The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has held that voluntary disallowance of an expense under section 40 (a) (ia) of the Income Tax Act, 1962 is not a base to treat a taxpayer as ‘assessee in default’.
Artemis Medicares Services Ltd, the respondent assessee company is engaged in the business of establishing, maintaining and running Hospital and Multi-Speciality healthcare facilities. A TDS Survey under section 133A of the Act was carried out in the business premises of the assessee company on 10.8.2011 wherein it was transpired by the Survey Team that the assessee had been making payment of consultancy charges to Doctors. These payments were subjected to deduction of tax at source by the assessee in terms of section 194J of the Act.
Whereas the Survey Team and the AO held that these payments would have to be treated as salary and accordingly tax to be deducted at source would be in terms of section 192 of the Act. Accordingly, the proceedings under section 201(1) / 201(1A) of the Act were initiated on the assessee and a differential rate of TDS was sought to be collected from the assessee by treating it as “assessee in default” under section 201(1) and consequential interest under section 201(1A) of the Act.
The AO in his assessment order clearly stated that the facts were found to be identical and that similar treatment was given by him in the earlier years. Consistent with the practice, he treated the assessee as an “assessee in default” and levied tax and interest on the assessee for the year under consideration also.
The CIT(A) observed that the same issue had already been decided in favour of the assessee by this Tribunal and accordingly held that the payments to doctors would be covered only under section 194J of the Act and not under section 192 of the Act.
The assessee company in the revised computation of income filed before the ld. AO along with the revised return filed on 22.8.2013, which is well within the time limit prescribed u/s 139(5) of the Act, had disallowed voluntarily a sum of Rs 2,53,57,043/- on the year-end provision of expenses u/s 40(a)(ia) of the Act. The said expenses were disallowed u/s 40(a)(ia) of the Act in the revised return on the ground that the said expenditures were not subjected to deduction of tax at source.
The case of the assessee is that these are provisions made for certain business expenses on an actual basis where the services are rendered by the respective parties but the bills were raised by them in the next financial year. Accordingly, the assessee had booked those expenses on a provision basis by a mercantile system of accounting regularly followed by the assessee and had reversed the very same expenditure on 1st April of the next financial year.
The AO held that the assessee itself had voluntarily disallowed the same u/s 40(a)(ia) of the Act in the return of income and accordingly needed to be treated as “assessee in default” under section 201(1) and consequential interest under section 201(1A) of the Act.
A two-member bench comprising Shri M Balaganesh, Accountant Member and Shri Anubhav Sharma, Judicial Member held that the assessee cannot be treated as an ‘assessee in default’ for mere book entries passed within the meaning of section 201(1) of the Act and consequentially interest under section 201(1A) is also directed to be deleted.
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