Bajaj Finance Ltd., (formerly: Bajaj Auto Finance Ltd.,), Pune V. Deputy Commissioner of Income-tax, Pune

CO 121/PUN/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3732 (ITAT-PUNE)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-04-2018
• Assessment Year: 2009-2010
• Appeal Filed On: 21-12-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIVEK AGGARWAL
• Keywords: Recovery proceedings; Business income; Non-deduction of tax
• Section: 40A(3); 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 356 /P U N/201 6 / ASSESSMENT YEAR : 20 09 - 10 THE DY . COMMISSIONER OF INCOME TAX (TDS) , PUNE . / APPELLANT VS. BAJAJ FINANCE LTD. (FORMERLY BAJAJ AUTO FINANCE LTD.) C/O BAJAJ AUTO LTD., MUMBAI PUNE ROAD, AKUR DI, PUNE 411035 . / RESPONDENT PAN: A ABCB1518L . /CO NO. 121 /PUN/201 7 / ASSESSMENT YEAR : 2009 - 10 (OUT OF ITA NO.356/PUN/2016 ) BAJAJ FINANCE LTD. (FORMERLY BAJAJ AUTO FINANCE LTD.) C/O BAJAJ AUTO LTD., MU MBAI PUNE ROAD, AKURDI, PUNE 411035 / CROSS OBJECT OR PAN: AABCB1518L VS. THE DY. COMMISSIONER OF INCOME TAX (TDS), PUNE . / RESPONDENT ASSESSEE BY : SHRI KIRIT KAMDAR REVENUE BY : S HRI VIVEK AGGARWAL / DATE OF HEARING : 11 .0 4 . 201 8 / DATE OF PRONOUNCEMENT: 27 . 0 4 .201 8 ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 2 / ORDER PER SUSHMA CHOWLA, J M : TH E APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A), PUNE - 10, DATED 04 . 01 .201 6 RELATING TO ASSES SMENT YEAR 20 09 - 10 AGAINST PENALTY LEVIED UNDER SECTION 271C OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE ASSESSEE FILED CROSS OBJECTIONS AGAINST THE APPEAL OF REVENUE. 2. THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSE E WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 . THE REVENUE IN ITA NO.356/PUN/2016 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWIN G THE APPEAL TOWARDS THE LEVY OF PENALTY U/S 271C OF THE IT ACT, 1961. 2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE DECISION OF ITAT, PUNE IN THE CASE OF M/S KIRLOSKAR OIL ENGINES LTD. IN ITA NO.229 AND 2 30/PN/2014, THE VERY - BASIS OF HIS ORDER IN FAVOUR OF ASSESSEE, IS DISPUTED BEFORE HON BLE HIGH COURT, BOMBAY, BY THE DEPARTMENT. 3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THE LATEST JUDGMENT OF ITAT COCHIN BENCH IN THE CASE OF AGEENCO FIBRE FOAM (P) LTD. VS ITO (T DS) (2013) 37 CCH 033 COCHIN TRIB DATED 16/8/2013, WHEREIN THE ITAT HAS HELD THAT THE ASSESSEE WAS LIABLE TO DEDUCT TDS EVEN IF HAD NOT CLAIMED THE SAME AS DEDUCTION WHILE COMPUTATION OF TOTAL INCOME. 4) THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THE VIEWS OF THE AO , THE PENALTY LEVIED U/S 271C OF THE AC T SHOULD HAVE NOT BE DELETED. 