There is no dispute with reference to the fact that assessee made provision for expenses to an extent of Rs. 10,01,98,459/- on about 23 items in the books of account. There is also no dispute to the fact that entire provision so made was disallowed in the computation under the head ‘tax deductible but not deducted on provisions as on 31st March, 2007′ in the computation of income. Therefore, the entire provision so made was disallowed under section 40(a) (i) / (ia) while filing the return of income by the itself.
When the payment/ credit was made to the individual payee identified, all the provisions of TDS are made applicable whether to a resident or to a nonresident as the case may be. In the absence of any identifiable payee, the provisions of TDS are not applicable.
Since the payee is not identifiable at the time of making provision, no TDS need to be made on the above amount. Further the entire provision has been written back in the next year and the actual amounts paid/credited were subjected to TDS as per the detailed statements filed before the authorities on which there is no dispute. Therefore, assessee is following the provisions of TDS as and when the amounts are paid/credited to respective parties.
As already explained and evidenced from the computation of income as well as the orders of AO in the assessment proceedings, the entire provision has been disallowed under section 40(a)(ia) and section 40(a)(i). Once the amount has been disallowed under the provisions of section 40(a)(i) on the reason that tax has not been deducted, it is surprising that AO holds that the said amounts are subject to TDS provisions again so as to demand the tax under the provisions of section 201 and also levy interest under section 201 (1A). We are unable to understand the logic of AO in considering the same as covered by the provisions of section 194C to 194J. Assessee as stated has already disallowed the entire amount in the computation of income as no TDS has been made. Once an amount was disallowed under section 40(a)(i)/(ia) on the basis of the audit report of the Chartered Accountant, the same amount cannot be subject to the provisions of TDS under section 201(1) on the reason that assessee should have deducted the tax. If the order of AO were to be accepted then disallowance under section 40(a)(i) and 40(a)(ia) cannot be made and provisions to that extent may become otiose. In view of the actual disallowance under section 40(a)(i) by assessee having been accepted by AO, we are of the opinion that the same amount cannot be considered as amount covered by the provisions of section 194C to 194J so as to raise TDS demand again under section 201 and levy of interest under section 201(1A). Therefore, assessee’s ground on this issue are to be allowed as the entire amount has been disallowed under the provisions of section 40(a)(i)/(ia) in the computation of income on the reason that TDS was not made. For this reason alone assessee’s grounds can to be allowed. Considering the facts and reasons stated above assessee’s grounds are allowed.
Assessee has raised one more contention that interest under section 20 1(1A) should be levied till the date of payment and not till the date of order. Anyhow this issue became academic in nature, as we have already held that demand under section 201 cannot be raised once the entire amount has been disallowed in the computation of income under section 40(a)(i) and 40(a)(ia). In view of this even though the contention is correct being a legal issue, there is no need for adjudicating the matter as the grounds raised have been held in favour of assessee. AO is directed to delete the said demand so raised. Appeal is accordingly allowed.
IN THE ITAT MUMBAI BENCH ‘C’
Pfizer Ltd.
Versus
Income-tax Officer (TDS) (OSD)
IT APPEAL NOS. 1667 & 1765 (MUM.) OF 2010
[ASSESSMENT YEAR 2007-08]
OCTOBER 31, 2012
ORDER
B. Ramakotaiah, Accountant Member – These are the cross appeals by assessee and the Revenue against the orders of the CIT (A)-14 Mumbai dated 31.12.2009. The issue in this appeal is with reference to the levy of tax under Section 201(1) and interest under Section 201(1A) of the Income Tax Act on the reason that assessee defaulted on not deducting the TDS on certain expenditure/payments made by it.
2. Briefly stated, the proceedings under section 133A were conducted on assessee’s premises on 8.9.2008 and AO passed the order under section 201(1) & 201(1A) dated 30.12.2008 considering the following broadly categorized amounts as amounts covered by TDS provisions on which TDS was not made:
(a) Provision made but tax not deducted under section 40(a)(i) & 40(a)(ia)
(b) Purchase of traded goods
(c) Purchase of packing material
(d) Clinical Trial Expenses
3. It was the contention of AO that assessee made provision for expenses for an amount of Rs. 10,01,98,450/- and there was short deduction of tax at Rs. 2,06,45,686/- which is to be disallowed under section 40(a)(i) and 40(a)(ia). Assessee was required to show cause why the said amount could not be considered for determining the liability to the TDS under section 201(1) and 201(1A). After considering assessee’s objections AO determined the amount of tax to be deducted and the same was demanded from assessee under section 201(1). AO also levied interest under section 201(1A). Likewise, the amounts under three other heads were also determined by AO under the above provisions.
4. The CIT (A) after considering assessee’s detailed submissions, however, did not agree with the assessee contentions on ‘provision made but tax not deducted’ and upheld the action of AO in determining the tax and interest under section 201(1) & 201(1A). With reference to the other three items following various case law and the orders of the jurisdictional High Court, the CIT (A) deleted the demands so made by AO holding that the provisions of TDS are not applicable to the payments made under these heads. Accordingly assessee is aggrieved on the amount confirmed under item (a), whereas the Revenue is aggrieved on the amounts deleted on the items (b) to (d).
ITA No. 1667/Mum/2010 :
5. The learned Counsel reiterated the submissions made before AO and the CIT (A) to submit that assessee is in the practice of making provision for expenses at the end of the year as it has multifarious locations and innumerable transactions and since all the bills would not be received, without making specific entries into accounts of the parties, makes provision for expenses. Next year the entire provision of expenses was written back and the actual amounts paid to the respective parties were credited to their respective accounts and TDS as per the provisions are being made. In this context the method of accounting followed by assessee, entries made in the books of account and the reliance on the Board’s Circular No. 288 of 1980 were relied upon. It was the contention that it is not a constructive payment made to any payee as per the provisions of the Act and when assessee is making payment, it was following the TDS provisions. It was further submitted that when payee is not known or determined, TDS can not be made and relied on the order of the ITAT in the case of Industrial Development Bank of India v. ITO [2007] 107 ITR 45/10 SOT 497 (Mum.).
6. It was further submitted that assessee has added back the entire amount of provision made and filed copies of the computation statements as well as the orders passed by AO affirming the disallowance so made in the computation made under section 40(a)(i). The learned Counsel also placed on record the statement indicating the amount of provision made under various heads and the actual amount paid in the later year including the tax deducted at source and reconciling the amounts on this issue.
7. The learned DR, however, submitted that assessee having made provision for expenses in the books of account should have deducted the tax and therefore, the orders of AO and the CIT (A) required to be confirmed.
8. We have considered the issue. There is no dispute with reference to the fact that assessee made provision for expenses to an extent of Rs. 10,01,98,459/- on about 23 items in the books of account. There is also no dispute to the fact that entire provision so made was disallowed in the computation under the head ‘tax deductible but not deducted on provisions as on 31st March, 2007’ in the computation of income. Therefore, the entire provision so made was disallowed under section 40(a)(i)/(ia) while filing the return of income by the itself.
9. As explained the general entries passed by Pfizer Ltd, in the books of account are as under:
“Annexure-1
Journal Entries passed by Pfizer in the books of account:
