HT Mobile Solutions Ltd vs. JCIT (OSD) Circle 74(1)

Case snapshot

Sections / provisions: 201(1)/(1A)

Questions before the Court / Tribunal

• TDS on year-end expense provisions: whether payee not identified/crystallised makes payer an assessee-in-default under sections 201(1)/(1A).
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

Assessee by : Shri Mayank Mohanka, FCA Revenue by : Ms Princy Singhla, Sr. DR

3. Let us take up the appeal for the AY 2013-14 first. The only effective issue to be decided in the appeal for AY 2013-14 is as to whether the assessee could be treated as an ‘assessee in default’ within the meaning of section 201(1) of the Act and consequentially liable for interest u/s 201(1A) of the Act, in respect of non- deduction of tax at source on provision for expenses made at the end of the year, falling within the ambit of provisions of sections 194C, 194I and 194J of the Act.

4. We have heard the rival submissions and perused the material available on record. The case of the Revenue is that the assessee had made year-end provisions for expenses amounting to Rs.86,12,471/- on which tax was not deducted at source. The assessee was treated as ‘assessee in default’ in the sum of Rs.8,61,247/- u/s 201(1) of the Act and interest of Rs.8,00.548/- u/s 201(1A) of the Act. The ld. AO observed that the provision had been made on ad hoc basis in respect of various expenditures by the assessee. On the contrary, the assessee’s case is that payees of these expenses are not identifiable and, hence, tax could not be deducted at source. The assessee also submitted that invoices for these expenses were received by the assessee company in the next financial year with the date falling in next financial year. Hence, these year-end provisions made by the assessee were reversed by the assessee in the next financial year and expenses were booked on receipt of invoices and at which point in time, tax had been duly deducted at source and remitted to the account of the Central Government. In respect of this year-end provision, the assessee had suo moto disallowed the expenses in…

5. We find that the demand has been raised on the assessee treating it as an ‘assessee in default’ for the following expenses:-

6. The assessee had stated that it had been regularly following the practice of making provisions for expenses for which parties are not identifiable or amounts payable were not identifiable or bills have not been received or the same have not been processed for payment/credit to the accounts of the payees, based on Accounting Standards-29 “Provisions, Contingent Liabilities & Contingent Assets” issued by the Institute of Chartered Accountants of India (ICAI) while finalizing books of account. It is a fact on record that such provisions were made in view of accrual method of accounting followed by the assessee and the same were reversed in the books of account on the first day of the immediately succeeding year. It is not in dispute that as and when the invoices are received by the assessee in the succeeding year with date of invoice falling in the succeeding year, the same are processed for payment wherein due deduction of tax at source have been made and remitted to the account of the Central Government within the prescribed time. We find that this is a consistent practice followed by the assessee on year-to-year basis. The fact of reversal of these expenses in the succeeding…

Appellant / assessee submissions

4. We have heard the rival submissions and perused the material available on record. The case of the Revenue is that the assessee had made year-end provisions for expenses amounting to Rs.86,12,471/- on which tax was not deducted at source. The assessee was treated as ‘assessee in default’ in the sum of Rs.8,61,247/- u/s 201(1) of the Act and interest of Rs.8,00.548/- u/s 201(1A) of the Act. The ld. AO observed that the provision had been made on ad hoc basis in respect of various expenditures by the assessee. On the contrary, the assessee’s case is that payees of these expenses are not identifiable and, hence, tax could not be deducted at source. The assessee also submitted that invoices for these expenses were received by the assessee company in the next financial year with the date falling in next financial year. Hence, these year-end provisions made by the assessee were reversed by the assessee in the next financial year and expenses were booked on receipt of invoices and at which point in time, tax had been duly deducted at source and remitted to the account of the Central Government. In respect of this year-end provision, the assessee had suo moto disallowed the expenses in…

24. In our view, reliance placed by the Revenue on the decision of Transmission Corpn. of AP Ltd. (supra) is wholly misplaced. In that case, the Supreme Court had clarified that where payments of any amount(s) on account of trade payables (i.e. payments in the nature of Revenue) were made, the payer was obliged to deduct tax at the relevant rates on the entire amount paid and it was not open for the payer to deduct TAS at a lower amount on the ground that the income embedded in the payments made would be lower than the amounts paid. The Supreme Court had explained that it was not open for the payer to suo moto take a decision as to the quantum of income embedded in the payments and withhold tax accordingly. And, the question of the quantum of income embedded in the receipts would be determined, subsequently in the assessment proceedings with respect to the payee. The Supreme Court had also noted that in the case where the Assessee had contended that a lower TDS should be deducted, it would be open for the payer to make an application to the AO under the provisions of Section 195(2) of the Act, to determine an appropriate proportion of payment chargeable to tax. This decision of…

16. We have heard the rival submissions and perused the material available on record. The main grievance of the Revenue is that the assessee had not furnished documentary evidences in support of this issue. On the contrary, the assessee had submitted that it had deducted tax at source on the aggregate amount of Rs.1,70,71,786/- debited under the head ‘Retainership fee’, out of which an amount of Rs.54,71,186/- was transferred to ‘Professional charges’ account in the books of account of the assessee. The corresponding documentary evidences in this regard

Revenue / respondent submissions

The packaged judgment does not separately label the respondent's submissions in an independently extractable passage. No contention is inferred; read the full order.

