Thursday, December 6, 2012

Suo-motu disallowance for TDS default shielded assessee from penal consequences of sec.201

In the instant case, the assessee made provision for expenses at year-end without making specific entries into accounts of the respective parties.  In the next year, the entire provision was written back and the TDS provisions were duly complied with at the time of actual payments to respective parties. While filing the return of income for the year in which provision was created, such provision was disallowed by the assessee itself. AO, however, raised tax demand for default in TDS liability and levied interest under sections 201(1) and 201(1A) respectively. Further, the CIT (A) upheld the decision of the AO.

On appeal, the Tribunal held in favour of assessee as under:

1) Once the amount had been disallowed under the provisions of section 40(a)(i) on the reason that tax had not been deducted, it was surprising that the AO held that the said amount was subject to TDS provisions again so as to demand the tax under section 201 and to levy interest under section 201(1A);

2) Once amount was disallowed under section 40(a)(i)/(ia) on the basis of the audit report of the chartered accountant, the same amount couldn’t be subject to the provisions of TDS under section 201(1) on the reason that assessee should have deducted the tax;

3) If the order of the AO was to be accepted then disallowance under Section 40(a)(i) and 40(a)(ia) couldn’t be made and provisions to that extent might become otiose. In view of actual disallowance under section 40(a)(i)/(ia) by assessee having been accepted by the AO, the said amount couldn’t be considered as amount covered by provisions of section 194C and 194J so as to raise TDS demand again under section 201 and levy interest under section 201(A);

4) Therefore, the assessee's ground on this issue was allowed as the entire amount had been disallowed under the provisions of section 40(a)(i)/(ia) in the computation of income on the reason that TDS was not deducted - Pfizer Ltd. v. ITO(TDS) [2012] 28 17 (Mumbai - Trib.)