DCIT Vs Pfizer Limited (ITAT Mumbai)
ITAT Mumbai Rejects TDS Liability on Estimated Year-End Expense Provisions; 4. Year-End Expense Provisions Not TDS Trigger Without Identified Payees: ITAT Mumbai
Summary: The Revenue challenged the order dated 09.01.2026 of the learned JCIT(A) for AY 2019-20, which deleted a demand raised under sections 201(1) and 201(1A) of the Income-tax Act, 1961 for alleged non-deduction of TDS on year-end provisions for various expenses.
Pfizer Limited had created year-end provisions aggregating to Rs.50,49,86,000/- towards expenses including commission or brokerage, rent, contractor payments and fees for technical services. The provisions were created without deduction of tax, and the tax auditor reported the non-deduction in Form No. 3CD. The assessee nevertheless disallowed 30% of the corresponding expenditure under section 40(a)(ia).
The Assessing Officer subsequently treated the assessee as an assessee in default and raised a demand of Rs.2,22,15,118/- under section 201(1), together with interest of Rs.22,21,511/- under section 201(1A), aggregating to Rs.2,44,36,629/-. The assessee contended that the provisions were merely estimated accounting entries. Invoices had not been received, the precise liabilities were not crystallised and, in several cases, the payees were not identifiable. The provisions were reversed at the beginning of the succeeding year, after which actual invoices were accounted for in the names of the respective vendors and TDS was deducted wherever applicable.
The Tribunal noted that the controversy had repeatedly arisen in Pfizer Limited’s own case and that earlier co-ordinate Benches had consistently held that mere creation of year-end provisions, where bills had not been received, liabilities had not crystallised and payees were not identifiable, did not attract TDS liability. The Tribunal also noted the earlier view that where the relevant expenditure had already suffered disallowance under section 40(a)(i)/(ia), the same default could not again form the basis for a demand under section 201.
On the first ground, the Tribunal examined the TDS provisions contained in section 194C, section 194H and section 194I. It distinguished recognition of expenditure for accounting purposes from the crystallisation of an ascertainable liability payable to an identified person. On the facts, the provisions were estimated, the invoices were unavailable, the precise amounts were unascertained and the payees were not identified when the provisions were made.
The Tribunal relied upon the consistent view in Pfizer Limited’s own case, including the earlier decision for AY 2007-08 and the latest decision for AY 2013-14 dated 08.01.2026. It observed that the Revenue had not brought any contrary binding precedent or material factual distinction warranting departure from the consistent view. Although res judicata ordinarily does not apply to income-tax proceedings for different assessment years, the Tribunal held that the principle of consistency assumed significance where the fundamental issue had repeatedly been decided on substantially identical facts.
The Tribunal therefore held that creation of the year-end provisions did not give rise to an obligation to deduct TDS at that stage and that Pfizer Limited could not be treated as an assessee in default under section 201(1). The demand of Rs.2,22,15,118/- was consequently unsustainable and Ground No. 1 was dismissed.
On Ground No. 2, the Tribunal considered the additional issue arising from the assessee’s disallowance of 30% of the expenditure aggregating to Rs.50,49,86,000/- under section 40(a)(ia). Following the earlier decisions in Pfizer Limited’s own case, the Tribunal held that the same default could not again be used to treat the assessee as an assessee in default under section 201. The demand under section 201(1) therefore could not be sustained on this additional ground either.
The consequential interest of Rs.22,21,511/- under section 201(1A) was also held unsustainable because the underlying liability under section 201(1) did not survive. Ground No. 2 was accordingly dismissed.
The Tribunal ultimately found no infirmity in the JCIT(A)’s order deleting the tax and interest demands and dismissed the Revenue’s appeal.
Cases Discussed
- Pfizer Limited v. ITO (TDS), ITA Nos. 1667/Mum/2010 and 1765/Mum/2010, AY 2007-08.
