Kirloskar Oil Engines Ltd.,, Pune v. Deputy Commissioner of Income-tax,,

ITA 230/PUN/2014 | 2008-2009
Pronouncement Date: 30-04-2015 | Result: Partly Allowed

Appeal Details

RSA Number 23024514 RSA 2014
Assessee PAN AAACP3590P
Bench Pune
Appeal Number ITA 230/PUN/2014
Duration Of Justice 1 year(s) 2 month(s) 23 day(s)
Appellant Kirloskar Oil Engines Ltd.,, Pune
Respondent Deputy Commissioner of Income-tax,,
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-04-2015
Date Of Final Hearing 22-04-2015
Next Hearing Date 22-04-2015
Assessment Year 2008-2009
Appeal Filed On 06-02-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE MS . SUSHMA CHOWLA JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO S . 229 & 230 /PN/20 1 4 ITA NO S . 229 & 230 /PN/20 1 4 ASSESSMENT YEAR S : 200 7 - 0 8 & 2008 - 09 KIRLOSKAR OIL ENGINES LTD. LAXMANRAO KIRLOSKAR ROA D KHADKI PUNE 411 003. . APPELLANT PAN: AAACP3590P VS. THE DY. COMMISSIONER OF INCOME TAX TDS - II SWARGATE PUNE. . RESPONDENT TDS - II SWARGATE PUNE. . RESPONDENT A PPELLANT BY : SHRI C. H. NANIWADEKAR RESPONDENT BY : SHRI RAJESH DAMOR DATE OF HEARING : 22 - 0 4 - 201 5 DATE OF PRONOUNCEMENT : 30 - 0 4 - 201 5 ORDER PER SUSHMA CHOWLA J M : BOTH THE APPEAL S FILED BY THE ASSESSEE ARE AGAINST THE CONSOLIDATED ORDER OF CIT(A) - 2 NASHIK DATED 23.12.2013 RELATING TO ASSESSMENT YEAR S 200 7 - 08 AND 2008 - 09 PASSED UNDER SECTION 201(1)/201(1A) OF THE INCOME - TAX ACT 1961 . 2. BOTH THE APPEALS RELATING TO SAME ASSESSEE ON SIMILAR ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 . THE ASSESSEE HAS RAISED SIMILAR GROUNDS OF APPEAL IN BOTH THE ASSESSMENT YEARS AND THE GROUNDS OF APPEAL IN ASSESSMENT YEAR 2007 - 08 READ AS UNDER : - FOLLOWING GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER . NON PAYMENT OF TDS ON YEAR END PROVISION RS. 32 52 781/ - NON PAYMENT OF TDS ON YEAR END PROVISION RS. 32 52 781/ - 1.0 THE LE ARNED CIT(A) ERRED ON FAC T S AND IN LAW IN TREATING T HE ASSESSE E AS 'ASSESSE E IN DEFAULT' WITHIN THE MEANING OF SECTION 201(1) & 201(1A) OF THE INCOME TAX ACT. ITA NO S . 229 & 230 /PN/20 1 4 2 2.0 THE LEARNED CI T(A) ERRED ON THE FAC T S AND IN LAW IN CONFIRMING THAT THE PROVISIONS OF SECTION 194C 194H 194J 194I & 195 OF THE INCOME TAX ACT ARE APPLICABLE TO PROVISION MADE FOR VARIOUS EXPENSES IN THE YEAR ENDING 31.03.2007 (AY 2007 - 08) WITHOUT APPRECIATING THE FAC T THAT APPELLANT HAS DISALLOWED THE EXPENSES AS PER PROVISIONS OF SECTION 40(A )(IA) AND 40(A) OF THE INCOME TAX ACT IN THE COMPUTATION OF INCOME. THE AO HAD ACCEPTED THE DISALLOWANCES IN ASSESSMENT ORDER MADE U/S 143(3) OF THE INCOME TAX ACT. THE LEARNED CIT (A) IGNORED THE FACTS THAT ONCE THE AMOUNT IS DISALLOWED U/S 40(A)(IA) AND 4 0(A) OF THE INCOME TAX ACT THE SAME CANNOT BE LIABLE FOR TDS U/S 194C 194H 194J 194I & 195 . THE LEARNED CIT (A) FAILED TO CONSIDER THE CASE LAW CITED IN APPEAL PROCEEDINGS 3.0 THE LEARNED CIT(A) ERRED IN IGNORING THE FACTS THAT TDS HAS BEEN DEDUCTED IN SUBSEQUENT FINANCIAL YEAR AND TDS COMPLIANCE WAS MADE AT THAT POINT OF TIME. THE CIT(A) ALSO IGNORED THAT TDS PROVISIONS WERE NOT APPLICABLE IN FEW CASES PROVISIONS HAS BEEN REVERSED SUBSEQUENTLY AND THE IDENTITY OF THE PAYEE AT T HE T IME OF MAKING PROVISI ON WAS NO T AVAILABLE . THE LEARNED CIT(A) FAILED TO CONSIDER THE SUBMISSION MADE IN APPEAL PROCEEDINGS . 4.0 THE ASSESSEE CRAVES LEAVE TO ADD TO ALTER AND TO MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 4 . THE ASSESSEE IN THE PRESENT APPEAL IS AGGRIEVED B Y THE ORDER OF AUTHORITIES BELOW IN TREATING THE ASSESSEE AS DEFAULTER WITHIN THE MEANING OF SECTIONS 201(1) AND 201(1A) OF THE ACT . 5. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTUR E AND SALE OF INT ERNAL COMBUSTION ENGINES OF 3HP AND ABOVE GENERATING SETS BIMETAL STRIPS AND BEARINGS ENGINE VALVES CASTINGS AND TRADING IN COMPONENTS OF PRIME MOVERS COKE AND OILS GENERATION AND SALE OF ELECTRICITY. A TDS SURVEY UNDER SECTION 133A OF THE ACT WAS CA RRIED OUT AT THE PREMISES OF THE ASSESSEE ON 23.11.2007 . DURING THE COURSE OF SURVEY STATEMENT OF SHRI A.S. DESHPANDE SENIOR MANAGER ( FINANCE ) WAS RECORDED. THE SURVEY PARTY WAS OF THE VIEW THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE UNDER SECTION 194 C OF THE ACT IN CASES WHERE IT SHOULD HAVE BEEN DONE UNDER SECTION 194J OF THE ACT. FURTHER THERE WERE INSTANCES WHERE TAX WAS NOT DEDUCTED AT SOURCE OUT OF CERTAIN PAYMENTS FOR WHICH THE TDS PROVISIONS WERE APPLICABLE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS RELATING TO DEFAULT OF ITA NO S . 229 & 230 /PN/20 1 4 3 THE ASSESSEE VIS - - VIS TAX DEDUCTION OF TAX AT SOURCE THE ASSESSING OFFICER NOTED THAT DURING THE FINANCIAL YEAR 2006 - 07 THE ASSESSEE HAD PAID COMMISSION OF RS.8 03 65 000/ - TO EXECUTIVE / NON - EXECUTIVE DIRECTORS . T HO UGH THE ASSESSEE HAD DEDUCTED TAX AT SOURCE ON PAYMENT OF COMMISSION TO THE EXECUTIVE DIRECTOR OF RS. 7.60 CRORES BUT HAD NOT DEDUCTED TAX AT SOURCE O N PAYMENT OF RS.43 65 000/ - MADE TO NON - EXECUTIVE DIRECTORS. IN REPLY THE PLEA OF THE ASSESSEE BEFORE TH E ASSESSING OFFICER WAS THAT THE COMMISSION PAYABLE TO NON - EXECUTIVE DIRECTORS WAS NOT SUBJECTED TO TDS EITHER UNDER SECTION 194H OR 194J OF THE ACT. THE ASSESSING OFFICER REJECTING THE EXPLANATION OF THE ASSESSEE WAS OF THE VIEW THAT COMMISSION INCLUDED A N Y PAYMENT FOR SERVICES RENDERED AND WHERE THE ASSESSEE HAD ITSELF CLASSIFIED THE PAYMENT AS COMMISSION AND HAD CLAIMED THE SAME AS EXPENDITURE THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 194J OF THE ACT AND FOR SUCH NON - DEDUCTION OF T AX AT SOURCE THE ASSESSEE WAS HELD TO BE IN DEFAULT AND DEMAND UNDER SECTION 201(1) OF THE ACT WAS RAISED AT RS. 2 47 059 / - AND INTEREST UNDER SECTION 201(1A) OF THE ACT WAS CHARGED AT RS. 1 18 588/ - . 