mere provisions rather the assessee failed to deduct TDS against the same and rightly been treated as assessee-in-default.

We have heard the rival contentions and perused the relevant material on record including the cited case laws. First of all, we find that assessee in his computation of income has suo-moto made the disallowance of said expenditure u/s 40(a)(ia). Further, the nature of expenses is Rent & Professional Expenses. Therefore, so far as the argument that these were mere provisions is difficult to accept since the assessee is making suo-moto disallowance against the same u/s 40(a)(ia) which is related with addition / disallowance consequent to failure of deduction of tax at source by the assessee. Further, these expenses are relating to rent which is payable against specific property to a specific payee. Similarly professional expenses are payable for particular services to a particular payee. So, the argument that the payees were not identifiable is also difficult to accept. Per query from the bench during clarification, Ld. AR could not give satisfactory reply to the same and merely stated that the same were provisions for which disallowance u/s 40(a)(ia) has been made by the payee and the payees were not identifiable. 6. However, the Ld. AR, during proceedings before us, stated that the assessee reversed the provisions in subsequent years and deducted TDS from actual payment as per law and deposited the same. If this is Kaya Limited Assessment Year 2012-13 so, the assessee could not be required to deposit the same again by raising this demand. Therefore, we direct Ld. AO to verify the fact that whether the assessee, in subsequent years, has reversed the said amounts and deducted the due TDS at the time of actual payment and deposited the same to the credit of central government. If so, the said demand of Rs.3,12,776/- raised u/s 201(1) shall stand deleted. 7. However, so far interest u/s 201(IA) is concerned, we find that the assessee is liable to pay the same since we have already noted that the expenses against which TDS was deductible was not mere provisions and the payees were identifiable and the assessee himself disallowed the same u/s 40(a)(ia). Therefore, the interest demand raised u/s 201(IA) stand confirmed against which the interest, if any, already paid by the assessee shall be adjusted. Our view also stands fortified by the above cited case laws. 8. The Ld. AO is directed to verify the above facts in terms of our above directions and re-compute the tax demand u/s 201(1)/201(IA). 9. The assessee’s appeal stands allowed for statistical purposes.