Court / Tribunal analysis and reasoning

4. We have heard the rival submissions and perused the material available on record. The case of the Revenue is that the assessee had made year-end provisions for expenses amounting to Rs.86,12,471/- on which tax was not deducted at source. The assessee was treated as ‘assessee in default’ in the sum of Rs.8,61,247/- u/s 201(1) of the Act and interest of Rs.8,00.548/- u/s 201(1A) of the Act. The ld. AO observed that the provision had been made on ad hoc basis in respect of various expenditures by the assessee. On the contrary, the assessee’s case is that payees of these expenses are not identifiable and, hence, tax could not be deducted at source. The assessee also submitted that invoices for these expenses were received by the assessee company in the next financial year with the date falling in next financial year. Hence, these year-end provisions made by the assessee were reversed by the assessee in the next financial year and expenses were booked on receipt of invoices and at which point in time, tax had been duly deducted at source and remitted to the account of the Central Government. In respect of this year-end provision, the assessee had suo moto disallowed the expenses in…

5. We find that the demand has been raised on the assessee treating it as an ‘assessee in default’ for the following expenses:-

6. The assessee had stated that it had been regularly following the practice of making provisions for expenses for which parties are not identifiable or amounts payable were not identifiable or bills have not been received or the same have not been processed for payment/credit to the accounts of the payees, based on Accounting Standards-29 “Provisions, Contingent Liabilities & Contingent Assets” issued by the Institute of Chartered Accountants of India (ICAI) while finalizing books of account. It is a fact on record that such provisions were made in view of accrual method of accounting followed by the assessee and the same were reversed in the books of account on the first day of the immediately succeeding year. It is not in dispute that as and when the invoices are received by the assessee in the succeeding year with date of invoice falling in the succeeding year, the same are processed for payment wherein due deduction of tax at source have been made and remitted to the account of the Central Government within the prescribed time. We find that this is a consistent practice followed by the assessee on year-to-year basis. The fact of reversal of these expenses in the succeeding…

05.07.2013 and 06.09.2013 are enclosed are enclosed in pages 33-37 of the paper book. We find that the issue in dispute is no longer res integra in view of the decision of the Hon’ble jurisdictional High Court in the case of UCO Bank vs. Union of India reported in 369 ITR 335 wherein it was held as under:- 18. In terms of Section 194A of the Act, the petitioner would, in the normal course, be obliged to deduct tax at source in respect of any credit or payment of interest on deposits made with it. However, in the present case, the question that needs to be addressed is whether Section 194A of the Act contemplates deduction of tax in a situation where the assessee is not ascertainable and the person in whose name the interest is credited is also, admittedly, not a person liable to pay tax under the Act.

7. We find that in the absence of an ascertainable amount and identifiable payee, the machinery provisions of recovering tax deducted at source falls flat because in either way, it does not aid the charge of tax u/s 4 of the Act, but, takes a form of separate levy independent of other provisions of the Act. Similar view was also taken in yet another decision of the Hon’ble Jurisdictional High Court in the case of DCIT vs. Ericcson Communications Ltd. reported in 378 ITR 395 (Del), wherein it was held as under:- 22. In our view, mere passing of the book entries, which are reversed, would not give rise to an obligation to deduct TAS by the Assessee, as clearly, there is no debt that can be said to be acknowledged by the Assessee. Imposition of an obligation to deduct TAS in these circumstances would amount to enforcing payments from one person towards a tax liability of another, even where the person does not acknowledge that any sum is payable. This, in our view, is contrary to the scheme of provisions relating to collection of TAS under the Act.

10. We find that out of the total TDS demand of Rs.23,03,028/- raised by the ld. AO u/s 201(1) of the Act, a sum of Rs.8,61,247/- discussed hereinabove was on account of non-deduction of tax at source on year-end provision for expenditure and balance sum of Rs.14,41,781/- was on account of short-deduction of tax at source on certain expenditures incurred by the assessee during the year under consideration. As stated above, we find that demand of Rs.14,41,781/- has been raised on the ground that the assessee had made short-deduction of tax at source on certain expenses. We find that the assessee had explained before the lower authorities that some of the payees had furnished low tax deduction certificate obtained u/s 197 of the Act from their TDS Officer and had furnished the same to the assessee. Accordingly, the assessee had deducted the tax at source in accordance with the rates prescribed in the low tax deduction certificate u/s 197 of the Act with effective date mentioned thereon. Hence, it was the case of the assessee that there was no short-deduction of tax made by the assessee at all and that all the taxes have been duly deducted and remitted in accordance with the…

Operative decision and relief

26. In view of the aforesaid, we are of the view that the Assessee was not obliged to deduct tax at source. Accordingly, the question of law is answered in favour of the Assessee and against the Revenue and the appeal is dismissed.

11. In the result, the appeal of the assessee for AY 2013-14 is allowed for statistical purposes only.

21. In the result, the appeal of the assessee for AY 2014-15 is partly allowed for statistical purposes only.

22. To sum up, the appeal of the assessee in ITA No.2475/Del/2022 for AY 2013- 14 is allowed for statistical purposes only & the appeal of the assessee in ITA No.2476/Del/2022 for AY 2014-15 is partly allowed.

Ratio and legal principle

• The packaged judgment addresses TDS on year-end expense provisions: whether payee not identified/crystallised makes payer an assessee-in-default under sections 201(1)/(1A). The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with tds on year-end expense provisions: whether payee not identified/crystallised makes payer an assessee-in-default under sections 201(1)/(1a). Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

Does this case match your facts?

Section / provision impact

• 201(1)/(1A) - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• Bridge India Fund, New Delhi v. ACIT - ITAT Mumbai - I Bench
• SECUNDRABAD CLUB VS. C.I.T.-V - Supreme Court of India
• PCIT v. Indravadan Jain, HUF - Court / Tribunal to be verified

Different outcome / possible distinction

• ACIT v. Ashok W. Wesavkar - Operative order controls
• ACIT CIR 6(1) VS ASAHI INFRA & PROJECTS LIMITED - Remanded / restored

Full judgment and source control

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