6. FURTHER THE ASSESSING OFFICER NOTED THAT THE AUDITO R HAD POINTED OUT IN THE AUDIT REPORT THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON CERTAIN PAYMENTS FOR WHICH FULL DETAILS OF EXPENSES AND DATE OF CREDIT / PAYMENT WAS NOT THERE IN THE AUDIT REPORT. THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE T HAT IN THE ABSENCE OF SUCH DETAILS IT WAS NOT POSSIBLE TO CORR ECTLY QUANTIFY THE TDS DEDUCTIBILITY BUT NOT DEDUCTED AND THE INTEREST TO BE CHARGED UNDER SECTION 201(1A) OF THE ACT. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS IN RESPECT THERE O F. THOUG H THERE WAS SOME EXPLANATION FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER BUT COMPLETE DETAILS WERE NOT FURNISHED AND EVEN THOUGH THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH PROPER DETAILS BUT NO COMPLIANCE WAS MADE TO THE SAME. IN VIEW T HEREOF THE ASSESSING OFFICER HELD ITA NO S . 229 & 230 /PN/20 1 4 4 THE ASSESSEE TO BE IN DEFAULT IN RESPECT OF NON - DEDUCTION OF TAX AT SOURCE OUT OF SEVERAL HEADS OF EXPENSES AS TABULATED AT PAGE 5 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER CONSEQUENTLY HELD THE ASSESSEE TO BE IN DE FAULT FOR NON - DEDUCTION OF TAX AT SOURCE AT RS. 21 97 825/ - AND CHARGED INTEREST UNDER SECTION 201(1A) OF THE ACT AT RS.10 54 956/ - . SIMILARLY THE ASSESSEE FAILED TO FURNISH THE DETAILS IN RESPECT OF THE DEDUCTION OF TAX AT SOURCE IN RELATION TO ASSESSMENT YEAR 200 8 - 0 9 AND CONSEQUENTLY THE ASSESSEE WAS HELD TO BE IN DEFAULT. THE ASSESSING OFFICER RAISED THE DEMAND UNDER SECTION 201(1) OF THE ACT AT RS. 14 66 299/ - FOR NON - DEDUCTION OF TAX AND RS.21 834/ - FOR SHORT DEDUCTION OF TAX AT SOURCE AND INTEREST UN DER SECTION 201(1A) OF THE ACT AT RS. 5 35 728/ - . 7. THE CIT(A) DECIDED THE ISSUE OF NON - DEDUCTION OF TAX AT SOURCE OUT OF THE PAYMENT TO NON - EXECUTIVE DIRECTORS IN FAVOUR OF THE ASSESSEE AGAINST WHICH THE REVENUE HAS NOT POINTED OUT WHETHER ANY APPEAL HA S BEEN FILED OR NOT. THE NEXT ISSUE RAISED WAS IN RELATION TO NON - DEDUCTION OF TAX AT SOURCE ON THE Y EAR END PROVISION S MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THE CLAIM OF THE ASSESSEE WAS THAT THE PROVISIONS OF EXPENSES AT THE YEAR END WERE BEING MADE DUE TO THE FACT THAT CONSIDERING HUGE TRANSACTIONS ALL BILLS WERE NOT RECEIVED AND IN NUMBER OF CASES THE AMOUNTS FOR THE WORK S/ SERVICE DONE W ERE NOT MEASURED AND HAD TO BE ESTIMATED. THE ASSESSEE FURTHER CLAIMED THAT PROVISION WAS MADE ON THE BASIS OF WORK COMPLETED UPTO END OF THE FINANCIAL YEAR. HOWEVER NEXT YEAR THE ENTIRE PROVISION WAS MONITORED FOR THE BILLS RECEIVED AND WHERE NO SUCH PROVISION WAS REQUIRED THEN FOR EXCESS AND / OR SHORT PROVISION NECESSARY ENTRIES WERE MADE IN THE BO OKS OF ACCOUNT. AS PER THE ASSESSEE THE ACCOUNTS OF RESPECTIVE PARTIES WERE CREDITED IN THE NEXT FINANCIAL YEAR AFTER BILL S W ERE PASSED AND TDS WAS DEDUCTED AS PER APPLICABLE PROVISIONS. IN THE ABSENCE OF EXACT PAYEES AND AMOUNTS PAYABLE TO THEM NOT BEI NG IDENTIFIED BEFORE THE CLOSURE OF BOOKS OF ACCOUNT THE CASE OF THE ASSESSEE WAS THAT THE ITA NO S . 229 & 230 /PN/20 1 4 5 PROVISIONS OF TDS WERE NOT APPLICABLE AS HELD BY THE MUMBAI BENCH OF THE TRIBUNAL IN I NDUSTRIAL DEVELOPMENT BANK OF INDIA VS. ITO (2007) 107 ITD 45 (MUMBAI) . FURTH ER SUBMISSIONS WERE MADE BEFORE THE CIT(A) WHICH ARE REPRODUCED UNDER PARA 5.2 AT PAGES 7 TO 14 OF THE APPELLATE ORDER WHICH ARE BEING REFERRED TO BUT ARE NOT BEING REPRODUCED FOR THE SAKE OF BREVITY. THE CIT(A) OBSERVED TH AT THE MAIN PLEA OF THE ASSES SEE WAS THAT THE PROVISIONS OF SECTION 194C 194H 194I AND 194J 195 ETC. WERE NOT APPLICABLE WHERE THE ASSESSEE HAD ALREADY DISALLOWED THE PROVISIONS UNDER SECTION 40 (A) ( I A) OR 40 (A) ( I ) OF THE ACT. THE CIT(A) NOTED THAT THERE WERE CONFLICTING VIEWS ON THE ISSUE AND RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY COCHIN BENCH OF THE TRIBUNAL IN AGREENCO FIBRE FOAM (P) LTD. VS. ITO (TDS) (2013) 37 CCH 033 (COCHIN TRIB) ORDER DATED 16.08.2013. IN VIEW THEREOF THE CIT(A) HELD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN INITIATING THE ACTION UNDER SECTIONS 201(1) AND 201(1A) OF THE ACT AND THE LIABILITY OF RS. 52 76 643/ - WAS DETERMINED ON ACCOUNT OF NON - DEDUCTION OF TAX AT SOURCE UNDER SECTION 201(1) OF THE ACT AND INTEREST CHARGED UNDER SECTION 201(1A) OF TH E ACT FOR THE FINANCIAL YEAR WAS CONFIRMED. 8. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS A LISTED COMPANY AND WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING UNDER WHICH IT MAKES CERTAIN PROVISIONS FOR EXPENSES SOMETIME S ON PARTY BASIS AND SOMETIMES EXPENDITURE - WISE. THE BILLS IN RESPECT OF SUCH PROVISIONS ARE RECEIVED IN THE NEXT YEAR AND NECESSARY ENTRIES WERE THEN MADE TO THE RESPECTIVE ACCOUNTS. THE PLEA OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US WAS THAT ON SUCH PROVISION BEING MADE IN THE BOOKS OF ACCOUNT SINCE NO TAX WAS DEDUCTED AT SOURCE THE AMOUNT WAS OFFERED AS INCOME IN VIEW OF THE PROVISIONS OF SECTION 40 (A) (I ) OF THE ACT. IT WAS FURTHER ITA NO S . 229 & 230 /PN/20 1 4 6 POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT AGAINST THE FIRST ISSUE OF NON - DEDUCTION OF TAX AT SOURCE OUT OF COMMISSION PAID TO NON - EXECUTIVE DIRECTORS WHERE THE ASSESSING OFFICER HAD HELD THE A SSESSEE TO BE IN DEFAULT THE CIT(A) HAD ALLOWED THE CLAIM AND NO APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE SAID RELIEF GRANTED BY THE CIT(A) . V IS - - VIS THE SECOND ISSUE RAISED BY THE ASSESSING OFFICER THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE NON - DEDUCTION OF TAX AT SOURCE HAS BEEN REPORTED BY THE AUDITOR IN THE AUDIT REPORT AND T HE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE SUBMISSIONS MADE BEFORE THE CIT(A) . FURTHER THE LEARNED AUTHORIZ ED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT RELIANCE IS BEING PLACED ON THE RATIO LAID DOWN BY MUMBAI BENCH OF THE TRIBUNAL IN PF IZER LTD. VS. ITO (TDS) (OSD) (2013) 55 SOT 277 (MUMBAI) . OUR ATTENTION WAS FURTHER DRAWN TO THE STATEMENT OF PROVISIO N MADE ON WHICH TDS WAS NOT DEDUCTED TOTALING RS. 4 90 62 116/ - . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN THE SUBSEQUENT ASSESSMENT YEARS THE BILLS FOR RS. 3 08 05 951/ - WERE PASSED AND ENTRIES TO THAT EFFECT WERE MADE AND ALSO TAX WAS DEDUCTED AT SOURCE THE BALANCE PROVISION OF RS. 1 52 98 221/ - WAS REVERSED IN THE BOOKS OF ACCOUNT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION TO THE DECISION OF COCHIN BENCH OF THE TRIBUNAL IN AGREENCO FIBRE F OAM (P) LTD. VS. ITO (TDS) (SUPRA) WHICH HAS BEEN RELIED UPON BY THE CIT(A) AND POINTED OUT THAT UNDER THE PROVISIONS OF SECTION 194A WHERE ANY PERSON WAS RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME TH EN HE WAS LIABLE TO DEDUCT TAX ON SUCH INCOME. HOWEVER THE SECTIONS UNDER WHICH THE ASSESSEE HAD MADE THE PROVISIONS WERE 194C AND 194J OF THE ACT WHERE THE PROVISIONS WERE DIFFERENT I.E. WHERE ANY PERSON WAS RESPONSIBLE FOR PAYING ANY SUM TO ANY OTHER PERSON THEN IF IT FELL WITHIN THOSE SECTIONS THERE WAS LIABILITY TO DEDUCT TAX AT SOURCE. IT WAS FAIRLY POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE PROVISIONS OF ITA NO S . 229 & 230 /PN/20 1 4 7 SECTION 194H OF THE ACT W ERE PARAMATRIA TO SECTION 194A OF THE ACT BUT THE PAYEES WERE NOT IDENTIFIE D . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT IN THE CASE OF ASSESSEE THE PAYEES WERE NOT IDENTIFIED AT THE CLOSE OF THE YEAR BUT THE PROVISION FOR TH E SAME WAS BEING MADE SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SY STEM OF ACCOUNTING. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACING RELIANCE ON THE ORDERS OF AUTHORITIES BELOW POINTED OUT THAT EVEN IF THE FIGURES DECLARED BY THE ASSESSEE AT PAGES 15 AND 42 ARE RECONCILED THERE IS STILL A DIFFERE NCE WHICH HAS NOT BEEN RECONCILED BY THE ASSESSEE. 11. IN REJOINDER THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN CASE THERE WAS ANY DIFFERENCE WHICH HAS NOT BEEN RECONCILED BY THE ASSESSEE THEN THE ASSESSEE IS PREPARED TO P AY TAX ON SUCH AMOUNTS ALONG WITH INTEREST. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS WHETHER WHERE THE ASSESSEE HAD MADE PROVISION FOR VARIOUS EXPENSES FOR THE YEAR ENDING 31.03.2007 AND H AD DISALLOWED THE SAID EXPENDITURE IN THE COMPUTATION OF INCOME IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT THEN CAN THE ASSESSEE BE HELD TO HAVE DEFAULTED IN NON - DED U CTION OF TAX AT SOURCE OUT OF AMOUNT OF SUCH EXPENDITURE DUE . THE EXPLAN ATION OF THE ASSESSEE IN THIS REGARD WAS THAT IT WAS MAKING THE PROVISION OF EXPENSES AT THE YEAR END DUE TO TH E FACT THAT CONSIDERING HUGE TRANSACTIONS ALL BILLS WERE NOT RECEIVED AND IN NUMBER OF CASES THE AMOUNTS FOR THE WORK / SERVICES DONE WERE NOT MEASURED AND HAD TO BE ESTIMATED. IN THE CASE OF COMMISSION PAYABLE TO SERVICE DEALER S IT BECAME DIFFICULT TO QUANTIFY THE DEALER - WISE COMMISSION PAYABLE FOR THE SALES EFFECTED IN THE FINANCIAL YEAR AT THE TIME ITA NO S . 229 & 230 /PN/20 1 4 8 OF CLOSURE OF BOOKS. IN SOME CASES THE W ORK WAS DONE THROUGH CONTRACTORS AT VARIOUS SITES WHICH HAD TO BE ESTIMATED AND PROVISION WAS BASED ON WORK COMPLETED UPTO THE END OF YEAR THOUGH THE BILLS MAY NOT HAVE BEEN RAISED BY THE CONTRACTORS. NEXT YEAR THE ENTIRE PROVISION WAS MONITORED BY THE ASSESSEE AGAINST THE BILLS RECEIVED AND THE PART OF THE PROVISION NO LONGER REQUIRED EXCESS AND SHORT PROVISION AND RELATED PAYMENT OF TDS ETC. WAS LOOKED INTO AND APPROPRIATE ENTRIES WERE PASSED IN THE BOOKS OF ACCOUNT. THE ASSESSEE CLAIMS THAT THE RE SPECTIVE PARTY ACCOUNTS WERE CREDITED IN THE NEXT FINANCIAL YEAR AFTER BILL S W ERE PASSED AND THE TDS WAS DEDUCTED AS PER THE APPLICABLE PROVISIONS OF THE ACT. THE ASSESSEE CLAIMED THAT IN NUMBER OF CASES THE EXACT PAYEES AND THE AMOUNTS PAYABLE TO THEM C OULD NOT BE IDENTIFIED BEFORE CLOSURE OF BOOKS AND IN THE ABSENCE OF ANY IDENTIFIED PAYEES THE PROVISIONS OF TDS WERE NOT APPLICABLE. 13. THE AUDITOR OF THE ASSESSEE IN THE TAX AUDIT REPORT HAD DECLARED THE AMOUNTS TO BE DISALLOWED UNDER SECTION 40(A)(I A) OF THE ACT. THE AMOUNT DISALLOWED AS PER TAX AUDIT REPORT WAS RS.4 90 62 115/ - WHICH WAS ADDED BY THE ASSESSEE IN ITS COMPUTATION OF INCOME. THE CLAIM OF THE ASSESSEE WAS THAT SIMILAR ENTRIES WERE BEING PASSED FROM YEAR TO YEAR AND WERE BEING ACCEPT ED IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT FOR THE YEAR UNDER CONSIDERATION HAD ACCEPTED THE DISALLOWANCE OR ALLOWANCES AS MENTIONED IN THE TAX AUDIT REPORT WHICH IN TURN WAS ADDED IN THE COMPUTATION OF INCOME. TH E AMOUNT WAS DISALLOWED IN THE HANDS OF THE ASSESSEE FOR THE REASON THAT THE TAX HAD NOT BEEN DEDUCTED AT SOURCE AND THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE APPLICABLE . THE ASSESSEE FURNISHED BEFORE US STATEMENT WORKING OUT THE DISALLOWANCE UN DER SECTION 40(A)(I) OF THE ACT FOR ASSESSMENT YEAR 2007 - 08 WHICH READS AS UNDER: - ITA NO S . 229 & 230 /PN/20 1 4 9 STATEMENT SHOWING DISALLOWANCE U/S 40(A)(I) & TDS PAYMENT BUSINESS UNIT PROVISION ON WHICH TDS NOT DEDUCTED TOTAL 194I 194C 194J 1 94H 195 LARGE ENGINES 19142089 3928710 19919233 2841278 45831310 SMALL ENGINES 80000 1020000 214000 1314000 ACD PUNE 1039137 225940 1265077 MEDIUM ENGINES 272864 272864 VALVE EOU 36452 36452 FUEL OIL 201324 92966 294290 POWER 175000 175000 80000 21711866 4636616 19919233 2841278 49188993 LESS: AS PER TAT 126877 AMOUNT DISALLOWED 80000 21584989 4636616 19919233 2841278 49062116 TDS REQUIRED TO BE DEDUCTED (AS PER TAR) 17952 483499 260114 1117469 318791 2197 825 BILLS PASSED SUBSEQUENTLY & TDS DEDUCTED 12819106 1350504 13795063 2841278 30805951 PROVISION REVERSED & EXCESS / SHORT PROVISION 6595845 2578206 6124170 15298221 PROVISION 278418 66063 949925 318791 1613197 TDS DEDUCTED 14. SIMILAR STATEMENT H AS BEEN FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2008 - 09 WHICH IS AS UNDER: - SR. NO. PARTICULARS AMOUNT TAX REQD TO BE DEDUCTED TAX DEDUCTED F.Y. 2008 - 09 DUE DATA DATE OF PAYMENT AMOUNT INADMISSIBLE TDS NOT DEDUCTED BILLS PASSED IN SUBSEQUEN T FY TDS DEDUC TED PROVISION REVERSED / EXCESS / SHORT 1 CONVERSION / LABOUR CHARGES 194C 6 66 01 978 1 15 09 099 2 10 60 499 VARIOUS VARIOUS 1 97 99 995 1 - 2 4 48 600 19139031 2 PROFF. CHARGES 194J 33 74 607 3 44 750 1 15 215 VARIOUS VARIOUS 22 63 971 2 29 535 15 00 000 169950 3 RENT 194I 18 96 499 4 17 774 2 993 VARIOUS VARIOUS 18 52 599 4 14 781 7 77 853 89667 11 18 646 4 COMMISSION 194H 36 25 000 3 73 375 36 25 000 3 73 375 9 27 517 104406 2697483 TOTAL 7 54 98 084 26 44 998 11 78 707 2 75 4 1 565 14 66 292 32 05 371 3 64 024 2 29 55 161 15. THE PERUSAL OF THE ABOVE SAID DETAILS REFLECT THAT AS AGAINST THE SUM OF RS. 4.90 CRORES BEING THE AMOUNT DISALLOWED IN THE HANDS OF THE ASSESSEE TAX DEDUCTIBLE WAS TO THE TUNE OF RS. 21 97 825/ - IN ASSE SSMENT YEAR 2007 - 08 . THE ASSESSEE IN THE SUBSEQUENT YEAR HAD PASSED BILLS TO THE EXTENT OF RS.3.08 CRORES ON WHICH THE TAX WAS DEDUCTED AT SOURCE AND WAS DEPOSITED IN THE ITA NO S . 229 & 230 /PN/20 1 4 10 TREASURY. THE PROVISION TO THE EXTENT OF RS.1.52 CRORES WAS REVERSED BY THE ASSESS EE IN THE NEXT ACCOUNTING PERIOD. THE ASSESSEE WAS REQUIRED TO DEDUCT THE TDS TO THE EXTENT OF RS.21 97 825/ - AS AGAINST WHICH THE ASSESSEE HAD DEDUCTED TDS OF RS.16 13 19 7 / - AND DEPOSITED IN THE TREASURY. SIMILARLY FOR ASSESSMENT YEAR 2008 - 09 THE AMO UNT OF EXPENDITURE WHICH WAS HELD TO BE INADMISSIBLE WAS TO THE TUNE OF RS.2.75 CRORES ON WHICH TDS TO THE EXTENT OF RS. 14 66 292/ - WAS DUE TO BE DEDUCTED. IN THE SUBSEQUENT YEAR BILLS OF RS.32 05 371/ - WERE PASSED ON WHICH TAX WAS DEDUCTED AT SOURCE AT RS. 3 64 024/ - AND PROVISION TO THE EXTENT OF RS.2.29 CRORES WAS REVERSED. 16. THE ISSUE WHICH ARISES FOR OUR CONSIDERATION IS WHETHER IN SUCH CIRCUMSTANCES WHERE THE AMOUNT HAS NOT BEEN CLAIMED AS DEDUCTIBLE IN THE HANDS OF THE ASSESSEE FOR THE REASON T HAT TAX HAD NOT BEEN DEDUCTED AT SOURCE THEN CAN THE PROVISIONS OF SECTION 201(1) OF THE ACT BE ATTRACTED AND FOR SUCH DEFAULT IN NON - PAYMENT OF DEMAND SO RAISED CAN INTEREST BE CHARGED UNDER SECTION 201(1A) OF THE ACT . 17. WE FIND THAT SIMILAR ISSUE OF LIABILITY OF THE ASSESSEE TO DEDUCT TAX AT SOURCE IN RESPECT OF PAYMENTS TO PERSONS WHOSE IDENTITY WAS NOT KNOWN WHEN THE PROVISION FOR SUCH EXPENDITURE WAS MADE BY THE ASSESSEE IT WAS HELD THAT THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE IN RESPECT OF SUCH PROVISION. THE SAID PROPOSITION WAS LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN IDBI VS. ITO (SUPRA) WHICH HAS BEEN APPLIED BY ANOTHER MUMBAI BENCH OF TRIBUNAL IN PFIZER LTD. VS. ITO (SUPRA) AND IT WAS HELD AS UNDER: - 8. WE HAVE CONSIDERED TH E ISSUE. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEE MADE PROVISION FOR EXPENSES TO AN EXTENT OF RS.10 01 98 459/ - ON ABOUT 23 ITEMS IN THE BOOKS OF ACCOUNT. THERE IS ALSO NO DISPUTE TO THE FACT THAT ENTIRE PROVISION SO MADE WAS DISALLOWED IN THE COMPUTATION UNDER THE HEAD TAX DEDUCTIBLE BUT NOT DEDUCTED ON PROVISIONS AS ON 31 ST MARCH 2007 IN THE COMPUTATION OF INCOME. THEREFORE THE ENTIRE PROVISION SO MADE WAS DISALLOWED UNDER SECTION 40(A)(I)/(IA) WHILE FILING THE RETURN OF INCOME B Y THE ITSELF. ITA NO S . 