ICICI Venture Funds Management Company Limited Vs DCIT (ITAT Bangalore)
No Escape from TDS on Identified Year-End Provisions; ITAT Grants Relief Where Tax Paid Before Return Due Date
The Bangalore ITAT held that where an assessee creates year-end provisions for identified professional fees payable to identified parties, the obligation to deduct tax at source arises at the time of making such provision itself. Merely because invoices are received in the subsequent year does not postpone the TDS liability. Accordingly, the Tribunal upheld the applicability of Section 194J and rejected the assessee’s contention that no TDS was required on year-end provisions of legal and professional expenses.
In the case of ICICI Venture Funds Management Co. Ltd., the Assessing Officer had disallowed ₹3.55 crore under Section 40(a)(ia) for failure to deduct tax on provisions made towards legal and professional fees. The Tribunal observed that the payees, nature of services and amounts payable were all identifiable and the liabilities had crystallized as on 31 March 2014. Therefore, the provisions could not be treated as contingent liabilities to escape TDS provisions.
At the same time, the Tribunal reiterated the statutory relief available under Section 40(a)(ia). It held that where TDS was deducted and deposited before the due date of filing the return under Section 139(1), no disallowance could survive in that year. Where tax was deducted and remitted in a subsequent year, the expenditure would be allowable in the year of such payment. The Tribunal accordingly directed verification of payments made to resident professionals including Amarchand Mangaldas, Darius Khambatta and AZB Partners, and granted consequential relief wherever TDS had been deposited within the prescribed timelines.
With regard to ₹1.42 crore paid to offshore lawyers, the Tribunal noted that neither the Assessing Officer nor the CIT(A) had properly examined the assessee’s claim that the income was not taxable in India under the applicable DTAA and therefore not subject to TDS under Section 195. This issue was restored to the Assessing Officer for fresh examination after verifying tax residency certificates and treaty eligibility.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
