Assessee cannot be held liable to deduct TDS merely on the basis of book entry

The dispute is regarding treating the assessee in default u/s 201 (1) and consequential levy of interest u/s 201 (1A) for failure to deduct TDS in respect of amounts payable to M/s Overseas Shipbuilding Cooperation Center in connection with consultancy work. The actual payment of the amount was dependent on certain regulatory compliances and approvals which were ultimately not received.

The payment had also not been made. Therefore in such a situation no income on account of such payment could said to have been accrued to the non resident. The assessee had neither made the payment nor had claimed any revenue expenditure. Therefore only on the basis of entry in the books of accounts, the assessee could not be held liable for deduction of tax at source when ultimately the amount was found not payable nor it was paid, income therefore had not accrued to the Overseas Shipbuilding Cooperation Center. The said company had also no PE in India nor had any business connection in India. There is no material placed on record before us to controvert the claim of the assessee that the assessee had no PE in India nor any business connection in India. The income on this account even if paid is not taxable in India. Therefore no tax was required to be deducted. Considering the facts and circumstances of the case, we see no infirmity in the order of CIT(A) canceling order of AO passed u/s 201(1) 201(1A) and the same is, therefore, upheld.