Biocon Ltd. Vs DCIT (ITAT Bangalore)
Summary: ITAT Bangalore considered Biocon Ltd.’s liability under Sections 201(1) and 201(1A) of the Income Tax Act for failure to deduct tax at source on year-end provisions aggregating to Rs. 22.69 crore relating to contractors, professional fees, rent, commission and payments covered by Section 195. The Assessing Officer treated the assessee as an assessee in default and raised demand of Rs. 1,68,91,563 under Section 201(1), besides interest of Rs. 40,53,975 under Section 201(1A). Biocon contended that the provisions were created at year-end in accordance with accounting standards for expenses incurred where invoices had not been received, amounts were estimated and, in some cases, the identity of the ultimate payee was not ascertainable. The assessee had voluntarily disallowed these expenses under Sections 40(a)(i) and 40(a)(ia).
The Tribunal explained the accounting treatment of year-end provisions and observed that under the mercantile system an assessee recognises expenses pertaining to the relevant financial year even where invoices are received later. Referring to the deeming provisions contained in Sections 194C, 194H, 194I, 194J and 195, the Tribunal held that credit to a “Provision for expenses” account can also trigger the obligation to deduct tax at source. The statutory provisions specifically cover credit to a suspense account or any other account by whatever name called. Following IBM India Private Ltd. v. ITO (TDS) and Interglobe Aviation Ltd. v. ACIT, the Tribunal rejected the proposition that TDS liability could automatically be avoided merely because the expenditure was credited to a provision account instead of the individual vendor’s account or because the provision was reversed at the beginning of the succeeding year.