- Pfizer Limited’s own case for AY 2013-14, ITA No. 5693/Mum/2025, order dated 08.01.2026.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal has been preferred by the Revenue against the order dated 09.01.2026 passed by the learned Addl./Joint Commissioner of Income-tax (Appeals) [hereinafter referred to as “the learned JCIT(A)”] for the assessment year 2019-20, whereby the demand raised by the Assessing Officer under sections 201(1) and 201(1A) of the Income-tax Act, 1961 (“the Act”) on account of alleged failure on the part of the assessee to deduct tax at source on year-end provisions created towards various expenses was deleted.
2. The Revenue has raised the following grounds of appeal:
“1. Whether on the facts and circumstances of the case, the order of the Ld. Addl.CIT/JCIT (A) deleting the demand raised on account of non-deduction of TDS on provisions created for expenses without appreciating the provisions of sub-section (2) of section 194C, Explanation (iv) to section 194H and Explanation (ii) to section 194I is contrary to law and to the facts and circumstances of the case.
2. Whether on the facts and circumstances of the case and in law, in the context of ‘Provision for expenses’, the Addl./JCIT(A) has erred in deleting the short/non-deduction of tax by holding that in view of disallowance under section 40(a)(i)/40(a)(ia), no demand can be raised under section 201(1)/201(1A) of the Act.”
3. Briefly stated, the assessee is a domestic company engaged in the manufacture, marketing and trading of pharmaceutical products. During the financial year relevant to the assessment year under consideration, the assessee created year-end provisions aggregating to Rs. 50,49,86,000/- in respect of various expenses, including commission or brokerage, rent, payments to contractors and fees for technical services. No tax was deducted at source at the time of creation of the aforesaid provisions. The non-deduction of tax at source was duly reported by the tax auditor in paragraph 21(b) and clause 34(a) of Form No. 3CD. While computing its taxable income, the assessee disallowed 30% of the corresponding expenditure under section 40(a)(ia) of the Act.
Subsequently, the Assessing Officer, vide order dated 25.02.2020 passed under sections 201(1) and 201(1A) of the Act, treated the assessee as an assessee in default on the ground that tax was required to be deducted at source on the aforesaid year-end provisions and raised a demand of Rs.2,22,15,118/- under section 201(1). Interest of Rs.22,21,511/- was also levied under section 201(1A), resulting in an aggregate demand of Rs.2,44,36,629/-. The assessee carried the matter in appeal before the learned JCIT(A), who, after considering the factual position and the judicial precedents relied upon by the assessee, deleted the demand. The Revenue is aggrieved by the aforesaid decision and is in appeal before us.
4. Before the learned JCIT(A), the assessee submitted that it was following the mercantile system of accounting and that the year-end provisions were created for recognising expenses pertaining to services availed during the relevant financial year, although the corresponding invoices had not been received and, in several cases, the identity of the vendors or payees and the precise amounts payable had not been ascertained. It was further submitted that the provisions were reversed on the first day of the succeeding financial year and, upon receipt of the actual invoices and crystallisation of the liabilities, the corresponding amounts were accounted for in the names of the respective vendors and tax was deducted at source wherever applicable. It was accordingly contended that mere creation of an accounting provision, in the absence of an identifiable payee and a crystallised liability, could not give rise to an obligation to deduct tax at source. Reliance was also placed upon CBDT Circular No. 3 of 2010 and upon the decisions of the Tribunal in the assessee’s own case for earlier assessment years.
5. The learned JCIT(A), after considering the material available on record and the judicial precedents relied upon by the assessee, accepted the contention of the assessee that the year-end provisions, in the facts of the case, did not give rise to an obligation to deduct tax at source at the stage of creation of the provisions. He accordingly deleted the demand raised under section 201(1) and the consequential interest under section 201(1A). The Revenue has challenged the aforesaid decision before us.
