Income Tax Appellate Tribunal - Hyderabad
M/S Tecumseh Products India Private ... vs Department Of Income Tax on 17 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" : HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA.No.388/Hyd/2013
Assessment Year 2007-2008
ACIT, Circle 15(2) M/s. Tecumseh Products
Hyderabad. vs. India P. Ltd., Hyderabad.
PAN AABCT6893J
(Appellant) (Respondent)
For Revenue : Mr. R. Mohan Reddy
For Assessee : Mr. Dhanesh Bafna
Date of Hearing : 11.09.2014
Date of Pronouncement : 17.10.2014
ORDER
PER B. RAMAKOTAIAH, A.M.
This appeal by Revenue is directed against the Order of the Ld. CIT(A)-II, Hyderabad dated 28.01.2013 on the deletion of interest of short/non-deduction under section 201(1A). Revenue has raised the only effective ground which is as under:
"Whether in the facts and circumstances of the case, the CIT(A) was correct in holding that the TDS was not deductable in the same year in which Assessee actually incurred the expenditure and relevant entries made in the books."
2. Briefly stated, assessee is in the business of manufacturing and trading in compressors for air-conditioners and refrigerators. During the scrutiny of the assessment records, the A.O. noticed that Assessee company has debited a 2 ITA.No.388/Hyd/2013 M/s. Tecumseh Products India P. Ltd., Hyderabad.
sum of Rs.1,01,00,000 towards provision for interest, Rs.48,80,333 towards provision for professional fees and Rs.28,33,533 towards provision on transport contractors to its P & L Account, without deducting the TDS on the above amounts. The A.O. disallowed the claim of Assessee under section 40(a)(ia) of the I.T. Act and considered a sum of Rs.22,66,440, Rs.5,02,674 and Rs.58,371 on the above heads as TDS on provision for interest, professional fees and provision on Transport contractors and raised demand of Rs.16,96,440 under section 201(1A) for the period from 01.04.2006 to 31.03.2011.
3. Aggrieved, assessee filed appeal before the Ld. CIT(A) contending inter alia, that a provision has been created on 31.03.2007 under the above heads. However, since, there was no identification and quantification against any payee and as such TDS was not deducted and has not claimed the said amounts as expenditure in its return of income for the A.Y. 2007-08. It was contended that it had made TDS payments after reversing the provision and the year relevant is A.Y. 2008-09 but not A.Y. 2007-08 and has filed copies of challans in support of the same. It was submitted that levy of interest from the beginning of the F.Y. 01.04.2006 to 31.03.2011 i.e., date of passing of the assessment order was not justified and in violation to the principles of natural justice and relied on the decision of Mumbai Tribunal in the case of Pfizer Ltd. vs. ITO (TDS) in ITA.No.1667/Mum/2010. The Ld. CIT(A) called for the remand report of the A.O. in which it was stated that the only issue in the case is that assessee made a provision for certain expenses in the books of accounts for the F.Y. 2006-07 and such provision has not been reversed within the F.Y. 2006-07.
3 ITA.No.388/Hyd/2013M/s. Tecumseh Products India P. Ltd., Hyderabad.
However it was admitted that while filing the return of income, assessee has added back the said amounts on its own. Subsequently, in the next F.Y. 2007-08 relevant to the A.Y. 2008-09 assessee made payments by reversing the entries and crediting the party's account and while making the payment the TDS was deducted and was claimed as expenditure for A.Y. 2008-09. After examining the submissions of assessee and the remand report, the Ld. CIT(A) while relying on the decisions of Industrial Development Bank of India vs. ITO 104 TTJ 230 (Mum.) and Pfizer Ltd. vs. ITO ITA.No.1667/Mum/2010 dated 31st October, 2012 observed as follows :
"6. It is surprising to note that the A.O. did not hold the appellant as 'assessee in default' and no reasons were given as to why tax u/s.201(1) was not levied and has simply proceeded with levying interest u/s.201(1A) of I.T. Act, 1961. I have also noted the observations of the A.O. and the Addl. CIT in the remand report and I do not agree with the observation made of the appellant that there has been an arrangement by which tax deduction has been postponed. Though it has been stated that the provisions have been added back in the computation of income in view of the huge losses it has for A.Y. 2007-08, the A.O. and the Addl. CIT did not bother to explain how the appellant benefitted by claiming the expenditure and TDS in the subsequent year.
6.1. The details filed by the appellant have been examined and it is found that the appellant has only provided for the expenses in the accounts for F.Y. 2006-07 and did not claim the same as expenditure and the provision has been added back in the computation of income for the A.Y. 2007-08 i.e., the year under consideration. It is also seen that the appellant has reversed the entries in the accounts for A.Y. 2008-09 and deducted tax at source from the same while making the payment to the concerned parties. There is merit in the appellant's contention that the obligation to deduct TDS will arise only where there is a sum chargeable under the I.T. Act and when the appellant itself has not claimed any deduction for any of the provisions made in the accounts, 4 ITA.No.388/Hyd/2013 M/s. Tecumseh Products India P. Ltd., Hyderabad.
TDS will not be attracted on the said amounts and also that for attracting TDS provisions the payee has to be identifiable and the quantifications should also be made. In this connection, reliance is placed on the following judicial decisions :
(a) In the case of Industrial Development Bank of India vs. ITO (2006) 104 TTJ 230 (Mum.) it is held as under:
"It would be thus seen that the whole scheme of TDS proceeds on the assumption that the person whose liability is to pay an income knows the identity of the beneficiary or the recipient of the income. It is a sine quo non for a vicarious tax deduction liability that there has to be a principal tax liability in respect of the relevant income first, and a principal tax liability can come into existence when it can be ascertained as to who will receive or earn that income because the tax is on the income and in the hands of the person who earns that income. In this view of the matter, TDS mechanism cannot be put into practice until identity of the person in whose hands, it is includible as income can be ascertained."
In the case of Pfizer Ltd. vs. ITO (ITA.No.1667/Mum/2010) dated 31st October, 2012 wherein it is held as under :
"In view of the above decision of Coordinate Bench, since the payee is not identifiable in this case also 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.
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Once an amount was disallowed under section 40(a)(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 5 ITA.No.388/Hyd/2013 M/s. Tecumseh Products India P. Ltd., Hyderabad.
that assessee should have deducted the tax. If the order of A.O. were to be accepted then disallowance under section 40(a)(ia) 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 A.O. 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).
6.2. In view of the above, the demand raised u/s.201(1A) of Rs.16,96,440/- is ordered to be deleted."
4. Learned D.R. submitted that the Ld. CIT(A) was not correct in deleting the amount and relied on the orders of A.O. He further submitted that the Coordinate Bench of the Cochin Tribunal in the case of Agreenco Fibre Foam (P) Ltd., vs. ITO (TDS), Kannur ITA.No.165/Coch/2012 dated 16.08.2013 upheld the contention of Revenue that interest under section 201 and 201(1A) can be levied, even if the amount was disallowed under section 40(a)(ia). He placed copy of the order of the Coordinate Bench on record and supported Revenue contentions.
5. Ld. Counsel in reply, reiterated the submissions made before the Ld. CIT(A) and relied on the Coordinate Bench decision in the case of Pfizer Ltd. vs. ITO ITA.No.1667/Mum/2010 dated 31st October, 2012 (supra) and relied on the order of Ld. CIT(A).
6. We have considered the issue and examined the rival contentions. There is no dispute with reference to the fact that assessee has only made the provisions without identifying the parties as a liability in the year and actual amounts were credited in a later year on which TDS was made. It is also a 6 ITA.No.388/Hyd/2013 M/s. Tecumseh Products India P. Ltd., Hyderabad.
fact that in the computation of income, assessee has added back the entire provision and has not claimed any deduction. These facts are similar to the facts of Pfizer Ltd. (supra), relied on by the CIT(A) and the decision was extracted as part of the order of Ld. CIT(A). We fully agree with the findings of the Ld. CIT(A) on the issue that there is no scope for deducting tax, as the amounts are not covered by the provisions of section 194C to 194J. Not only that A.O. has only raised the interest under section 201(1A) and has not raised the basic demand under section 201(1). This aspect was also considered by the Ld. CIT(A) that assessee was not held as 'assessee in default' and therefore, on this reason also interest cannot be levied as the amount to be deducted has not even quantified under section
201. AO was also not correct in levying interest up to the date of order while accepting that the amounts provided were reversed in later year and TDS was made on actual claims made in that year.
7. Learned D.R. however, relied on the Coordinate Bench decision in the case of Agreenco Fibre Foam (P) Ltd., vs. ITO (TDS), Kannur (supra). The facts in the said case are that assessee is a Private Limited Company and credited interest to the sister concerns during the year under consideration without deducting tax at source. Not only that A.O. treated Assessee as 'assessee in default' and raised demand under section 201 of the Act equal to the amount of tax deductible at source. Thereafter, A.O. levied interest under section 201(1A) to the tune of Rs.7,16,290. It was the finding of the ITAT that even though the amounts were disallowable under section 40(a)(ia) as assessee did not claim the same as expenditure at all, assessee shall be liable to deduct tax at source under 7 ITA.No.388/Hyd/2013 M/s. Tecumseh Products India P. Ltd., Hyderabad.
section 194A of the Act on the interest amount so paid/ credited as the said payment was liable to tax deduction at source. The Bench distinguished the decision of the Pfizer Ltd. vs. ITO (supra) while giving the judgment therein. Since the factual conditions considered in the decision of Pfizer Ltd. vs. ITO (supra) are similar to assessee's case and are different from the facts in the said case of Agreenco Fibre Foam (P) Ltd., vs. ITO (TDS), Kannur (supra), we are not convinced with the arguments of the learned D.R. Since the Ld. CIT(A) order is in tune with the Coordinate Bench decisions on the issue on the given facts, we affirm the same and dismiss the ground of Revenue.
8. In the result, appeal of Revenue is dismissed.
Order pronounced in the open Court on 17.10.2014.
Sd/- Sd/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 17th October, 2014 VBP/- Copy to
1. The Assistant Commissioner of Income Tax, Central Circle-15(2), Room No.444, 4th Floor, 'D' Block, I.T. Towers, Hyderabad.
2. M/s. Tecumseh Products India P. Ltd., Balanagar, Hyderabad - 500 037.
3. CIT(A)-II, Hyderabad.
4. CIT-(TDS), Hyderabad.
5. D.R. ITAT "A" Bench, Hyderabad.