Robert Bosch Engineering and Business Solutions Pvt. Ltd. Vs ITO (TDS)/(OSD) LTU (ITAT Bangalore)
Summary: ITAT Bangalore considered consolidated appeals concerning year-end expense provisions created by Robert Bosch Engineering and Business Solutions Pvt. Ltd. and the consequential liability under Sections 201(1) and 201(1A) of the Income-tax Act. The assessee had made suo motu disallowances under Sections 40(a)(i) and 40(a)(ia) in respect of provisions on which tax had not been deducted at year-end. According to the assessee, some provisions subsequently crystallised upon receipt of invoices, whereupon applicable TDS was deducted and deposited, while other provisions were reversed because invoices were never received. The principal controversy was whether the assessee could nevertheless be treated as an assessee in default and subjected to interest under Section 201(1A).
The Tribunal noted that for AY 2012-13, out of the provision of Rs.4,48,04,866, TDS had subsequently been deducted and paid on Rs.3,25,21,444, while no TDS was effectuated on the balance Rs.1,22,83,222. It also noticed that payments to ESI Corporation did not attract TDS liability and therefore had to be excluded. The assessee argued that where a year-end provision was created without receipt of invoices and the expenditure was itself disallowed in the return under Section 40(a)(i)/(ia), fastening an additional TDS demand and interest would effectively subject the assessee to a double disadvantage. The Revenue, relying particularly on IBM India (P.) Ltd. v. ITO (TDS) and Agreenco Fiber Foam (P.) Ltd. v. ITO (TDS), contended that voluntary disallowance did not eliminate the underlying TDS obligation.
On the Section 201(1) issue, the Tribunal followed the principle that recovery provisions are intended to make good an actual loss of revenue. It held that to the extent TDS had subsequently been effectuated and deposited, the assessee could not continue to be treated as an “assessee in default”. In doing so, it considered IBM India as well as the principles in Ramkrishna Vedanta Math v. ITO. The Tribunal further reasoned that once the assessee had suo motu disallowed the entire provision under Section 40(a)(i)/(ia) for non-deduction of tax, the same amount could not mechanically be subjected once again to the TDS machinery for levying interest without examining the relevant factual position. It relied upon the scheme of Section 40(a)(ia) discussed in CIT v. Ansal Landmark Township Pvt. Ltd. and Rajiv Kumar Agarwal v. ACIT.
The Tribunal also took note of the Karnataka High Court decisions concerning year-end provisions, particularly Karnataka Power Transmission Corporation Ltd. v. DCIT (TDS) and Volvo India Pvt. Ltd. v. ITO (TDS). It observed that where no income had accrued to the payee and the provision was subsequently reversed, liability to deduct tax could not automatically be fastened merely because an accounting entry had been made. The Tribunal further considered the Supreme Court ruling in Shree Choudhary Transport Company v. ITO, but noted that the subsequent Karnataka High Court authorities and the factual issue regarding non-identification/accrual to payees required proper examination. It also considered Jagran Prakashan Ltd. v. DCIT, Ramkrishna Vedanta Math v. ITO and Pfizer Ltd. v. ITO (TDS)(OSD) while examining the relationship between recovery, interest and disallowance provisions.
Ultimately, the Tribunal directed the Assessing Officer to verify whether the payees had paid tax on the income embedded in the provisions on which TDS could not be effectuated due to non-receipt of invoices. Applying the principle recognised in Hindustan Coca Cola Beverage (P.) Ltd. v. CIT, it held that such verification was a prerequisite for determining the Section 201 consequences in the circumstances before it. The assessee was directed to furnish the relevant payee details and particulars of TDS subsequently deducted and deposited. At the same time, the Tribunal clarified that where a provision had not been added back to taxable income and the assessee had obtained the benefit of deduction, liability under Sections 201(1) and 201(1A) could arise. Both appeals were accordingly allowed for statistical purposes.
Cases Discussed:
1. Volvo India Pvt. Ltd. v. ITO (TDS), ITA No.369/2018, order dated 15.11.2021 (Karnataka High Court) — The Karnataka High Court held that where deduction of the provision was not claimed and entries were subsequently reversed on receipt of bills/invoices, the issue had to be examined with reference to whether income had accrued to the payees.
2. Shree Choudhary Transport Company v. ITO, (2021) 118 taxmann.com 47 (Supreme Court) — Considered regarding the statutory scheme of Section 40(a)(ia), Section 194C and consequences of failure to comply with TDS requirements.
3. Karnataka Power Transmission Corporation Ltd. v. DCIT (TDS), (2016) 383 ITR 59 (Karnataka High Court) — Relied upon for the proposition that where no income is attributable/accrues to the payee and the provision is reversed, mere accounting entries do not by themselves create TDS liability.
4. CIT v. Ansal Landmark Township Pvt. Ltd., 61 taxmann.com 45 (Delhi High Court) — Considered regarding the legal fiction and curative character of the second proviso to Section 40(a)(ia), particularly where the recipient has offered the corresponding income to tax.
5. IBM India (P.) Ltd. v. ITO (TDS), (2015) 59 taxmann.com 107 (ITAT Bangalore) — Considered on year-end provisions, subsequent deduction of TDS and consequences under Sections 201(1) and 201(1A).
6. Agreenco Fiber Foam (P.) Ltd. v. ITO (TDS), (2013) 61 taxmann.com 155 (ITAT Cochin) — Relied upon by the Revenue concerning TDS liability and the effect of disallowance under Section 40(a)(ia).
7. Rajiv Kumar Agarwal v. ACIT, ITA No.337/Agra/2013 (ITAT Agra) — Discussed through Ansal Landmark Township regarding the rationale behind the second proviso to Section 40(a)(ia) and absence of revenue loss where the recipient has paid tax.
8. Ramkrishna Vedanta Math v. ITO, (2012) 24 taxmann.com 29 / (2013) 55 SOT 417 (ITAT Kolkata) — Relied upon for distinguishing penal, interest and recovery consequences of TDS default and for the proposition that Section 201(1) recovery requires establishment of revenue loss.
9. Jagran Prakashan Ltd. v. DCIT, (2012) 21 taxmann.com 489 (Allahabad High Court) — Considered for the proposition that the deductor cannot be treated as an assessee in default until failure by the recipient to pay the corresponding tax is established.
10. Pfizer Ltd. v. ITO (TDS)(OSD), (2012) 28 taxmann.com 17 (ITAT Mumbai) — Relied upon on the identical issue that an amount already disallowed under Sections 40(a)(i)/(ia) should not again result in a Section 201 demand merely because TDS was not deducted.
11. Hindustan Coca Cola Beverage (P.) Ltd. v. CIT, (2007) 163 Taxman 355 / 293 ITR 226 (Supreme Court) — Applied for verification of whether tax had already been paid by the recipient before enforcing recovery consequences against the deductor.
12. IDBI v. ITO, (2007) 107 ITD 45 (ITAT Mumbai) — Relied upon by the assessee in support of its case concerning TDS on year-end provisions.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Present appeal is filed by assessee against consolidated order dated 31/05/2017, passed by the Ld.CIT(A)-14 for assessment years 2012- 13 & 2014-15.
We note that except for the difference in the addition the issue alleged in both these appeals are on identical facts. As common issue arises out of the impugned order and therefore these appeals are being disposed off by way of a common order. For sake of convenience, grounds pertaining to assessment year 2012-13 are reproduced as under.
“1. The order of the learned CIT(A) LTU is opposed to facts of the case and is bad in law.
2. The learned CIT(A) and ITO have erred in facts and in law by failing to appreciate that the obligation to deduct tax at source did not arise in respect of the provisions created in the books of accounts on 31 March 2012 (i.e., year-end provisions), as the receipt of such amounts by the parties was not established as on 31 March 2012.
3. The learned CIT(A) and ITO have erred in facts and in law by failing to appreciate that the obligation to deduct tax at source did not arise in respect of those items provided for on 31 March 2012 (i.e., year-end provisions) and which were subsequently reversed.
4. The learned CIT(A) erred in upholding interest levy under section 201(1A) of the Income-tax Act, 1961 [‘the Act’].
5. Without prejudice to the above, the learned CIT(A) and ITO have erred in levying interest under section 201(1A) of the Act until the date of passing the order under section 201(1) of the Act; whereas even if any interest is leviable, the same ought to have been levied: (a) until the date of deduction of taxes at source and credit to the account of the Central Government in those cases where invoices were subsequently received and paid; or (b) until the date of reversal of provisions in the books of accounts in those cases where provisions were later reversed.
6. The learned CIT(A) has not adjudicated on tax and interest levied by the learned ITO on ESI contribution payable to the Central Government at the rate of 10% even though there was no obligation to deduct tax under Chapter XVII-B of the Act.
7. The Appellant having suo-motto disallowed certain sums under section 40(a)(i) & 40(a)(ia) of the Act, the learned CIT(A) erred in holding that Appellant ought to have deducted tax at source on the said sums, since as per general legal principles an assessee cannot be subjected to a double disadvantage for a single failure.
8. The learned CIT(A) erred in holding that obligation for tax deduction at source as well as levy of interest under section 201(1 A) of the Act is applicable even to the extent of amount of provisions in excess of actual amount of invoice.
9. The Appellant craves leave to add, amend or alter any of the grounds herein.
10. For these and other grounds that may be urged at or before the time of hearing, the Appellant prays for appropriate relief.”
2. Brief facts of the case are as under:
The Ld.ITO(TDS) noticed that for the assessment year 2012-13 the assessee made suo-motto disallowances u/s 40(a)(i)/(ia) of the Act. The Ld.ITO(TDS) vide letter dated 30-07-2013 called upon the assessee to furnish the details of payment made and the TDS deducted and remitted to the Central Government account. In response to this, the assessee company vide its letter 12-08-2013 submitted copies of Form 3CD. Subsequently, the Ld.ITO(TDS) called for party wise details of the disallowance made by assessee under section 40(a)(i)/(ia) of the Act. This was complied with by the authorized representative of assessee. The Ld.ITO(TDS) from the details observed assessee had disallowed Rs.7,08,24,466/- under section 40(a)(i)/(ia) of the Act. The assessee submitted that the entire amount disallowed u/s.40(a)(ia) consists of following categories:
- It was submitted by assessee that on Rs.2,44,31,822/- applicable taxes were deducted and remitted to the Government account after 31/03/2012 as indicated in the statement furnished before the Ld.ITO(TDS).
- It was further submitted that Rs.4,47,09,666/- was provision created on 31/03/2012 on which no TDS was deducted as the final amount was not ascertainable. It was submitted by the assessee that subsequently the same was reversed as on 31/12/2012, upon receipt of invoices from the parties and applicable TDS was deducted, that stood deposited in the Government account.
- The assessee also submitted that one payment made to TATA Communications there was short deduction.
- It was submitted that there was one another payment pertaining to ESI corporation on which there was no liability to deduct any tax at source. The Ld.ITO(TDS) observed and held as under:
“In response to notice the assessee’s Authorized Representative Sri. Ananth CA appeared before the undersigned and furnished the details of subsequent payments made in respect of disallowances U/s 40(a) (ia) and 40(a) (i) of the IT Act and the case was discussed. It is noticed from the computation of income that Rs.7,08,24,466/- was disallowed u/s 40(a) (ia) of the IT Act. The assessee company has utilized the provision of Rs.2,44,31,822/- for further payments and it was told that the balance of Rs. 4,63,92,644/- of provision was reversed.subsequently. The details produced by the Assessee Company is virtually impossible to verify the accuracy of the amounts booked, subsequent payments and TDS details made in subsequent years. However the entire process of booking expenditure and charging of the same to the P&L A/c and its subsequent reversal was against the basic tenets of accountancy. Such accounting treatment not only virtually impossible to verify the accuracy of the amounts booked at the first instance vis-à-vis, reversal entries and subsequent booking as to whether the amounts are the same. From the above it is clear that the expenditure disallowed u/s 40 (a)(i) and 40 (a) (ia) is not crystallized expenditure. However column 17k of the 3CD report the assessee has not furnished any particulars of liability of a contingent nature. As the assessee has not furnished the party wise details with regards to the disallowance of Rs 4,63,92,644/- the undersigned is constrained to pass order u/s 201 (1)/201(1A) for the default of non deduction of tax at source. It is once again reiterated that the expenditure was not disallowed u/s 37 on provision and rather it was identified and disallowed u/s 40(a) & 40(a) (ia) by the tax auditor. Hence the assessee was considered as assessee in default in respect of non-deduction of tax U/s 201of IT Act. Accordingly the default continues and it is a fit case for levy of interest.
| Particulars | Amount (₹) |
|---|---|
| TDS deductible | 57,47,112/- |
| Interest | 13,79,307/- |
| Interest on delay payment | 4,71,297/- |
| Payable | 75,97,716/- |
Aggrieved by the order of the Ld.ITO(TDS), the assessee filed appeal before the Ld.CIT(A).
3. Before the Ld.CIT(A), assessee contended that the amount on which TDS has been computed by the Ld.ITO(TDS) includes such amount on which TDS has been deducted deposited with Government account on various dates.
The Ld.CIT(A) restricted the levy to such amount on which no TDS could be done and even later invoices could not be received and the amount were reversed. The Ld.CIT(A) thus directed the Ld.AO(TDS) to exclude those amounts in respect of which TDS has been made on the dates on which invoices have been raised.
