Income Tax Appellate Tribunal - Bangalore
M/S. Ibm India Private Limited, ... vs Assistant Commissioner Of Income-Tax - ... on 20 July, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND
SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER
ITA Nos. 2263 to 2272/Bang/2016
Assessment Years : 2010-11 to 2014-15
M/s. IBM India Pvt. Ltd., The Assistant
No. 12, Subramanya Arcade, Commissioner of Income
Bannerghatta Main Road, Vs. Tax-TDS,
Bangalore - 560 029. Circle - 2 (1),
PAN: AAACI4403L Bangalore.
APPELLANT RESPONDENT
Appellant by : Shri Sharath Rao, CA
Respondent by : Smt. Padma Meenakshi, JCIT (DR)
Date of hearing : 10.07.2018
Date of Pronouncement : 20.07.2018
ORDER
Per Bench Out of this bunch of 10 appeals, five appeals are in respect of demand raised u/s. 201(1) of IT Act for Assessment Years 2010-11 to 2014-15 and the remaining five appeals are in respect of demand raised by the AO u/s. 201(1A) of IT Act for Assessment Years 2010-11 to 2014-15. These appeals are directed against a combined order of ld. CIT (A)-13, Bangalore dated 17.10.2016. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.
2. The grounds raised by the assessee in respect of demand raised u/s. 201(1) of IT Act are identical and hence, reproduced from ITA No. 2264/Bang/2016.
"Based on the facts and circumstances of the case, IBM India Private Limited (hereinafter referred to as "the Appellant"), respectfully submits in respect of the order passed by the learned Commissioner of Income-tax (Appeals) ["CIT (A)"] under section 250 of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') that:
1. The learned CIT (A) has erred in law and on facts in upholding the ITA Nos. 2263 to 2272/Bang/2016 Page 2 of 8 order of the Assistant Commissioner of Income-tax - TDS ("AO") and passing an order under section 250 of the Act
2. The learned CIT (A) has erred in passing an order under section 250 of the Act which is bad in law and on facts.
3. The learned CIT (A) and the AO have erred in law and on facts holding that the 'expense provisions' debited to the profit and loss account as at the year-end would attract the tax deduction at source provisions under the Act without appreciating the fact that no liability to pay to the vendors had accrued to the Appellant in relation to such provision.
4. The learned CIT(A) and the AO have erred in law and on facts in holding the Appellant to be an 'assessee in default' under section 201(1) of the Act in respect of the expense provisions debited to the profit and loss account.
5. The learned CIT(A) and the AO have erred in law and on facts in failing to appreciate that mere creation of provision by the Appellant does not result in creation of income in the hands of the payee. At the time of creation of provision, either the payee or the actual amount to be paid against the payee cannot be determined with certainty.
6. The learned CIT(A) and the AO have erred in law and on facts in failing to appreciate that the existence of 'income' element in the hands of the payees, with a right to receive the amounts being certain, is a sine qua non for applicability of the tax deduction provisions under the Act
7. The learned CIT(A) and the AO have erred in law and on facts in failing to appreciate the various judgments cited by the Appellant and circulars issued by the CBDT which recognize the fact that there can be no liability to deduct tax at source on 'expense provisions'.
8. The learned CIT(A) and the AO have erred in law and on facts in stating that the Appellant has belatedly deducted TDS on 'expense provisions' during the subsequent year i.e. when the actual expenses were recorded/payments were made to vendors thereby holding the Appellant to be an 'assessee in default' under section 201 of the Act.
9. The learned CIT(A) and the AO have erred in law and on facts in holding that the Appellant, having made a disallowance under Section 40(a) of the Act was estopped from contending that there was no liability to deduct tax under Chapter XVII-B of the Act, without appreciating that a disallowance under Section 40(a) would not automatically result in a default in terms of Section 201 of the Act
10. The learned CIT(A) and the AO have erred in law and on facts in holding that the liability to deduct tax at source would arise on credit ITA Nos. 2263 to 2272/Bang/2016 Page 3 of 8 to a 'suspense account', including a 'provision' created in the books of account and that therefore the Appellant is required to deduct tax at source on such provisions.