6. We have heard the learned Departmental Representative (“ld.DR”) and the learned counsel for the assessee and carefully considered their respective submissions. We have also perused the material available on record, the orders of the Assessing Officer and the learned JCIT(A), and the judicial precedents relied upon by the assessee. At the outset, we find that the controversy before us is not a new issue in the case of the assessee. The very same issue concerning the liability to deduct tax at source on year-end provisions has been considered by the Tribunal repeatedly in the assessee’s own case for several assessment years. The factual position placed before us is also materially similar to that considered in the earlier years. The Revenue has not brought on record any distinguishing feature in the facts of the present year or any binding judicial precedent warranting a departure from the consistent view taken by the co-ordinate Benches.
7. In Pfizer Limited v. ITO (TDS) in ITA Nos. 1667/Mum/2010 and 1765/Mum/2010 for assessment year 2007-08, the Tribunal considered the issue of deduction of tax at source on year-end provisions where the relevant bills had not been received, the actual liability had not crystallised and the payees were not identifiable at the stage of creation of the provisions. The Tribunal held, on those facts, that mere creation of such year-end provisions could not be regarded as an actual credit of income to an identifiable payee so as to attract the TDS provisions. The said view was subsequently followed by the Tribunal in the assessee’s own case for assessment years 2004-05 to 2006-07, 2008-09 and 2009-10. The Tribunal also held that where the relevant expenditure had already suffered disallowance under section 40(a)(i)/(ia), the same default could not again be made the basis for raising a demand under section 201.
8. The aforesaid position has been reiterated by the Tribunal in the assessee’s own case for assessment year 2013-14 in ITA No. 5693/Mum/2025, order dated 08.01.2026. Since the Revenue had raised substantially identical grounds in that year also, the Tribunal, after considering the earlier decisions and finding the facts to be materially similar, followed the consistent view taken in the assessee’s own case and rejected the Revenue’s challenge to the deletion of the demand under sections 201(1) and 201(1A). Thus, the decisions relied upon by the assessee are not isolated decisions but represent a consistent view taken by the co-ordinate Benches in the assessee’s own case on the very issue involved in the present appeal.
9. Coming to the first ground raised by the Revenue, the issue for our consideration is whether, on the facts and circumstances of the present case, the assessee was required to deduct tax at source merely upon creation of the year-end provisions. The provisions relied upon by the Revenue, namely sections 194C, 194H and 194I, contemplate deduction of tax at source at the stage prescribed therein upon payment or credit, as the case may be, to the account of the concerned payee. Therefore, the mere recognition of expenditure in the books of account in accordance with the mercantile system of accounting cannot, by itself, lead to the conclusion that there was a corresponding credit of an ascertainable amount in favour of an identified payee so as to attract the TDS provisions. The distinction between recognition of expenditure for accounting purposes and crystallisation of a liability payable to a particular person assumes significance in the present context. In the case before us, the provisions were admittedly created on an estimated basis; the actual invoices had not been received; the precise amounts payable were not ascertainable; and the corresponding payees were not identified at the relevant point of time. The provisions were thereafter reversed at the commencement of the succeeding financial year and, upon receipt of the actual invoices and crystallisation of the liabilities, the amounts were recorded in the names of the respective parties and tax was deducted at source wherever applicable. Thus, the year-end entries represented accounting provisions made for recognising estimated expenditure pertaining to the relevant financial year and did not constitute a final credit of an ascertainable amount in favour of an identified payee.
10. We find that the aforesaid factual position is squarely covered by the consistent decisions of the Tribunal in the assessee’s own case referred to above. The Revenue has not placed before us any decision of a higher judicial forum taking a contrary view on identical facts, nor has it demonstrated any material distinction between the facts considered in the earlier assessment years and those obtaining in the year under consideration. We are conscious of the settled principle that the doctrine of res judicata does not ordinarily apply to income-tax proceedings for different assessment years. However, where a fundamental issue has repeatedly been considered by the Tribunal in the assessee’s own case on substantially identical facts and no distinguishing feature or contrary binding precedent has been brought on record, there is no justification for taking a different view merely because the assessment year is different. The principle of consistency assumes particular significance in such circumstances. In the present case, the latest decision of the co-ordinate Bench dated 08.01.2026 for assessment year 2013-14 has once again considered the earlier decisions and has followed the same view.
