Assessee Not an ”Assessee in Default” u/s 201(1) of Income Tax Act in absence of Ascertainable Amount & Identifiable Payee: ITAT Rules TDS Not Applicable on Provisions for Expenses [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench has held that the assessee cannot be treated as an "Assessee in Default" under Section 201(1) of the Income Tax Act, 1961 in the absence of Ascertainable Amount & Identifyable Payee. Consequently, TDS is not applicable and no interest could be levied under section 201(1A) of the Act, the bench held.

The appeal was filed by the assessee, HT Mobile Solutions Limited against the assessment order passed by the Assessing Officer (AO) which was upheld by the Commissioner of Income Tax (Appeals) (CIT(A)) under Section 201(1) of the Income Tax Act, 1961.

The assessee challenged the order treating it as an 'assessee in default' and held liable for interest under section 201(1A) for non-deduction of tax at source on provisions for expenses falling under the provisions of sections 194C, 194I, and 194J of the Income Tax Act, 1961 made at the end of the year.

The assessee, represented by Shri Mayank Mohanka contended that the amounts and payees of these expenses were not identifiable, and hence, the tax could not be deducted at source.

The assessee also stated that the invoices for these expenses were received in the next financial year, and at that time, the tax was duly deducted at source and remitted to the Central Government.

The revenue, represented by Ms Princy Singhla contended that the assessee made year-end provisions for expenses without deducting tax at source.

The bench observes consistent practice followed by the assessee of making provisions for expenses on an ad hoc basis based on Accounting Standards-29. These provisions are reversed by the assessee in the next financial year when invoices are received, and tax is deducted at source. The provisions made by the company were based on accrual accounting and were consistently reversed in the succeeding year upon receipt of invoices.

The bench also cited relevant case laws including the decision of the jurisdictional High Court in the case of UCO Bank vs. Union of India

to support the assessee's contention that in the absence of an ascertainable amount and identifiable payee, the machinery provisions of recovering tax deducted at source are not applicable and do not aid the charge of tax under Section 4 of the Income Tax Act, 1961.

The bench also highlighted another relevant decision of DCIT vs. Ericsson Communications Ltd., emphasizing that the obligation to deduct tax at source does not arise when no debt is acknowledged.

The two-member bench comprising of Shri Saktijit Dey (Judicial Member) and Shri M. Balaganesh (Accountant Member) held that the assessee could not be treated as an "assessee in default" under section 201(1) of the Income Tax Act, 1961 and no interest could be levied under section 201(1A) of the Act. The tribunal referred to the reversal of expenses made by the assessee in the succeeding year and the subsequent deduction of tax at source, which further supported the conclusion.

As a result, the order of the CIT(A) was quashed and the appeal was allowed for statistical purposes only.

To Read the full text of the Order CLICK HERE

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