229 & 230 /PN/20 1 4 11 9. AS EXPLAINED THE GENERAL ENTRIES PASSED BY PFIZER LTD IN THE BOOKS OF ACCOUNT ARE AS UNDER: ANNEXURE - 1 JOURNAL ENTRIES PASSED BY PFIZER IN THE BOOKS OF ACCOUNT: A) AT THE TIME OF MAKING THE YEAR END PROVISION PARTICULARS DEBIT (`.) CREDIT(`.) EXPENSE A/C DR. XXX TO PROVISION FOR EXPENSES A/C XXX B) AT THE TIME OF REVERSAL ON FIRST DAY OF THE NEXT FINANCIAL YEAR PARTICULARS DEBIT (`.) CREDIT (`.) PROVISION FOR EXPENSES A/C DR. XXX TO EXPENSES A/C X XX C) AT THE TIME OF MAKING PAYMENT TO PARTIES ON THE BASIS OF THE ACTUAL INVOICES RECEIVED BY PFIZER. PARTICULARS DEBIT (`.) CREDIT (`.) EXPENSES A/C DR. XXX TO PARTYS A/C XXX TO TDS PAYABLE A/C XXX TO TDS PAYABLE A/C XXX 10. AS CAN BE SEEN FROM TH E ABOVE ENTRIES WHEN THE PAYMENT/CREDIT WAS MADE TO THE INDIVIDUAL PAYEE IDENTIFIED ALL THE PROVISIONS OF TDS ARE MADE APPLICABLE WHETHER TO A RESIDENT OR TO A NONRESIDENT AS THE CASE MAY BE. IN THE ABSENCE OF ANY IDENTIFIABLE PAYEE THE PROVISIONS OF T DS ARE NOT APPLICABLE AS WAS HELD BY THE ITAT IN THE CASE OF IDBI VS. I.T.O 107 ITD 45(MUM). IN THAT THE CASE THE FACTS ARE AS UNDER: THE ASSESSEE A FINANCIAL INSTITUTION WAS FOLLOWING FINANCIAL YEARS AS ITS ACCOUNTING YEAR. IT ISSUED 'REGULAR RETURN BONDS'. THE TERMS AND CONDITIONS FOR PAYMENT OF INTEREST ON THESE BONDS PROVIDED THAT THE ASSESSEE WAS LIABLE TO PAY INTEREST AT THE RATE OF 16 PER CENT ANNUALLY IN RESPECT OF REGULAR RETURN BONDHOLDERS THAT THE INTEREST WAS PAYABLE ON 9TH JUNE OF EACH CA LENDAR YEAR EXCEPT IN THE YEAR OF MATURITY WHEN INTEREST WAS PAYABLE ON MATURITY THAT THE INTEREST EXCEPT AT THE LIME OF MATURITY WAS TO BE PAID TO THE PERSON WHOSE NAME WAS REGISTERED IN THE RECORDS OF THE ASSESSEE COMPANY AS ON 15TH MAY OF EACH CA LENDAR YEAR AND THAT THE BONDS WERE TRANSFERABLE BY ENDORSEMENT AND DELIVERY AND THE ASSESSEE DID NOT IN ANY WAY CONTROL SUCH TRANSFER OF OWNERSHIP. THE ASSESSEE AT THE END OF THE RELEVANT PREVIOUS YEAR AS ON 31.3.1994 MADE A PROVISION FOR 'INTEREST A CCRUED BUT NOT DUE' IN RESPECT OF REGULAR RETURN BONDS AND CLAIMED DEDUCTION OF THE SAME IN COMPUTATION OF BUSINESS INCOME. THE ASSESSEE FURTHER CREDITED THE SAID PROVISION TO THE INTEREST PAYABLE ACCOUNT AND REFLECTED THE SAME IN THE BALANCE SHEET. THE AS SESSEE DID NOT DEDUCT TAX AT SOURCE IN RESPECT OF THE PROVISION SO MADE . THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE DID NOT DEDUCT TAX IN TERMS OF PROVISION SO MADE THOUGH IN TERMS OF THE PROVISIONS OF SECTION 193 PARTICULARLY READ WITH EXPLANATION THERETO IT WAS REQUIRED TO DEDUCT TAX AT SOURCE FROM THE CREDIT TO 'INTEREST PAYABLE ACCOUNT' AND DEPOSIT THE SAME WITH THE GOVERNMENT. THE ASSESSING OFFICER WAS OF VIEW THAT THE ASSESSEE KNEW THE IDENTITY OF ALL THE BONDHOLDERS AS ON 31 - 3 - 1994 BECAUSE IT WAS MAINTAINING A REGISTER OF BONDHOLDERS AND THEREFORE IT COULD NOT BE SAID THAT THE ASSESSEE DID NOT KNOW THE NAMES OF THE PERSONS TO WHOM INTEREST WAS TO BE CREDITED. THE ASSESSING OFFICER THEREFORE HELD THAT THE ASSESSEE DID NOT COMPLY WITH PROV ISIONS OF SECTION 193 AND IMPOSED PENALTY UNDER SECTION 201 UPON THE ASSESSEE ON ACCOUNT OF NON - DEDUCTION OF TAX AT SOURCE IN RESPECT OF INTEREST LIABILITY CREDITED TO 'INTEREST ITA NO S . 229 & 230 /PN/20 1 4 12 PAYABLE ACCOUNT HE ALSO IMPOSED THE PENALTY UNDER SECTION 221 UPON THE ASSES SEE. ON APPEAL THE COMMISSIONER (APPEALS) UPHELD THE IMPUGNED ORDER. IT WAS HELD THAT THE LIABILITY OF TAX DEDUCTION AT SOURCE IS IN THE NATURE OF A VICARIOUS OR SUBSTITUTIONARY LIABILITY WHICH PRESUPPOSES EXISTENCE OF A PRINCIPAL OR PRIMARY L IABILITY. CHAPTER XVII - B IS TITLED 'COLLECTION AND RECOVERY OF TAX - DEDUCTION OF TAX AT SOURCE: THIS TITLE ALSO INDICATES THAT THE NATURE OF TAX DEDUCTION AT SOURCE OBLIGATION IS OBLIGATION FOR COLLECTION AND RECOVERY OF TAX. UNDER THE ACT TAX IS O N THE INCOME AND IT IS IN THE HANDS OF THE PERSON WHO RECEIVES SUCH INCOME EXCEPT IN THE CASE OF DIVIDEND DISTRIBUTION TAX WHICH IS LEVIED UNDER SECTION 115 - 0 A SECTION OUTSIDE THE CHAPTER PROVIDING FOR COLLECTION AND RECOVERY MECHANISM AND SET OUT UNDER A SEPARATE CHAPTER 'DETERMINATION OF TAX IN CERTAIN SPECIAL CASES - SPECIAL PROVISION RELATING TO TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES: A PLAIN READING OF SECTION 190 AND SECTION 191 WHICH ARE FIRST TWO SECTIONS UNDER THE CHAPTER XVII A ND OF SECTIONS 199 202 AND 203(1) WOULD SHOW THIS UNDERLYING FEATURE OF THE TAX DEDUCTION AT SOURCE MECHANISM. SECTION 190 MAKES IT CLEAR THAT THE SCHEME OF TAX DEDUCTION AT SOURCE IS ONE OF THE METHODS OF RECOVERING THE TAX DUE FROM A PERSON AND IT IS NOTWITHSTANDING THE FACT THAT THE TAX LIABILITY MAY ONLY ARISE IN A LATER ASSESSMENT YEAR. THE TAX LIABILITY IS OBVIOUSLY IN THE HANDS OF THE PERSON WHO EARNS THE INCOME AND TAX DEDUCTION AT SOURCE MECHANISM PROVIDES FOR METHOD TO RECOVER SUCH TAX LIABILI TY. THEREFORE THIS TAX DEDUCTION AT SOURCE LIABILITY IS A SORT OF SUBSTITUTIONARY LIABILITY. SECTION 191 FURTHER MAKES THIS POSITION CLEAR WHEN IT LAYS DOWN THAT IN A SITUATION TDS MECHANISM IS NOT PROVIDED FOR A PARTICULAR TYPE OF INCOME OR WHEN THE T AXES HAVE NOT BEEN DEDUCTED AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII INCOME - TAX SHALL BE PAYABLE BY ASSESSEE DIRECTLY. THIS PROVISION THUS SHOWS THAT TAX DEDUCTION LIABILITY IS A VICARIOUS LIABILITY AND THE PRINCIPAL LIABILITY IS OF T HE PERSON WHO IS TAXABLE IN RESPECT OF SUCH INCOME. THE PRINCIPAL LIABILITY IS OF T HE PERSON WHO IS TAXABLE IN RESPECT OF SUCH INCOME. SECTION 199 MAKES IT EVEN MORE CLEAR BY LAYING DOWN THAT THE CREDIT FOR TAXES DEDUCTED AT SOURCE CAN ONLY BE GIVEN TO THE PERSON FROM WHOSE INCOME THE TAXES ARE SO DEDUCTED. THEREFORE WHEN TAX DEDUCTOR C ANNOT ASCERTAIN BENEFICIARIES OF A CREDIT THE TAX DEDUCTION MECHANISM CANNOT BE PUT INTO SERVICE. SECTION 202 LAYS DOWN THAT TAX DEDUCTION AT SOURCE PROVISIONS ARE WITHOUT ANY PREJUDICE TO ANY OTHER MODE OF RECOVERY FROM ASSESSEE WHICH AGAIN POINTS OUT T O THE TAX DEDUCTION LIABILITY BEING VICARIOUS LIABILITY IN NATURE. SECTION 203(1) THEN LAYS DOWN THAT FOR ALL TAX DEDUCTIONS AT SOURCE THE TAD DEDUCTOR HAS TO FURNISH TO THE PERSON TO WHOSE ACCOUNT SUCH CREDIT IS GIVEN OR TO WHOM SUCH PAYMENT IS MADE OR THE CHEQUE OR WARRANT IT ISSUED WHICH PRESUPPOSES THAT AT THE STAGE OF TAX DEDUCTION THE TAX DEDUCTOR KNOWS THE NAME OF PERSON TO WHOM THE CREDIT IS TO BE GIVEN THOUGH WHETHER BY WAY OF CREDIT TO THE ACCOUNT OF SUCH PERSON OR BY WAY OF CREDIT TO SOME OTH ER ACCOUNT. THIS AGAIN SHOWS THAT TAX DEDUCTION AT SOURCE LIABILITY IS A VICARIOUS LIABILITY TO PAY TAX ON BEHALF OF THE PERSON WHO IS TO BE BENEFICIARY OF THE PAYMENT OR CREDIT WITH A CORRESPONDING RIGHT TO RECOVER SUCH TAX PAYABLE FROM THE PERSON TO WHO M CREDIT IS AFFORDED OR PAYMENT IS MADE. THUS THE WHOLE SCHEME OF TAX DEDUCTION AT SOURCE 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 QUA 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. THEREFORE TAX DEDUCTION AT SOURCE MECHANISM CANNOT BE PUT INTO PRACTICE UNTIL IDENTITY OF THE PERSON IN WHOSE HANDS IT IS INCLUDIBLE AS INCOME CAN BE ASCERTAINED. IT I S INDEED CORRECT THAT EXPLANATION TO SECTION 193 LAYS DOWN THAT EVEN WHEN AN INCOME IS CREDITED TO ANY ACCOUNT IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME 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 BUT THE FACT THAT THE CREDIT TO ANY ACCOUNT IS TO BE DEEMED TO BE CREDIT TO THE PAYEES ACCOUNT ALSO PRESUPPOSES THAT IDENTIFY OF THE PAYEE CAN BE ASCERTAINED. THEREFORE THIS DEEMING FICT ION CAN ONLY BE ACTIVATED WHEN THE IDENTITY OF THE PAYEE CAN BE ASCERTAINED. THEREFORE THE EXPLANATION TO SECTION 193 CANNOT BE INVOKED IN A CASE WHERE THE PERSON WHO IS TO RECEIVE THE INTEREST ITA NO S . 229 & 230 /PN/20 1 4 13 CANNOT BE IDENTIFIED AT THE STAGE AT WHICH THE PROVISION FOR INTEREST ACCRUED BUT NOT DUE IS MADE. THIS POSITION IS ALSO ACCEPTED BY THE CBDT IN ITS LETTER DATED 5 - 7 - 1996 ADDRESSED TO THE TATA IRON & STEEL CO. LTD (LETTER NO.257/126 IT(B). IN THE INSTANT CASE THE REGULAR RETURN BONDS BEING TRANSFERABLE ON SIMPLE E NDORSEMENT AND DELIVERY AND THE RELEVANT REGISTRATION DATE BEING A DATE SUBSEQUENT TO THE CLOSURE OF BOOKS OF ACCOUNT ASSESSEE COULD NOT HAVE ASCERTAINED THE PAYEES AT THE POINT OF TIME WHEN THE PROVISION FOR INTEREST ACCRUED BUT NOT DUE WAS MADE. ACCO RDINGLY NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE IN RESPECT OF THE PROVISION FOR INTEREST PAYABLE MADE BY ASSESSEE WHICH REFLECTED PROVISION FOR INTEREST ACCRUED BUT NOT DUE IN A SITUATION WHERE THE ULTIMATE RECIPIENT OF SUCH INTEREST ACCRUED BUT N OT DUE COULD NOT HAVE BEEN ASCERTAINED AT THE POINT OF TIME WHEN THE PROVISION WAS MADE. ASSESSEE HAD DULY DEDUCTED THE TAX SOURCE AT THE TIME OF PAYMENT I.E. ON 9.6.1994 AND THERE WAS NO LOSS OF REVENUE AS SUCH. THEREFORE ASSESSEE DID NOT HAVE ANY LIABI LITY TO DEDUCT TAX AT SOURCE IN RESPECT OF PROVISION FOR INTEREST ACCRUED BUT NOT DUE IN RESPECT OF REGULAR RETURN BONDS MADE ON 31.3.1994. WHEN THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE THERE COULD NOT BE ANY QUESTION OF LEVY OF PENALTY OR INTERES T. THE NEXT QUESTION FOR CONSIDERATION IN THE INSTANT CASE WAS AS TO WHETHER AO COULD HAVE IMPOSED THE PENALTY AT ALL UNDER SECTION 221 UPON ASSESSEE. A COORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF ITO V. TITAGARH STEEL LTD (2001) 79 ITD 532 DEA LING WITH THE CONSEQUENCES OF NON - DEDUCTION OR SHORT DEDUCTION OF TAX AT SOURCE HAD HELD THAT POST 1 - 4 - 1989 PENALTY FOR NONDEDUCTION OF TAX AT SOURCE OR SHORT DEDUCTION OF TAX AT SOURCE CAN ONLY BE IMPOSED UNDER SECTION 271C. THE CBDT ITSELF HAD IN CIRCU LAR NO.551 DATED 23 - 1 - 1990 ACCEPTED THAT UNTIL SECTION 271C WAS INSERTED IN THE ACT NO PENALTY WAS PROVIDED FOR FAILURE TO DEDUCT TAX AT SOURCE. IT WAS NOT ONLY MERELY A QUESTION OF MENTIONING A WRONG SECTION WHICH COULD PERHAPS BE COVERED BY RECOURSE TO SECTION 292B IT WAS ALSO IMPORTANT TO BEAR IN MIND THAT THE IMPUGNED PENALTY WAS LEVIED BY AN OFFICER OF THE RANK OF THE INCOME TAX OFFICER WHEREAS PENALTY UNDER SECTION 271C COULD ONLY HAVE BEEN LEVIED BY AN OFFICE OF THE RANK OF THE DEPUTY (NOW JOI NT) COMMISSIONER. THE ITO WAS FROM THIS POINT OF VIEW NOT COMPETENT TO IMPOSE THE IMPUGNED PENALTY. FURTHER IN THE INSTANT CASE EVEN ACCORDING TO THE REVENUE THE DEFAULT WAS ON ACCOUNT OF DEDUCTION OF TAX AT ACCORDING TO THE REVENUE THE DEFAULT WAS ON ACCOUNT OF DEDUCTION OF TAX AT SOURCE. SUCH A DEFAULT COULD NOT BE VISITED WITH PENALTY UNDER SECTION 221. HENCE THE IMPUGNED PENALTY UNDER SECTION 221 WAS UNSUSTAINABLE IN LAW. 11. IN VIEW OF THE ABOVE DECISION OF COORDINATE BENCH SINCE THE PAYEE IS NOT IDENTIFIABLE IN THIS CASE ALSO AT THE TIME OF MAKING PROVISI ON 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 DISP UTE. THEREFORE ASSESSEE IS FOLLOWING THE PROVISIONS OF TDS AS AND WHEN THE AMOUNTS ARE PAID/CREDITED TO RESPECTIVE PARTIES. 