11. Respectfully following the consistent view taken by the co-ordinate Benches in the assessee’s own case for assessment year 2007-08, assessment years 2004-05 to 2006-07, 2008-09 and 2009-10, and most recently for assessment year 2013-14, we hold that, in the peculiar facts of the present case, the creation of year-end provisions did not give rise to an obligation on the assessee to deduct tax at source at that stage. Consequently, the assessee could not be treated as an assessee in default under section 201(1) in respect of the aforesaid provisions. We, therefore, find no infirmity in the order of the learned JCIT(A) deleting the demand of Rs.2,22,15,118/- raised under section 201(1) of the Act. Ground No. 1 raised by the Revenue is accordingly dismissed.
12. Ground No. 2 raised by the Revenue concerns the further issue as to whether, notwithstanding the disallowance already made by the assessee under section 40(a)(ia), a demand could nevertheless be raised under section 201(1) and consequential interest charged under section 201(1A). In this regard also, the issue stands covered by the earlier decisions in the assessee’s own case. The Tribunal, in its decision for assessment year 2007-08, had considered the fact that the assessee had already disallowed the relevant expenditure under section 40(a)(i)/(ia) on account of non-deduction of tax at source and held that the same default could not again be made the basis for treating the assessee as an assessee in default under section 201. The said reasoning was subsequently followed in the decisions for assessment years 2004-05 to 2006-07, 2008-09 and 2009-10 and was reiterated in the latest decision for assessment year 2013-14. In the present case, the assessee had itself disallowed 30% of the expenditure aggregating to Rs.50,49,86,000/- under section 40(a)(ia) while computing its taxable income. The Revenue has not brought on record any distinguishing circumstance warranting a departure from the consistent view taken by the Tribunal in the assessee’s own case. We, therefore, respectfully follow the aforesaid decisions and hold that the demand raised under section 201(1) cannot be sustained even on this additional ground.
13. Once the demand under section 201(1) is held to be unsustainable, the consequential levy of interest under section 201(1A) also cannot survive. The interest contemplated under section 201(1A) is consequential to the default contemplated under section 201 and, where the assessee is not liable to be treated as an assessee in default in respect of the relevant transaction or provision, the consequential liability for interest cannot independently survive. In the present case, therefore, the interest of Rs.22,21,511/- levied under section 201(1A) has no independent foundation. The same position was also accepted by the Tribunal in the assessee’s own case in the earlier years and reiterated in the latest decision for assessment year 2013-14. Respectfully following the consistent view taken in the assessee’s own case, we uphold the action of the learned JCIT(A) in deleting the consequential interest demand. Ground No. 2 raised by the Revenue is accordingly dismissed.
14. Before parting with the matter, we may observe that the Revenue has not brought to our notice any change in the factual matrix or any subsequent binding judicial pronouncement which would require us to depart from the consistent view taken by the Tribunal in the assessee’s own case. On the contrary, the latest decision of the co-ordinate Bench for assessment year 2013-14 has considered the earlier decisions and has once again upheld the assessee’s claim on substantially identical facts. The material placed before us demonstrates that the assessee has consistently followed the same accounting practice, namely, creation of year-end provisions on an estimated basis, reversal of such provisions in the succeeding year and deduction of tax at source upon receipt of actual invoices and crystallisation of the liability in favour of the respective payees. In these circumstances, and having regard to the consistent judicial view in the assessee’s own case, we find no justification to take a different view for the year under consideration. The order of the learned JCIT(A), therefore, does not call for any interference.
15. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 20th August, 2026.