11. The learned CIT(A), being an appellate authority lower to the honourable ITAT, has erred in law in holding the decision of the jurisdictional ITAT in the case of Bosch Limited vs. Income Tax Officer (ITA 1583/BNG/2014) as "per incuriam" and accordingly to not have a binding precedent value.
Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant Further, the Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal."
3. The grounds raised by the assessee in respect of demand raised u/s. 201(1A) of IT Act are also identical and hence, reproduced from ITA No. 2263/Bang/2016.
"Based on the facts and circumstances of the case, IBM India Private Limited (hereinafter referred to as "the Appellant"), respectfully submits in respect of the order passed by the learned Commissioner of Income-tax (Appeals) ["CIT (A)"] under section 250 of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') that:
1. The learned CIT (A) has erred in law and on facts in upholding the order of the Assistant Commissioner of Income-tax - TDS ("AO") and passing an order under section 250 of the Act
2. The learned CIT (A) has erred in passing an order under section 250 of the Act which is bad in law and on facts.
3. The learned CIT (A) and the AO have erred in law and on facts holding that the 'expense provisions' debited to the profit and loss account as at the year-end would attract the tax deduction at source provisions under the Act without appreciating the fact that no liability to pay to the vendors had accrued to the Appellant in relation to such provision.
4. The learned CIT(A) and the AO have erred in law and on facts in holding the Appellant to be an 'assessee in default' under section 201(1) of the Act in respect of the expense provisions debited to the profit and loss account.
5. The learned CIT(A) and the AO have erred in law and on facts in failing to appreciate that mere creation of provision by the Appellant does not result in creation of income in the hands of the payee. At the ITA Nos. 2263 to 2272/Bang/2016 Page 4 of 8 time of creation of provision, either the payee or the actual amount to be paid against the payee cannot be determined with certainty.
6. The learned CIT(A) and the AO have erred in law and on facts in failing to appreciate that the existence of 'income' element in the hands of the payees, with a right to receive the amounts being certain, is a sine qua non for applicability of the tax deduction provisions under the Act
7. The learned CIT(A) and the AO have erred in law and on facts in failing to appreciate the various judgments cited by the Appellant and circulars issued by the CBDT which recognize the fact that there can be no liability to deduct tax at source on 'expense provisions'.
8. The learned CIT(A) and the AO have erred in law and on facts in stating that the Appellant has belatedly deducted TDS on 'expense provisions' during the subsequent year i.e. when the actual expenses were recorded/payments were made to vendors thereby holding the Appellant to be an 'assessee in default' under section 201 of the Act.
9. The learned CIT(A) and the AO have erred in law and on facts in holding that the Appellant, having made a disallowance under Section 40(a) of the Act was estopped from contending that there was no liability to deduct tax under Chapter XVII-B of the Act, without appreciating that a disallowance under Section 40(a) would not automatically result in a default in terms of Section 201 of the Act
10. The learned CIT(A) and the AO have erred in law and on facts in holding that the liability to deduct tax at source would arise on credit to a 'suspense account', including a 'provision' created in the books of account and that therefore the Appellant is required to deduct tax at source on such provisions.
11. The learned CIT(A), being an appellate authority lower to the honourable ITAT, has erred in law in holding the decision of the jurisdictional ITAT in the case of Bosch Limited vs. Income Tax Officer (ITA 1583/BNG/2014) as "per incuriam" and accordingly to not have a binding precedent value.
12. The learned CIT(A) and the AO have erred in law and on facts in failing to appreciate that the liability under Section 201 would have to be decided based on the provisions of law relating thereto and that therefore unless tax was deductible in terms of the provisions in Chapter XVII-B of the Act, no liability under Section 201(1A) could be foisted on the Appellant.
