TDS not required on year end provisions created which were reversed in next year – ITAT
In a recent judgment, ITAT Delhi has held that no TDS was required on provisions created on year end as per accrual basis of accounting and reversed in subsequent assessment year and TDS compliance was done on such expenses when the actual invoices were booked in the next year.
ABCAUS Case Law Citation:
4221 (2024) (08) abcaus.in ITAT
In the instant case, the Revenue had challenged the order passed by the CIT(A) in directing Assessing Officer (AO) to delete the liability of the assessee crated u/s 201(1) of the Income Tax Act, 1961 after verifying the claims of the assessee.
The respondent assessee was a company incorporated under the Companies Act, 1956. For the relevant Assessment Years proceedings under section 201(1)/201(1A) of the Act were initiated by the Assessing Officer (AO). The AO in his order held that the assessee was required to deduct TDS on the provisions made in the books of accounts.
It was submitted by the assessee that the provisions were created as per accrual basis of accounting and were therefore reversed in the subsequent assessment year. The TDS compliance was done on such expenses when the actual invoices were booked in the next year. The assessee had duly disallowed the expenses in its income tax return in the year. provision was made and claimed it as a deduction in the next year.
However, the AO passed the orders u/s. 201(1)/201(1A) raising demand for TDS as well as interest upto the date of order.
Aggrieved by the order, the assessee challenged it before CIT(A) and apart from reiterating the submissions made before the AO stated that in the cases of provisions made, the deductees were unknown; therefore, the TDS provisions were not applicable as TDS is tax of the deductee. Unless the deductee is known, TDS compliance cannot be done by the deductor. After deducting taxes, the deductor is required to report the income and TDS party-wise in the TDS returns. In the absence of the deductee name, this is not possible.
Upon assessee’s appeal, the CIT(A) noted that this issue has been dealt with by the Co-ordinate Bench. Following the ITAT decision, the CIT(A) held that once the assessee had deducted TDS in the subsequent year, the demand u/s 201(1) cannot be raised. At the most, the appellant can be held liable to consequences for late deduction of taxes i.e. interest up to the date of deduction. Therefore, the CIT(A) directed AO to verify the claim of the appellant and if it is found that TDS had been deposited in next year on the provisions made during this year, the AO was further directed not to charge the TDS u/s 201(1) of the Act on such amount.
The Tribunal observed that the CIT(A) after appreciating the contention of the assessee and relying on the decision of the Co-ordinate Bench held that once the assessee has deducted TDS in subsequent year, the demand u/s. 201(1) cannot be raised and further interest u/s. 201(1A) only can be charged upto the date of deduction and where party is not known, or where transactions have been reversed / cancelled, TDS provisions are not applicable.
The Tribunal opined that the CIT(A) had rightly granted the relief to the assessee in as much as the question of TDS payment was concerned and directed the AO to verify the facts and calculate interest upto the date of deduction, which does not need any interference.
Accordingly, the Tribunal affirmed the finding of the CIT(A) and dismissed the grounds raised by the Revenue.
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