12. AS ALREADY EXPLAINED AND EVIDENCED FROM THE COMPUTATION OF INCOME AS WELL AS THE ORDERS OF AO IN THE ASSESSMENT PROCEEDINGS THE ENTIRE PROVISION HAS BEEN DISALLOWED UNDER SECTION 40(A)(IA) AND SECTION 40(A)(I). ONCE THE AMOUNT HAS BEEN DISALLOWED UNDER THE PROVISIONS OF SECTION 40(A)(I) ON THE REASON THAT TAX HAS NOT BEEN DEDUCTED IT IS SURPRISING THAT AO HOLDS THAT THE SAID AMOUNTS ARE SUBJECT TO TDS PROVISIONS AGAIN SO AS TO DEMAND THE TAX UNDER THE PROVISIONS OF SECTION 201 AND ALSO LEVY INTEREST UNDER SECTION 201(1A). WE ARE UNABLE TO UNDERSTAND THE LOGIC OF AO IN CONSIDERING THE SAME AS COVERED BY THE PROVISIONS OF SECTI ON 194C TO 194J. ASSESSEE AS STATED HAS ALREADY DISALLOWED THE ENTIRE AMOUNT IN THE COMPUTATION OF INCOME AS NO TDS HAS BEEN MADE. ONCE AN AMOUNT WAS DISALLOWED UNDER SECTION 40(A)(I)/(IA) ON THE BASIS OF THE AUDIT REPORT OF THE CHARTERED ACCOUNTANT THE S AME AMOUNT CANNOT BE SUBJECT TO THE PROVISIONS OF TDS UNDER SECTION 201(1) ON THE REASON THAT ASSESSEE SHOULD HAVE DEDUCTED THE TAX. IF THE ORDER OF AO WERE TO BE ACCEPTED THEN DISALLOWANCE UNDER SECTION 40(A)(I) 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 AO 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). THEREFORE ASSESSEES GROUND ON THIS ISSUE ARE TO BE ALLOWED AS THE ENTIRE AMOUNT HAS BEEN DISALLOWED UNDER THE PROVISIONS OF SECTION 40(A)(I)/(IA) IN THE COMPU TATION OF INCOME ON THE REASON THAT TDS WAS NOT ITA NO S . 229 & 230 /PN/20 1 4 14 MADE. FOR THIS REASON ALONE ASSESSEES GROUNDS CAN TO BE ALLOWED. CONSIDERING THE FACTS AND REASONS STATED ABOVE ASSESSEES GROUNDS ARE ALLOWED. 18. THE CIT(A) ON THE OTHER HAND HAS RELIED ON THE RATIO LAID DOWN BY THE COCHIN BENCH OF THE TRIBUNAL IN AGREENCO FIBRE FOAM (P) LTD. VS. ITO (SUPRA) WHEREIN A CONTRARY VIEW HAD BEEN TAKEN BY THE TRIBUNAL. WHILE CONSIDERING THE DECISION OF TRIBUNAL IN PFIZER LTD. VS. ITO (SUPRA) IT WAS OBSERVED BY THE COCHIN BEN CH OF TRIBUNAL THAT THE ASSESSEE IN PFIZER LTD. VS. ITO (SUPRA) WAS HAVING BRANCHES AT MULTIFARIOUS LOCATIONS AND INNUMERABLE TRANSACTIONS AND HENCE IT WAS FOLLOWING THE PRACTICE OF MAKING PROVISION FOR EXPENSES AT THE END OF THE YEAR. THE OBVIOUS REASON FOR WHICH WAS THAT IT DID NOT RECEIVE ALL THE BILLS BY THE TIME THE ACCOUNTS WERE FINALIZED. THE ADHOC PROVISION SO MADE WAS REVERSED IN THE SUCCEEDING YEAR IN WHICH ACTUAL EXPENSES WERE BOOKED UNDER SPECIFIC HEADS AND TDS COMPLIANCE WAS ALSO MADE AT THA T TIME. THE COCHIN BENCH OF TRIBUNAL CONSIDERED THE LIABILITY TO DEDUCT TAX AT SOURCE IN RELATION TO THE ASSESSEE BEFORE BEFORE THEM ON THE INTEREST PAYMENT PRESCRIBED UNDER SECTION 194A AND OBSERVED THAT THE SAID SECTION USED THE TERM ANY INCOME BY WAY OF INTEREST AND IT HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DOES NOT OVERRIDE THE PROVISIONS OF SECTION 201(1) OF THE ACT. THE RELEVANT FINDING OF THE COCHIN BENCH OF TRIBUNAL IN AGREENCO FIBRE FOAM (P) LTD. VS. ITO (SUPRA) IS AS UNDER: - 5.2 A READING OF SECTION 194A(1) SHOWED THAT THE PERSON RESPONSIBLE TO PAY THE INTEREST IS LIABLE TO DEDUCT TAX AT SOURCE AT THE TIME OF CREDIT OR PAYMENT WHICHEVER IS EARLIER. THE SECTION USES THE TERM ANY INCOME BY WAY OF INTEREST . THE INTEREST PAYMENT MAY CONST IT UTE IN THE HANDS OF TH E PERSON MAKING THE PAYMENT WHILE I T MAY CONSTITUTE INCOME I N THE HANDS OF THE PAYEE / RECIPIENT. S INCE THE SECT I ON USES THE TERM 'ANY INCOME BY WAY OF INTEREST' IT WAS HELD IT SHOULD BE VIEWED FROM THE ANGLE O F THE RECIPIENT/PAYEE AND NOT FROM THE ANGLE OF THE PERSON MAKING THE PAYMENT. ACCORDINGLY THE TAX TREATMENT GIVEN BY THE PAYER I N RESPECT OF INTEREST PAID B Y HIM MAY NOT BE RELEVANT AT ALL FOR THE PURPOSES OF SEC. 194A. SO LONG AS THE INTEREST AMOUNT CON STITUTES 'INCOME' IN THE HANDS OF RECIPIENT THE PAYER SHALL BE LIABLE TO DEDUCT TAX AT SOURCE ON THE INTEREST AMOUNT SO PAID. ACCORDINGLY EVEN IF THE PAYER HAD DISALLOWED THE EXPENDITURE U/S 40 (A)(IA) OR DID NOT CLAIM THE SAME AS EXPENDITURE AT ALL HE SHALL STILL BE LIABLE TO DEDUCT TAX AT SOURCE U/S 194A ON THE INTEREST AMOUNT SO PAID IF THE SAID PAYMENT IS LIABLE FOR TAX DEDUCTION AT SOURCE IT WAS NOTICED THAT PROVISIONS OF SEC. 40 ( A)(IA) DO NOT PROVIDE FOR ABSOLUTE DISALLOWANCE AS IN THE CASE OF SA Y SEC. 4 0 A(3) OF THE ACT. THE AMOUNT DISALLOWED U/S 40 ( A)(IA) IN ONE YEAR CAN BE CLAIMED AS DEDUCTION IN THE YEAR IN WHICH THE TDS PROVISIONS ARE COMPLIED WITH. THUS IN OUR VIEW THE PROVISIONS OF SEC. 4 0 (A)( I A) PROVIDE ONLY FOR ITA NO S . 229 & 230 /PN/20 1 4 15 DEFERMENT OF THE ALLOWANC E AND IT DOES NOT PROVIDE FOR ABSOLUTE DISALLOWANCE. THE OBJECTIVE OF SEC. 40 ( A) ( IA) APPEARS TO BE TO COMPEL THE ASSESSEE T O DEDUCT TAX AT SOURCE I N ORDER TO CLAIM THE RELEVANT EXPENDITURE AS DEDUCTION. 5.3 & 5.4 SECTION 201 PROVIDES FOR TREATING AN AS SESSEE WHO HAD FAILED TO DEDUCT OR PAY THE TDS AMOUNT AS AN ASSESSEE IN DEFAULT SO THAT THE GOVERNMENT WAS EMPOWERED TO COLLECT THE SAID AMOUNT FROM HIM. HOWEVER IT W A S A WELL SETTLED PROPOSITION THAT THE GOVERNMENT SHALL NOT BE ENTITLED TO RECOVER THE S AID AMOUNT IF THE RECIPIENT HAS DECLARED THE SAID AMOUNT AS HIS INCOME I N THE INCOME TAX RETURN FILED B Y HIM AND PAID THE TAX DUE THEREON. THUS IT I S SEEN THAT THE OBJECTIVE OF PROVISIONS OF SEC. 201 IS ONLY TO COMPENSATE THE GOVERNMENT FOR THE FAILURE O F AN ASSESSEE TO DEDUCT OR PAY THE TDS AMOUNT. THUS IT CAN BE SEEN THAT THE PROVISIONS OF SEC. 40(A )(IA ) AND SEC. 201 OPERATE ON DIFFERENT OBJECTIVES. WE HAVE ALREADY NOTICED THAT THE PROVISIONS OF SEC. 40 ( A)(IA) DO NOT OVERRIDE THE PROVISIONS OF SEC. 2 01 OF THE ACT. ACCORDINGLY IT WAS HELD THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON INTEREST PAYME NTS EVEN IF IT HAS NOT CLAIMED THE SAME AS DEDUCTION WHILE COMPUTING ITS TOTAL INCOME IN WHICH CASE THE REVENUE WAS ENTITLED TO INITIATE PROCEEDING S U/S 201 FOR SUCH FAILURE. 