DCIT (TDS) 2(2), MUMBAI vs. PORTLAND INDIA OUTDOOR ADVERTISING PLTD, MUMBAI

PER AMARJIT SINGH, JM:

The revenue has filed the appeal against the order dated 20.12.2013 passed by the learned Commissioner of Income Tax (Appeals)13, Mumbai [hereinafter referred to as the learned “CIT(A)”] relevant to the A.Y.2009-10. 2. The revenue has taken the following grounds:- Assessment Year: 2009-10

i) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the facts of the case and deciding the appeal of the assessee on the basis of decision of Hon’ble ITAT in the case of M/s. Pfizer Ltd. which is not accepted by the Department and the Department has filed further appeal in the case of M/s. Pfizer Ltd. ii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the non deduction of tax by holding that in view of disallowance u/s. 40(a)(ia), no demand can be raised u/s.201(1) of the I.T.Act without appreciating the intent & spirit of section 40(a)(ia) vis-a-vis TDS provisions under chapter XVII of the Act. iii) On the facts and circumstances of the case and in law, the Ld. CIT(A)has erred in not appreciating the facts that disallowance of expenses in computation of taxable income in accordance to provisions of section 40(a)(ia) is temporary, the said expenses are paid to the credit of government. However, TDS provisions provides for collecting tax on income of the deductee. Therefore, the disallowance by itself does not absolve the assessee of the consequence for failure to deduct and pay tax under any TDS provisions. iv) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the demand of Rs.24,03,458/- (inclusive of interest), without properly appreciating the factual & legal matrix of the case as clearly brought out by the A.O. in order u/s.201(1)&201(1A) of the I.T.Act, 1961. 3. In brief the revenue is aggrieved by the order of learned CIT(A) in deleting the non deducting the of tax by holding that in view of the disallowance u/s.40(a)(ia) of the of the Income Tax Act, 1961 ( in short “the Act”), no demand can be raised u/s.201(1) r.w.s 40(a)(ia) vis a vis TDS provisions under chapter XVII of the Act.

2 Assessment Year: 2009-10

“3. 7. I have considered the issue and also gone through the case laws cited by the appellant. There is no dispute that the appellant themselves disallowed these expenses u/s.40(a)(ia) of the Act. The AO has not made any further disallowance u/s.40(a)(ia) for these expenses. Further, though appellant has stated that the expenses which were Software License Fees, Professional and Consultancy Fees, Outsourced Business System and Outsourced I. T. Services were provisional in nature by taking

3 Assessment Year: 2009-10

general plea that these expenses were based on certain estimations and assumptions, however have not supported their claim by an documentary evidence. Despite being asked for the same. It is pleaded that out of total such expenses debited and disallowed u/s.40(a)(ia) amounting to Rs.85,53,719/-, on the expenses amounting to Rs.28,21,000/- in subsequent year; tax deducted and paid to the credit of Central Government meaning thereby the default has occurred and hence expenses were disallowed in the instant year and were claimed in the year when the taxes were deducted and paid. The appellant’s argument is that since they have deducted and paid the exes on the amount of Rs.28,21,000/- and hence liability to deduct tax at source, and to pay to the credit of Central Government also arose in the subsequent year and hence they are not defaulter for levy of interest u/s.201(1) and 201(1A). It can not be disputed that the liability arose in the very PY as the amounts were credited in the account of concerned parties or paid to them whichever was earlier and it is only the tax was deducted or paid on the same in the subsequent year. In view of the this 4 Assessment Year: 2009-10

section 201(1) is very much at attracted as the tax was required to be deducted at the time of credit/payment whichever was earlier. Hence I am not in agreement with appellant on this for the reason that Act fastens the liability at the time of credit or payment whichever is earlier. Here appellant has credited amount of Rs.28,21,000/- in P.Y. relevant to A.Y.2009-10 and hence deduction of tax subsequently will not absolve them from levy of interest u/s.201(1) and 201(1A) of the Act. Further, for the balance amount of Rs.56,72,719/- though claimed the appellant have failed to show that entries were not credited in respective parties individual accounts and also failed to show that they were reversed in a particular year subsequently. Thus in principle action of A.O. is upheld for the levy of interest treating as assessee in default for the entire amount of Rs.85,53,719/-

5 Assessment Year: 2009-10 No.1667/Mum/2010)(Mum) dated 31st October 2012, which was given in that case for A.Y.2007-08 is in favour. The relevant part of the same is reproduced as under:-

It is undisputed that the taxpayer had made provision for expenses which were disallowed under section 40(a)(i)/40(a)(ia) of the Act while filing its income-tax return. As per the journal entries passed, once the individual payee was identified, all the provisions relating to taxes deducted at source (TDS) were applicable. The Mumbai Tribunal I has held that provisions of TDS are not applicable in the absence of any identifiable payee. As the payee was not identifiable at the time of making provisions, TDS is not required to be deducted. The entire provisions were written back in the next year and the actual amounts paid/credited were subjected to TDS which was undisputed. Where an amount was disallowed under section 40(a)(i)/40(a)(ia) on the basis of the Audit Report of the Chartered Accountant, the taxpayer cannot be treated as an assessee in default under section 201(1) of the Act in respect of same amount again. If the revenue’s contention was to be accepted, then disallowance under section 40(a)(i)/40(a)(ia) cannot be 6 Assessment Year: 2009-10

made and the provisions of section 40(a)(i)/40(a)(ia) to that extent may become otiose.

Conclusion:

Provisions of TDS are not applicable if the payee is not identifiable. Assessee cannot be treated as an assessee in default under section 201(1) of the Act, if the amounts are disallowed under section 40(a)(i)/40(a)(ia) of the Act.

Consequences of failure to deduct or pay-

1) Where any person including principal officer of a company:-

a) Who is required to deduct any sum in accordance with the provisions of this Act; or b) Referred to in sub-section (IA) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by r under this Act, then such person, shall without

7 Assessment Year: 2009-10

prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax.

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 person furnishes a certificate to this effect from an accountant in such form as may be prescribed.”

“4.2 I have considered the above submissions of the appellant as well as the facts of the case. It is seen that an amount of Rs.5,49,796/- was quantified by the chartered accountants of the appellant in the tax audit report for 8 Assessment Year: 2009-10

disallowance under section 40(a)(ia) of the Act. Therefore, while filing the return of income, the appellant suo moto disallowed an amount of Rs.5,50,000/- in the computation of income. Thus, the appellant did not claim the deduction in regard to these expenses incurred. The appellant’s contention is that the provisions of section 201 do not apply to its case because the amount of Rs.5,50,000/- has been suo moto disallowed, while filing the return of income. I agree with the contention of the appellant in this regard.

non-deduction of tax at source in view of the said fact that the amount of Rs.5,50,000/- has been suo moto disallowed by the appellant under section 40(a)(ia) of the Act in the return of income. The demand of Rs.11,98,849/- raised by the AO is therefore not justified and the same is hereby deleted.”

10 Assessment Year: 2009-10

आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant