Case Law Details
Volvo India Pvt. Ltd. Vs ITO (TDS) (Karnataka High Court)
The facts of the said case would indicate that the provisions made at the end of the accounting year were reversed in the beginning of the next year and no payees were identified including the exact amount of liability. In such circumstances, the Tribunal following Karnataka Power Transmission Corporation Ltd.,2 held that the assessee company – M/s. TE Connectivity India Pvt. Ltd., was not liable to deduct tax at source as no income has accrued in the hands of the payee while allowing the appeal. Despite citing the said judgments the appeal filed by the assessee came to be dismissed by the Tribunal observing that the facts of the case of M/s. TE Connectivity India Pvt. Ltd.,1 are clearly distinguishable. The reasoning recorded by the Tribunal is that in the case on hand, the payees were identified and it is not an adhoc provision as the provisions contained odd figure also. The said reasoning is wholly unjustifiable, as could be seen from the material available on record, in the provisions made, payees were not identified. The genuiness of the provision cannot be determined on the basis of the figures. The cryptic reasoning of the Tribunal is not suffice to support the findings arrived at. It is trite that proper reason is the essential ingredient of a valid order.
It is ex-facie apparent that the contention of the assessee inasmuch as non-identification of the payees in the provisions and the disallowance of deduction expenditure under Section 40(a)(ia) of the Act has not been rightly appreciated by the Tribunal. In this scenario, the judgment of the Hon’ble Apex Court in the case of Shree Choudhary Transport Company4 would not be of any assistance to the Revenue unless the material aspects are considered with respect to Section 40(a)(ia) of the Act read with Sections 194C, 194H, 194I, 194J – relevant Sections under which TDS was required to be deducted by the assessee. These factors necessarily requires to be addressed by the Tribunal keeping in mind the provisions of the Act as well as the legal principles enunciated by the Hon’ble Courts. If the deduction is not claimed for the expenditures made in the provision even in the return submitted and the same is offered to tax in the subsequent year after reversing the entries pursuant to the receipt of the bills/invoices by the payees, the matter has to be analysed having regard to, whether income has accrued to the payees to deduct tax at source. In the given circumstances, we deem it appropriate to set aside the impugned order and remand the matter for fresh consideration by the Tribunal.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
This appeal is filed by the assessee under Section 260A of the Income Tax Act, 1961 [‘Act’ for short] challenging the order dated 17.01.2018 passed in ITA Nos.1195/Bang/2014 and 474/Bang/2016 by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru [‘Tribunal’ for short] relating to the assessment years 2012-13 and 2013-14.
2. The appeal was admitted by this Court to consider the following substantial question of law:
“Whether the order of the Tribunal is perverse in law as it failed to appreciate that the provisions were created on head-wise expenses and not with reference to any particular party and consequently such amounts of provisions did not attract the provisions of Section 194C, 194-I, 194-J and 194-H of the Act?”
3. The assessee is engaged in the business of manufacturing/dealing in tractors, trailers, bus chasis, road machinery and trading in construction equipment and also provides software, product design and other support services. The assessee created provisions of expenses, head wise, on adhoc basis in respect of various services received to facilitate closing of the books without reference to any particular party. Such excess amounts of provisions created got reversed subsequently. No tax deduction at source was made in respect of such provisions. The Income Tax Officer after noticing the said provisions disallowed by the appellant itself to be deducted from the expenditure while calculating for the purpose of taxation, which reflected in the statement of “Computation of Total Income Tax Liability as at 31st March 2012”, initiated proceedings under Section 201[1]/201[1A] of the Act considering the appellant to be an assessee in default in respect of the amount of tax which was not deducted at source on such provisions. Being aggrieved by the same, the assessee preferred appeals before the Commissioner of Income Tax [Appeals], Bangalore which came to be dismissed for both the assessment years under consideration. On further appeal before the Tribunal, by a common order dated 17.01.2018, both the appeals were dismissed. Hence, this appeal by the assessee.
4. Learned counsel appearing for the assessee submitted that the Tribunal as well as the Authorities failed to appreciate that the provisions made by the assessee was not identifiable with respect to the parties. On the bills/invoices raised by the parties during the subsequent assessment year, TDS was deducted and remitted to the Department. No deduction towards the expenditure was claimed by the assessee during the relevant assessment years under these provisions. Returns filed by the assessee for the assessment years in question and the audit report in Form No.3C were referred. Further referring to the order of the Tribunal in M/s. TE Connectivity India Pvt. Ltd., V/s. Income-tax Officer (LTU)(TDS), Bangalore1, it was argued that in identical circumstances, the Tribunal placing reliance on the ruling of this Court in the case of Karnataka Power Transmission Corporation Ltd., V/s. Deputy Commissioner of Income Tax [TDS]2, has categorically held that the assessee-company therein is not liable to deduct tax in the hands of the payee. However, the said order was not followed in the present case. Reliance was placed on the following judgments:
1. Karnataka Power Transmission Corporation Ltd.,2.
2. M/s. Toyota Kirloskar Motor [P] Ltd., V/s. Income Tax Officer3
5. Learned counsel for the Revenue placing reliance on the judgment of the Hon’ble Apex Court in the case of Shree Choudhary Transport Company V/s. Income Tax Officer4, argued that the interplay of Section 40[a][ia] and 194C would make it clear that the default by a person in compliance of the requirements of the provisions contained in Part B of Chapter-XVII of the Act leads, that when the obligation of Section 194C of the Act is not complied with, the consequences under Section 40[a][ia] will operate. Learned counsel made an endeavor to distinguish the ruling of Karnataka Power Transmission Corporation Ltd.,2 and M/s. Toyota Kirloskar Motor [P] Ltd.,3 and further argued that the deduction was claimed under Section 37 of the Act, however on audit made, the same was disallowed under Section 40[a][ia] for not deducting TDS.
6. We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.
7. The material placed before us would indicate that the provision made by the assessee was not identifiable with the parties. It gives the description of various services to which charges are payable which attracts TDS under Sections 194C, 194H, 194I and 194J. The Co-ordinate Bench of this Court in the case of Karnataka Power Transmission Corporation Ltd.,2 has considered similar issue wherein the appellants therein in their profit and loss account treated the amount of provision as expenditure to arrive at profit. However, in the returns of income filed for the said assessment years, no expenditure was claimed, corresponding reversal entries were made in the books of accounts during the financial year 2007 for the assessment years 2005-06 and 2006-07 indicating that the subject amounts of provision towards contingent interest would never be paid. Similarly for the financial year ending on 31.03.2007, a similar provision towards contingent interest payable on belated payments were created but at the end of the year, the said amount treated as expenditure in the profit and loss account was not excluded to arrive at the taxable income in the return of income filed for the assessment year 2007-08. Further, the said entry was reversed. In that context, this Court has held that the existence or absence of entries in the books of accounts is not decisive or conclusive factor in deciding the right of the assessee claiming deduction. The reasoning of the Tribunal that the deductor nor the deductee had paid the tax on the provision amount and the provisions of Sections 201 and 201(1) of the Act are attracted is held to be not acceptable. Thus, it has been held that if no income is attributable to the payee, there is no liability to deduct tax at source in the hands of the tax deductor. The interest being not paid to the payees/suppliers and the same having been reversed in the books of accounts, it was categorically observed that there would be no liability to deduct tax as no income accrued to the payees.
8. In the case of M/s. TE Connectivity India Pvt. Ltd.,1 referred to by the learned counsel appellant/assessee, in para 6 it is observed thus:
“We heard the rival submissions and perused material on record. The issue in appeal relates to the liability of the assessee – company to deduct tax at source on provisions made as at the end of the accounting year. The undisputed fact is that the provisions, made at the end of the accounting year are reversed in the beginning of the next year. No payees are identified. The exact amount of liability also cannot be quantified. The provisions are made merely on for Management Information System. In our considered opinion, liability to deduct tax at source does not arise. In identical circumstances, the Hon’ble Tribunal in the case of M/s. Bosch Ltd., vs. ITO in ITA No.1583/Bang/2014 dated 01.03.2016, to which one of us i.e., the Accountant Member is the author of the order, held as follows:-
xxxxxxx”
9. The facts of the said case would indicate that the provisions made at the end of the accounting year were reversed in the beginning of the next year and no payees were identified including the exact amount of liability. In such circumstances, the Tribunal following Karnataka Power Transmission Corporation Ltd.,2 held that the assessee company – M/s. TE Connectivity India Pvt. Ltd., was not liable to deduct tax at source as no income has accrued in the hands of the payee while allowing the appeal. Despite citing the said judgments the appeal filed by the assessee came to be dismissed by the Tribunal observing that the facts of the case of M/s. TE Connectivity India Pvt. Ltd.,1 are clearly distinguishable. The reasoning recorded by the Tribunal is that in the case on hand, the payees were identified and it is not an adhoc provision as the provisions contained odd figure also. The said reasoning is wholly unjustifiable, as could be seen from the material available on record, in the provisions made, payees were not identified. The genuiness of the provision cannot be determined on the basis of the figures. The cryptic reasoning of the Tribunal is not suffice to support the findings arrived at. It is trite that proper reason is the essential ingredient of a valid order.
10. It is ex-facie apparent that the contention of the assessee inasmuch as non-identification of the payees in the provisions and the disallowance of deduction expenditure under Section 40(a)(ia) of the Act has not been rightly appreciated by the Tribunal. In this scenario, the judgment of the Hon’ble Apex Court in the case of Shree Choudhary Transport Company4 would not be of any assistance to the Revenue unless the material aspects are considered with respect to Section 40(a)(ia) of the Act read with Sections 194C, 194H, 194I, 194J – relevant Sections under which TDS was required to be deducted by the assessee. These factors necessarily requires to be addressed by the Tribunal keeping in mind the provisions of the Act as well as the legal principles enunciated by the Hon’ble Courts. If the deduction is not claimed for the expenditures made in the provision even in the return submitted and the same is offered to tax in the subsequent year after reversing the entries pursuant to the receipt of the bills/invoices by the payees, the matter has to be analysed having regard to, whether income has accrued to the payees to deduct tax at source. In the given circumstances, we deem it appropriate to set aside the impugned order and remand the matter for fresh consideration by the Tribunal.
11. Hence, the following
ORDER
i) Appeal is allowed.
ii) The impugned common order dated 17.01.2018 passed in ITA Nos.1195/Bang/2014 and 474/Bang/2016 by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru relating to the assessment years 2012-13 and 2013-14 is set aside and the matter is restored to the file of the Tribunal to reconsider the matter afresh in accordance with law.
iii) All the rights and contentions of the parties are left open. The Tribunal shall decide the matter keeping in mind the observations made hereinabove, in an expedite manner.
please advise whether TDS provision to be made for monthly expenses provision or not .
There is no single case law which supports no need for monthly TDS provisions for monthly expense provision