The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that the penalty can not be imposed for non-deduction of TDS as the quantum of payment is not determinable.
The assessee, Biocon Ltd. is a private limited company engaged in the manufacture and sale/licensing of active pharmaceutical ingredients and trading of certain pharma formations.
The assessee in a response filed a reply to the show-cause notice wherein it was submitted that it has created year-end provision for expenses amounting to Rs.21,98,26,517/- The assessee voluntarily disallowed the said sum under section 40(a)(ia) of the Act, on account of non-deduction of TDS and that the provision created was not credited to any parties or individuals account, since the quantum of payment to the parties was not determinable as on the year-end. The further assessee had not deducted tax at source/short deduction on a sum of Rs.20,70,756/-. It was thus submitted that there is a reasonable cause to believe that tax should not be deducted at source on the year-end provision.
AO accordingly called on the assessee to confront the issues of non-deduction of TDS. The assessee submitted that the tax was deducted in the subsequent assessment years and furnished details of the same. The AO accordingly levied interest under section 201(1A) for the delay in remittance of TDS by the assessee. Aggrieved by the order passed by the AO, the assessee preferred appeal before the CIT(A).
The CIT(A) assessee contended that these were end provisions that were reserved in subsequent financial years and based on invoices raised by the vendors were accounted in the books of account after deducting TDS. The assessee submitted that assessee has disallowed the said amount under section 40(a)(ia) during the relevant period. It was also submitted that such was a consistent approach followed by the assessee on year to year basis.
The coram of Judicial Member, Beena Pillai, and Accountant Member, Chandra Poojari held that assessee has suo moto disallowed the said sum under section 40(a)(ia) for non-deduction of TDS. Therefore there is a sufficient and reasonable cause for not deducting TDS on the year-end provision. It is also observed that the assessee consistently follows this kind of accounting system for year-end provisions which are subsequently reversed in the subsequent year in the month of April, as and when the bills are received, and the payment is made to the payee by deducting TDS.
The ITAT deleted the penalty levied under section 271C read with 273B of the Act due to the existence of reasonable cause for non-deduction of TDS, and therefore, the assessee cannot be held to be “assessee in default”.
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