Voluntary Disallowance Of Expense U/s 40(A)(ia) Is No Basis To Treat Taxpayer As 'Assessee In Default' U/s 201(1): Delhi ITAT

On finding that voluntary disallowance of expense u/s 40(a)(ia) of the Income Tax Act is not a ground to treat the assessee as 'assessee in default' u/s 201(1), the Delhi ITAT deleted the addition of chargeable interest u/s 201(1A) as well as the treatment of 'assessee in default' u/s 201(1).

The Bench comprising Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member) observed that, “Merely because the assessee had voluntarily disallowed the expenses u/s 40(a)(ia) of the Act in the return, the same would not automatically enable the AO to treat it as “assessee in default” u/s 201(1) of the Act and consequentially levy interest u/s 201(1A) of the Act. In our considered opinion, the provisions of section 40(a)(ia) and section 201(1) / 201(1A) of the Act are mutually exclusive. In any case, there is no estoppel against the statute.” (Para 10)

As per the brief facts of the case, the company is engaged in the business of establishing, maintaining, and running hospitals and multi-speciality healthcare facilities. A TDS Survey u/s 133A was carried out in the business premises of the assessee company 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. 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. Accordingly, the proceedings u/s 201(1) / 201(1A) 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' u/s 201(1) and consequential interest u/s 201(1A).

The assessee company in the revised computation of income filed before the AO along with the revised return filed which is well within the time limit prescribed u/s 139(5), had disallowed voluntarily on the year-end provision of expenses u/s 40(a)(ia). The said expenses were disallowed u/s 40(a)(ia) in the revised return on the ground that the said expenditures were not subjected to deduction of tax at source. The AO, however, did not heed to these contentions and held that the assessee itself had voluntarily disallowed the same u/s 40(a)(ia) in the return of income and accordingly needed to be treated as 'assessee in default' u/s 201(1) and consequential interest u/s 201(1A).

The CIT(A) noticed that the AO had categorically given a finding that in respect of provision made for various expenses, that the assessee had not credited the corresponding liability to the account of the concerned individuals who had rendered the services. The CIT(A) therefore granted relief to the assessee by holding that the assessee cannot be treated as 'assessee in default' u/s 201(1). However, the CIT(A) held that the assessee would be eligible for interest u/s 201(1A).

The Coram noted that once there is a categorical finding that the assessee had not credited the corresponding liability for expenses to the account of the concerned vendors who had rendered the services, the payees become non-identifiable and hence there is no question of applicability of TDS provisions on the same.

The Bench observed while referring the decision of Co-ordinate Bench in case of HT Mobile Solutions Limited vs JCIT (OSD) in ITA Nos. 2475 & 2476/Del/2022 that “in the absence of an ascertainable amount and identifiable payee, the machinery provisions of recovering tax deducted at source falls flat because in either way, it does not aid the charge of tax u/s 4 of the Act, but, takes a form of separate levy independent of other provisions of the Act.”

The Bench further observed while referring the decision of High Court in case of DCIT vs. Ericson Communications Ltd. reported in 378 ITR 395 (Del) that “mere passing of the book entries, which are reversed, would not give rise to an obligation to deduct TAS by the Assessee, as clearly, there is no debt that can be said to be acknowledged by the Assessee. Imposition of an obligation to deduct TAS in these circumstances would amount to enforcing payments from one person towards a tax liability of another, even where the person does not acknowledge that any sum is payable. This, in our view, is contrary to the scheme of provisions relating to collection of TAS under the Act.”

Therefore, while relying on the previous decisions, the ITAT dismissed the appeal raised by the revenue.

Counsel for Appellant/ Department: Kanv Bali

Counsel for Respondent/ Taxpayer: Shaily Gupta

Case Title: ACIT verses Artemis Medicares Services Ltd

Case Number: ITA No. 554/Del/2016

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