13. The learned CIT (A) has erred in law and on facts in confirming the levy of interest under section 201(1A) of the Act Each of the above ground is independent and without prejudice to the ITA Nos. 2263 to 2272/Bang/2016 Page 5 of 8 other grounds of appeal preferred by the Appellant Further, the Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal."
4. At the very outset, it was submitted by ld. AR of assessee that the issue involved in these appeals is covered against the assessee by the Tribunal order in assessee's own case for Assessment Year 2006-07 to 2009-10 in ITA Nos. 749 to 752/Bang/2012 & 1588 to 1591/Bang/2012 dated 14.05.2015 and he submitted a copy of this Tribunal order. He also submitted that against this Tribunal order, the assessee has preferred appeal before Hon'ble Karnataka High Court and as per the judgment of Hon'ble Karnataka High Court dated 01.01.2016 in ITA Nos. 562 to 565/2015, the appeals were admitted on two questions of law. He submitted a copy of this judgment of Hon'ble Karnataka High Court. Thereafter he submitted a declaration under sub section 1 of section 158A of IT Act stating that final decision on the questions of law admitted by Hon'ble Karnataka High Court in those years may be applied in the present years also and the assessee will not raise such question of law in the present years before Hon'ble Karnataka High Court u/s. 260A. Such declaration of the assessee furnished under sub section 1 of section 158A was forwarded to the AO asking the AO to submit a report in this regard. The ld. DR of revenue furnished the report received from the AO on 25.06.2018 as per which the AO has stated that question of law pending in the assessee's case for Assessment Years 2006-07 to 2009-10 before Hon'ble Karnataka High Court in ITA Nos. 562 to 565/2015 u/s. 260A are identical with the questions of law arising in assessee's case for Assessment Years 2010-11 to 2014-15 in these 10 appeals i.e. ITA Nos. 2263 to 2272/Bang/2016 which are pending before the Tribunal. The AO has stated that the assessee's declaration u/s. 158A (1) may be considered accordingly.
5. We have considered the rival submissions and in view of the fact discussed above, we admit the claim of the assessee that the question of law arising in the Assessment Years 2006-07 to 2009-10 before Hon'ble Karnataka High Court are identical to the question of law arising in the present 10 appeals. Hence we dispose of these appeals by respectfully following the Tribunal order ITA Nos. 2263 to 2272/Bang/2016 Page 6 of 8 in assessee's own case for Assessment Years 2006-07 to 2009-10 on similar line except where facts are different. In those years, the issue regarding demand u/s 201 (1) was decided as per Para 23 & 24 of that tribunal order and hence, for ready reference, we reproduce these paras herein below:-
" 23. We have heard the submissions of the learned counsel for the assessee and the learned DR. The learned counsel for the assessee at the outset brought to our notice that pending disposal of the appeals, the assessee has furnished before the AO, details regarding the actual payment of TDS in subsequent financial year, on the provisions made in the various financial years. These details were verified by the AO. The AO has addressed a letter to the DR in which the AO after verification has found that the assessee had deducted tax at source at the time when the provision made in one financial year is subsequently reversed and the expenses booked in the subsequent financial year. The following are the contents of the said letter (copy filed by DR in court), in so far as relates to taxes deductible at source.
3. During the course of appellate proceedings before the Hon'ble ITAT the assessee company took the same plea that it has deducted tax at source in the subsequent year on all the amounts that were disallowed u/s 40a (i) and 40a (ia) as and when these amounts were paid. The Hon'ble ITAT therefore directed that such details be produced before the Income Tax Officer (TDS) for verification.
4. At the remand stage the assessee company has now submitted year wise details of all charges paid, professional charges paid, contract amounts paid and details of other payments. The details of year end provisions as per tax audit report (disallowed u/s 40a (i) and 40a (ia), payments made in subsequent year in respect of these provisions and details of tax deducted at source on such payments along with proof of deposit of such TDS into Govt. account were called for and systematically verified. Since, the transactions were enormous in respect of these four assessment years, verifications were carried out randomly for different months for these assessment years. After thorough verification of the transactions in respect of the months selected randomly and after analysis of consolidated annual figures separately for each sections of TDS, it is seen that the amounts which were shown in the provisions as on 31 March of a particular year, whether ether liquidated by way of payment or was added back to the profit & loss account in subsequent year. Wherever payments were made tax has been deducted at source under the relevant provisions of the IT Act and remitted to the Govt. Account.
5. Though, the has been deducted at source at the time of payments in respect of provisions made as on 31 march, it is be stated that in was the assessee company's responsibility to deduct tax at source and remit it to the Govt. Account as soon as item of expenditure is debited by it in the books of accounts. Reference is invited to sub section 2 of ITA Nos. 2263 to 2272/Bang/2016 Page 7 of 8 section 194C, which mandates that the any amount credited to any account whether called "suspense account" or by any other name, in the books of accounts such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Similar provisions/explanation is also to be found in other sections relating to TDS. Thus, it can be seen that the assessee company has failed to deduct tax at source on the provisions made by it on 31st March within the stipulated time. The assessee company has deducted tax at source on these amounts in the subsequent year as and when the same were paid by it. Thus, it is liable for charging of interest u/s 201 (1A) for delayed deduction and remittance of tax to Govt. account."
(emphasis supplied)
24. In view of the above, the demand on account of tax /s 201 (1) of the Act, in our view, will no longer survive. However the appeals will survive with regard to the liability of the Assessee to interest u/s 201 (1A) of the Act. Therefore the appeals in so far as it relates to challenge to order u/s 201 (1) of the Act have to be allowed."
6. From the above paras, it is seen that in those years, the tribunal has considered a report of the AO as per which, it was reported by the AO that the assessee has in subsequent year either deducted tax at the time of payment or added back the relevant expenditure in P & L Account. It is also reported that wherever TDS was deducted in subsequent year, the same was remitted to Govt. Account. Based on this report of the AO, the tribunal in those years held that the demand u/s 201 (1) does not survive and confirmed the demands u/s 201 (1A) only. In the present years, no such report of the AO is brought on record to show that TDS is deducted in later years at the time of payment and remitted to Govt. Account or where payment was not made, the provision of expenses was written back and credited to P & L Account. Hence, the assessee cannot get any relief in the present years on similar line. Rather one thing stands admitted that the liability of the assessee is there for TDS and since, this liability is not discharged in the present years or in any subsequent year, the issue regarding TDS u/s 201 (1) is also decided against the assessee and accordingly, we dismiss all ten appeals of the assessee regarding demands u/s 201 (1) as well as levy of interest u/s. 201(1A) of IT Act. We also hold that the assessee's claim u/s. 158A (3) is admitted and therefore, assessee shall not be entitled to raise any question of law in the present five years before Hon'ble Karnataka High Court u/s. 260A of IT Act and when the ITA Nos. 2263 to 2272/Bang/2016 Page 8 of 8 decision on the questions of law in Assessment Years 2006-07 to 2009-10 becomes final, it shall be applied to the present 5 years also i.e. Assessment Years 2010-11 to 2014-15. Accordingly if the assessee gets any relief in those four years i.e. Assessment Years 2006-07 to 2009-10, the present order should be amended by the Tribunal in conformity with such decision of Hon'ble Karnataka High Court in Assessment Years 2006-07 to 2009-10.
7. In the result, all ten appeals of the assessee are dismissed. Order pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/-
(SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA)
Judicial Member Accountant Member
Bangalore,
Dated, the 20th July, 2018.
/MS/
Copy to:
1. Appellant 4. CIT(A)
2. Respondent 5. DR, ITAT, Bangalore
3. CIT 6. Guard file
By order
Senior Private Secretary,
Income Tax Appellate Tribunal,
Bangalore.