19. WE FIND THAT THE FACTS OF THE PRESENT CASE BEFORE US ARE SIMILAR TO THE FACTS BEFORE THE MUMBAI BENCH OF TRIBUNAL IN PFIZER LTD. VS. ITO (SUPRA ) WHERE THE ASSESSEE HAD NOT RECEIVED THE COMPLETE INFORMATION IN RESPECT OF T HE PAYEES BECAUSE OF INNUMERABLE TRANSACTIONS AND ADHOC PROVISION WAS MADE IN THE BOOKS OF ACCOUNT AT THE CLOSE OF THE YEAR ; SUBSEQUENTLY THE SAID ADHOC PROVISION BOOKS OF ACCOUNT AT THE CLOSE OF THE YEAR ; SUBSEQUENTLY THE SAID ADHOC PROVISION WAS REVERSED IN THE SUCCEEDING YEAR AND THE EXPENDITURE ON ACTUAL BASIS WAS BOOKED IN THE BO OKS OF ACCOUNT ON THE RECEIPT OF THE COMPLETE INFORMATION AND COMPLIANCE WAS MADE TO THE TDS PROVISIONS. THE LIABILITY OF THE ASSESSEE TO DEDUCT TAX AT SOURCE WAS UNDER SECTION 194C 194J 194H 194I AND 195 OF THE ACT AND EXCEPT FOR THE PROVISIONS OF SEC TION 194H THE LANGUAGE USED IN ALL THE SECTIONS WAS THAT TAX HAD TO BE DEDUCTED OUT OF THE SUM PAYABLE TO RESIDENTS. SECTION 194H TALKS OF PAYMENT OF ANY INCOME BY WAY OF COMMISSION OR BROKERAGE. HOWEVER THE EXPLANATION OF THE ASSESSEE BEFORE THE AUTHO RITIES BELOW WAS THAT BECAUSE OF ITS WIDE NETWORK OF DEALING WITH M ANY COMMISSION AGENTS IT WAS NOT IN A POSITION TO IDENTIFY THE PAYEE S TO WHO M THE COMMISSION HAD BECOME DUE. SINCE THE BILLS OF SALES AND OTHER ASPECTS WERE NOT MADE AVAILABLE TO THE ASSE SSEE TILL THE CLOSE OF THE YEAR HOWEVER WHEN THE INFORMATION WAS RECEIVED BY THE ASSESSEE IN THE SUCCEEDING YEAR THE PROVISION MADE ON THIS ACCOUNT WAS REVERSED AND BILLS WERE PASSED AND ENTRIES PASSED IN THE NAME OF ITA NO S . 229 & 230 /PN/20 1 4 16 RESPECTIVE PAYEES AND FURTHER TAX W AS DEDUCTED AT SOURCE OUT OF SUCH PAYMENTS. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES WHICH ARE SIMILAR TO THE FACTS BEFORE THE MUMBAI BENCH OF TRIBUNAL IN PFIZER LTD. VS. ITO (SUPRA) WE HOLD THAT THE PROPOSITION LAID DOWN IN THE SAID DE CISION IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE IN THE ABSENCE OF THE IDENTIFICATION OF PAYEES AND PROVISIONS HAVING BEEN MADE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AT THE CLOSE OF THE YEAR WHICH IN TURN WAS REVERSED AND OFFERED TO TAX I N VIEW OF THE PROVISIONS OF SECTION 40(A) / (IA) OF THE ACT . W E FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW THAT THE ASSESSEE HAD DEFAULTED IN NOT DEDUCTING THE TAX AT SOURCE OUT OF SUCH AMOUNTS DUE TO NON - EXISTING PAYEES AND HENCE HAD DEFAULTED UNDER SECTION 201(1) OF THE ACT AND ALSO INTEREST WAS CHARGEABLE ON SUCH DEMAND UNDER SECTION 201(1A) OF THE ACT. WE HOLD THAT THE PROPOSITION LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN PFIZER LTD. VS. ITO (SUPRA ) IN TURN FOLLOWING THE RATIO LAID D OWN BY THE MUMBAI BENCH OF TRIBUNAL IN IDBI VS. ITO (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE AND THERE WAS NO MERIT IN THE ORDERS OF AUTHORITIES BELOW. HOWEVER AS POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THER E IS A DEFAULT VIS - A - VIS PROVISION MADE AT THE END OF THE YEAR AND THE BILLS PASSED AND THOSE REVERSED IN THE SUCCEEDING YEAR . T HE PERUSAL OF DETAILS REFLECT THAT AS AGAINST THE PROVISION MADE IN ASSESSMENT YEAR 2007 - 08 OF RS.4.91 CRORES THE ASSESSEE IN THE SUCCEEDING HAD PASSED BILLS TOTALING RS.3.08 CRORES ON WHICH TAX WAS DEDUCTED AT SOURCE AND HAD REVERSED ENTRIES TO THE EXTENT OF RS.1.53 CRORES I.E. TOTALING RS.4.60 CRORES. THE BALANCE OF APPROXIMATELY RS.30 LAKHS HAS NOT BEEN EXPLAINED BY THE ASSE SSEE AND THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY CONCEDED THAT THE SAID DIFFEREN CE COULD NOT BE RECONCILED AND IN VIEW OF THE SAID DEFAULT THE ASSESSEE WAS PREPARED TO PAY THE TAX DEDUCTIBLE ON SUCH PROVISION. SIMILARLY IN ASSESSME NT YEAR 2008 - 09 AS AGAINST THE PROVISION OF RS.2.75 CRORES THE ASSESSEE HAD PASSED BILLS TOTALING RS.32 LAKHS AND HAD ITA NO S . 229 & 230 /PN/20 1 4 17 REVERSED ENTRIES TO THE EXTENT OF RS.2.29 CRORES AND HAS FAILED TO RECON CILE THE BALANCE OF RS.14 LAKHS HENCE THE ASSESSEE IS IN DEFAULT FOR NON - DED UCTION OF TAX IN RESPECT OF THE ABOVE SAID BALANCE AMOUNTS AND THE ASSESSING OFFICER IS DIRECTED TO WORK OUT THE DEMAND UNDER SECTION 201(1) OF THE ACT AND ALSO CHARGE INTEREST UNDER SECTION 201(1A) OF THE ACT. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN BOTH THE APPEALS ARE THUS PARTLY ALLOWED. 2 0 . IN THE RESULT BOTH THE APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED . ORDER P RONOUNCED ON THIS 30 TH DAY OF APRIL 201 5 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) AC COUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 30 TH APRIL 2015 PUNE DATED: 30 APRIL 2015 GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A) - 2 NASHIK ; 4) T HE CIT - 2 NASHIK ; 5) THE DR A BENCH I.T.A.T. PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T. PUNE