TATA Communications Failed to Prove Fulfillment of Conditions for Not Being Treated as Default Taxpayer u/s 201: ITAT Remands Matter [Read Order]

The Mumbai Bench of the Income Tax AppellateTribunal (ITAT) set aside the order of the Commissioner of Income Tax (Appeals) [CIT(A)] and remanded the matter back to the Assessing Officer (AO) with an opportunity to furnish proof of compliance required to avoid being deemed an 'assessee-in-default' for non-deduction of Tax Deducted at Source (TDS).

Tata Communications Transformation Services Limited (assessee) had made a year-end provision for various liabilities amounting to ₹90,89,52,854/-. Since no TDS had been deducted on this provision, the assessee suo motu disallowed 30% of the amount ₹27,26,85,856 under Section40(a)(ia) of the Income tax Act, 1961 while computing its taxable income.

The Assessing Officer treated the company as an 'assessee-in-default' under Section 201(1) for failing to deduct TDS on the full amount, on the grounds that the liabilities had crystallized and the payees were identifiable.

Read More: Purchases Attributed to Other Entities: ITAT Deletes ₹2.27 Crore Addition Citing AO's Acceptance of Facts in Remand Report [Read Order]

The AO raised a total demand of ₹2,58,38,567, which included the TDS default amount and interest under Section 201(1A) of the Income Tax Act. Aggrieved by the AO’s order, the assessee filed an appeal before the CIT(A).

The CIT(A) allowed the assessee’s appeal by relying on a coordinate bench decision in the case of Pfizer Limited vs. ITO(TDS), ruling that once an amount is disallowed under Section 40(a)(ia), it cannot be subjected to TDS demand again under Section 201 of the Act. Aggrieved by the CIT(A)’s order, the Revenue appealed to the ITAT.

The two-member bench, comprising Pawan Singh (Judicial Member) and Renu Jauhri (Accountant Member), noted that the applicability of Section 201 is independent of the disallowance made under Section 40(a)(ia) of the Income Tax Act.

The Tribunal distinguished the assessee’s case from the Pfizer Ltd. precedent, observing that the assessee had only disallowed 30% of the provision under Section 40(a)(ia), thereby claiming deduction for the balance 70%. In contrast, the Pfizer Ltd. case involved a 100% add-back.

The Tribunal noted that the assessee had not demonstrated the fulfillment of conditions before any lower authority laid down by section 201 of the Income Tax Act.

The Tribunal concluded that the assessee liable to be treated as an 'assessee-in-default' unless the assessee successfully demonstrates that the requisite conditions under the provision to Section 201(1) are satisfied.

In the interest of justice, the Tribunal restored the matter to the file of the AO and granted the assessee an opportunity to prove the fulfillment of the conditions. In the result, the appeal filed by the Revenue was allowed for statistical purposes.

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