4. THE ASSESSEE IN CO NO. 121 /PUN/2017 HAS RAISED THE FOLLOWING GROUNDS OF OBJECTIONS: - ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 3 1. PENALTY PROCEEDINGS UNDER SECTION 271C ARE INVALID AND BAD IN LAW 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [LEARNED CIT(A)] HAS ERRED IN UPHOLDING THE VALIDITY OF PENALTY PROCEEDINGS INITIATED WITHOUT COMPLETION OF TDS PROCEEDINGS UNDER SECTION 201 OF THE ACT. 1.2 IN DOING SO, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT LEVY OF PENALTY UNDER SECTION 271C IS CONSEQUENTIAL IN NATURE AND CAN BE INITIATED ONLY AFTER THE APPELLANT IS REGARDED AS AN ASSESSEE IN DEFAULT UNDER SECTION 201 OF THE ACT FOR THE FAILURE TO DEDUCT TAX AT SOURCE. 1.3 IN VIEW OF THE ABOVE GROUND OF APPEAL, THE APPELLANT PRAYS THAT THE ORDER LEVYING PENALTY UNDER SECTION 271C OF THE ACT SHOULD BE QUASHED AS NULL AND VOID. 5. THE ISSUE RAISED BY THE REVENUE IS AGAINST DELETION OF PENALTY LEVIED UNDER SECTION 271C OF THE ACT. THE REVENUE IS AGGRIEVED BY THE ORDER OF CIT(A) IN APPLYING THE DECISION OF PUNE BENCH OF TRIBUNAL IN KIRLOSKAR OIL ENGINES LTD. VS. DCIT IN ITA NOS.229 & 230/PN/2014, RELATING TO ASSESSMENT YEAR S 2007 - 08 & 2 008 - 09, ORDER DATE 30.04.2015 , ON THE GROUND THAT THE SAID ORDER HAS BEEN CHALLENGED BEFORE THE HONBLE BOMBAY HIGH COURT, BY THE REVENUE. 6. BRIEFLY, IN THE FACTS OF THE CASE, THE ADDL.CIT (TDS) ON EXAMINATION OF TAX AUDIT REPORT FILED BY THE ASSESSEE AL ONG WITH RETURN OF INCOME, NOTICED THAT THE ASSESSEE HAD FAILED TO DEDUCT TDS UNDER SECTIONS 194C, 194J, 194H AND 194I OF THE ACT. THE SAID NON - DEDUCTION OF TDS WAS REPORTED BY THE AUDITORS IN CLAUSE 27(B)(I) AND 27(B)(II) OF THE TAX AUDIT REPORT. THE LI ST OF PAYMENTS, WHEREIN THE ASSESSEE FAILED TO DEDUCT TDS WAS ON ACCOUNT OF PROVISION MADE FOR ESTIMATED EXPENDITURE WAS UNDER DIFFERENT HEADS. THE JCIT NOTED THE PLEA OF ASSESSEE IN THIS REGARD THAT TDS AMOUNTS CORRESPONDED TO THE YEAR END EXPENSES PROVI SION MADE BY THE ASSESSEE COMPANY WHILE CLOSING ITS BOOKS OF ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 4 ACCOUNT ON ESTIMATE BASIS, WITHOUT ANY SPECIFIC IDENTIFICATION OF DEDUCTEE. ON SUCH PROVISION, NO TDS WAS DEDUCTED AND THE SAID PROVISION WAS EITHER REVERSED IN THE SUBSEQUENT YEAR AND / OR PAID TO THE SPECIFIC PARTIES ON WHICH THE TAX WAS DEDUCTED AT SOURCE AND PAID TO THE CREDIT OF CENTRAL GOVERNMENT. THE ASSESSEE FURNISHED DETAILS IN THIS REGARD BEFORE THE JCIT I.E. THE AMOUNT ON WHICH TDS WAS DEDUCTED AND DEPOSITED IN SUBSEQUENT YEAR AND THE AMOUNT OF PROVISION REVERSED BACK IN SUBSEQUENT YEAR. THE DETAILS ARE AVAILABLE AT PAGE 2 OF PENALTY ORDER. THE JCIT WAS OF THE VIEW THAT SINCE THERE WAS NON - DEDUCTION OF TAX, PENALTY PROCEEDINGS UNDER SECTION 271C OF THE ACT WERE INITIATED BY THE ADDL. CIT (TDS) RANGE, PUNE AND SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. THE SUBMISSIONS OF ASSESSEE THAT THE AMOUNTS MENTIONED IN THE NOTICE UNDER SECTION 271C OF THE ACT CORRESPONDED TO YEAR - END PROVISION MADE BY THE ASSESSEE WHILE CLOSING ITS BOOKS OF A CCOUNT ON ESTIMATE BASIS, WERE DISCLOSED IN THE TAX AUDIT REPORT AND THE CORRESPONDING EXPENSES AMOUNT WAS ALSO OFFERED AS DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT, WHILE COMPUTING TAXABLE INCOME, WAS NOT ACCEPTED. THE ASSESSEE ALSO EXPLAINED THAT THE SAID PROVISION MADE ON ADHOC BASIS WAS REVERSED IN THE SUBSEQUENT YEAR AND WHEREVER PAYMENT WAS MADE TO THE SPECIFIC PARTY, TAX WAS DEDUCTED AT SOURCE AND PAID TO THE CREDIT OF CENTRAL GOVERNMENT. THE JCIT HOWEVER, DID NOT FIND FAVOUR WITH THE EXPLANA TION OF ASSESSEE AND HELD THAT THE ASSESSEE WA S LIABLE TO LEVY OF PENALTY UNDER SECTION 271C OF THE ACT, SINCE THE ASSESSEE HA D FAILED TO DEDUCT TAX AT SOURCE. THE ASSESSEE WAS HELD TO BE LIABLE TO PAY PENALTY OF 24,49,241/ - . ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 5 7. BEFORE THE CIT(A), THE ASSESSEE FILED ELABORATE WRITTEN SUBMISSIONS WHICH ARE REPRODUCED BY THE CIT(A) AT PAGES 5 TO 11 OF THE APPELLATE ORDER. THE CIT(A) NOTED THAT OUT OF PROVISION OF TOTALING 2,22,04,849/ - , PROVISION AMOUNTING TO 1,84,59,920/ - WAS WRITTEN BACK AND CREDITED TO THE PROFIT AND LOSS ACCOUNT IN THE SUBSEQUENT YEAR, SINCE NO INVOICES WERE RECEIVED IN RESPECT OF SAID AMOUNT. THE BALANCE SUM OF 37,44,929/ - WAS PAID AFTER THE RECEIPT OF INVOICES, ON WHICH TAXES WERE WIT HH E LD AND DEPOSITED WITH CENTRAL GOVERNMENT WITHIN PRESCRIBED TIME LIMIT. THE CIT(A) ALSO NOTED THAT THE ASSESSING OFFICER THROUGH HAD STARTED PROCEEDINGS UNDER SECTION 201(1) AND 201(1A) OF THE ACT, HOWEVER, TILL DATE, NO ADVERSE VIEW WAS TAKEN WHETHER T HE ASSESSEE HAD VIOLATED TDS PROVISIONS OR NOT. THE CIT(A) FURTHER HELD THAT THE PROCEEDINGS UNDER SECTION 201(1A) AND 271C OF THE ACT WERE SEPARATE PROCEEDINGS AND HE ACCEPTED THE VIEW OF ADDL.CIT THAT IT WAS NOT NECESSARY FOR THE PURPOSE OF LEVY OF PENA LTY UNDER SECTION 271C OF THE ACT THAT AN ORDER UNDER SECTION 201(1) AND 201(1A) OF THE ACT MUST BE PASSED TREATING THE ASSESSEE IN DEFAULT. HENCE, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ON THIS ISSUE WERE DISMISSED. THE ASSESSEE HAS FILED CROSS OB JECTIONS AGAINST FINDING OF JCIT. 8. COMING TO THE MERITS OF LEVY OF PENALTY, THE ASSESSEE CONTENDED THAT WHERE IT HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, UNDER WHICH IT MAKES CERTAIN PROVISION FOR EXPENSES, THEN IN CASE THE BILLS IN RESPECT O F SAID PROVISIONS WE RE NOT RECEIVED IN THE NEXT YEAR, NECESSARY ENTRIES WERE , THEN MADE TO REVERSE THE SAID ACCOUNT SINCE ON SUCH PROVISIONS, NO TAX WAS DEDUCTED AT SOURCE ; THE AMOUNT WAS OFFERED AS INCOME IN VIEW OF PROVISIONS OF ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 6 SECTION 40(A)(IA) OF THE ACT. THE CIT(A) ACCEPTED THE EXPLANATION OF ASSESSEE ON THIS GROUND AND HELD THAT WHERE THE ASSESSEE WAS MAKING PROVISION AND REVERSING THE SAME IN SUBSEQUENT YEAR, THEN THERE IS NO MERIT IN HOLDING THE ASSESSEE IN DEFAULT AND HENCE, LIABLE TO LEVY OF PEN ALTY UNDER SECTION 271C OF THE ACT. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF UCO BANK REPORTED IN 51 TAXMAN.COM 253 (DEL), WHEREIN THE HONBLE HIGH COURT HELD THAT IF IN ANY PARTICULAR TRANSACTI ON, DEDUCTEES WERE NOT ASCERTAINABLE, TDS PROVISION MAY NOT BE ENFORCED. FURTHER, REFERENCE WAS MADE TO THE DECISION OF PUNE BENCH OF TRIBUNAL IN KIRLOSKAR OIL ENGINES LTD. VS. DCIT (SUPRA) , WHEREIN ON SIMILAR FACTS, PENALTY LEVIED UNDER SECTION 271C OF T HE ACT WAS DELETED. HENCE, THE CIT(A) DELETED PENALTY LEVIED IN THE PRESENT CASE, AGAINST WHICH THE REVENUE IS IN APPEAL. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. 10. THE LEARNED AUTHO RIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT PARTIES WERE UNIDENTIFIED PARTIES AND ENTIRE PROVISION MADE IN THE BOOKS OF ACCOUNT HAS BEEN OFFERED TO TAX AS DISALLOWABLE UNDER SECTION 40(A)(IA) OF THE ACT. HE ALSO POINTED OUT THAT IN CASE APPEAL OF REVENUE IS DISMISSED, THEN THE CROSS OBJECTIONS FILED BY THE ASSESSEE WOULD BECOME INFRUCTUOUS. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST PENALTY LEVIED UNDER SECTION 271C ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 7 O F THE ACT. THE ASSESSEE HAD DEBITED CERTAIN EXPENDITURE AS PROVISION UNDER THE FOLLOWING HEADS: - (I) COMMISSION / BROKERAGE : 2,10,12,784 (II) RENT : 1,92,561 (III) PAYMENT TO CONTRACTORS : 8,54,757 (IV) FEE FOR PROFESSIONAL SERVICES : 1,44,747 ------------------- 2,22,04,849 ___________ 12. THE ASSESSEE IN THE COMPUTATION OF I NCOME HAD ADDED BACK THE SAID SUM OF 2.22 CRORES IN VIEW OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOURCE. THE ASSESSEE FURTHER HAD WRITTEN BACK PROVISION TO THE EXTENT OF 1.85 CRORES IN THE SUCCEEDING YEAR SINCE NO INV OICES WERE RECEIVED IN RESPECT OF SAID AMOUNTS. THE BALANCE SUM OF 37,44,929/ - WHICH WAS PAID AFTER THE RECEIPT OF INVOICES, ASSESSEE WITHHOLD TAXES AND DEPOSITED THE SAME WITH THE CENTRAL GOVERNMENT WITHIN PRESCRIBED TIME LIMIT. THE ASSESSING OFFICER HAD HELD THE ASSESSEE TO BE IN DEFAULT FOR NON - DEDUCTION OF TAX AT SOURCE AND LEVIED PENALTY UNDER SECTION 271C OF THE ACT. THE CASE OF ASSESSEE WAS THAT IT WAS MAKING PROVISION OF EXPENSES AT THE YEAR - END SINCE ALL BILLS WERE NOT RECEIVED AND IN MANY OF THE CASES, THE AMOUNT FOR THE WORK / SERVICES DONE WERE NOT MEASURED AND HENCE, ESTIMATED. SINCE IT WAS DIFFICULT TO QUANTIFY THE EXPENDITURE, PROVISION WAS MADE, WHICH WAS ACCOUNTED FOR IN THE SUBSEQUENT YEAR WHEN THE BILLS WERE RECEIVED AND PART OF PROV ISION WHICH WAS NO LONGER REQUIRED WAS WRITTEN BACK. THE PROVISION TO WITHH O LD TAX ES ARISES ONLY WHEN PAYEE IS IDENTIFIED RESIDENT DEDUCTEE. IN THE ABSENCE OF IDENTIFYING THE DEDUCTEE, THERE IS NO REQUIREMENT TO DEDUCT TAX AT SOURCE. SUCH ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 8 WAS THE PROPOS ITION LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF UCO BANK (SUPRA). 13. FURTHER, THE PUNE BENCH OF TRIBUNAL IN KIRLOSKAR OIL ENGINES LTD. VS. DCIT (SUPRA) HAD HELD AS UNDER: - 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS WHETHER WHERE THE ASSESSEE HAD MADE PROVISION FOR VARIOUS EXPENSES FOR THE YEAR ENDING 31.03.2007 AND HAD DISALLOWED THE SAID EXPENDITURE IN THE COMPUTATION OF INCOME, IN VIEW OF THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT, THEN CAN THE ASSESSEE BE HELD TO HAVE DEFAULTED IN NON - DEDUCTION OF TAX AT SOURCE OUT OF AMOUNT OF SUCH EXPENDITURE DUE. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT IT WAS MAKING THE PROVISION OF EXPENSES AT THE YEAR END DUE TO THE FACT THAT CONSIDERING HUGE TRANSACTIONS, ALL BILLS WERE NOT RECEIVED AND IN NUMBER OF CASES, THE AMOUNTS FOR THE WORK / SERVICES DONE WERE NOT MEASURED AND HAD TO BE ESTIMATED. IN THE CASE OF COMMISSION PAYABLE TO SERVICE DEALERS, IT BECAME DIFFICULT TO QUANTIFY THE DEALER - WISE COMMISSION PAYABLE FOR THE SALES EFFECTED IN THE FINANCIAL YEAR, AT THE TIME OF CLOSURE OF BOOKS. IN SOME CASES, THE WORK WAS DONE THROUGH CONTRACTORS AT VARIOUS SITES, WHICH HAD TO BE ESTIMATED AND PROVISION WAS BASED ON WORK COMPLETED UPTO THE END OF YEAR, THOUGH THE BILLS MAY NOT HAVE BEEN RAISED BY THE CONTRACTORS. NEXT YEAR, THE ENTIRE PROVISION WAS MONITORED BY THE ASSESSEE AGAINST THE BILLS RECEIVED AND THE PART OF THE PROVISION NO LONGER REQUIRED, EXCESS AND SHORT PROV ISION AND RELATED PAYMENT OF TDS, ETC. WAS LOOKED INTO AND APPROPRIATE ENTRIES WERE PASSED IN THE BOOKS OF ACCOUNT. THE ASSESSEE CLAIMS THAT THE RESPECTIVE PARTY ACCOUNTS WERE CREDITED IN THE NEXT FINANCIAL YEAR AFTER BILLS WERE PASSED AND THE TDS WAS DED UCTED AS PER THE APPLICABLE PROVISIONS OF THE ACT. THE ASSESSEE CLAIMED THAT IN NUMBER OF CASES, THE EXACT PAYEES AND THE AMOUNTS PAYABLE TO THEM COULD NOT BE IDENTIFIED BEFORE CLOSURE OF BOOKS AND IN THE ABSENCE OF ANY IDENTIFIED PAYEES, THE PROVISIONS O F TDS WERE NOT APPLICABLE. 13 14 15 16. THE ISSUE WHICH ARISES FOR OUR CONSIDERATION IS WHETHER IN SUCH CIRCUMSTANCES, WHERE THE AMOUNT HAS NOT BEEN CLAIMED AS DEDUCTIBLE IN THE HANDS OF THE ASSESSEE FOR THE REASON THAT TAX HAD NOT BEEN DEDUCTED AT SO URCE, THEN CAN THE PROVISIONS OF SECTION 201(1) OF THE ACT BE ATTRACTED AND FOR SUCH DEFAULT IN NON - PAYMENT OF DEMAND SO RAISED, CAN INTEREST BE CHARGED UNDER SECTION 201(1A) OF THE ACT. 17. WE FIND THAT SIMILAR ISSUE OF LIABILITY OF THE ASSESSEE TO DEDUC T TAX AT SOURCE IN RESPECT OF PAYMENTS TO PERSONS WHOSE IDENTITY WAS NOT KNOWN WHEN THE PROVISION FOR SUCH EXPENDITURE WAS MADE BY THE ASSESSEE, IT WAS HELD THAT THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE IN RESPECT OF SUCH PROVISION. THE SAID PROPO SITION WAS LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN IDBI ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 9 VS. ITO (SUPRA), WHICH HAS BEEN APPLIED BY ANOTHER MUMBAI BENCH OF TRIBUNAL IN PFIZER LTD. VS. ITO (SUPRA) AND IT WAS HELD AS UNDER: - 8. WE HAVE CONSIDERED THE ISSUE. THERE IS NO DISPUTE WITH R EFERENCE TO THE FACT THAT ASSESSEE MADE PROVISION FOR EXPENSES TO AN EXTENT OF RS.10,01,98,459/ - ON ABOUT 23 ITEMS IN THE BOOKS OF ACCOUNT. THERE IS ALSO NO DISPUTE TO THE FACT THAT ENTIRE PROVISION SO MADE WAS DISALLOWED IN THE COMPUTATION UNDER THE HEAD TAX DEDUCTIBLE BUT NOT DEDUCTED ON PROVISIONS AS ON 31 ST MARCH, 2007 IN THE COMPUTATION OF INCOME. THEREFORE, THE ENTIRE PROVISION SO MADE WAS DISALLOWED UNDER SECTION 40(A)(I)/(IA) WHILE FILING THE RETURN OF INCOME BY THE ITSELF. 9. AS EXPLAINED THE GENERAL ENTRIES PASSED BY PFIZER LTD, IN THE BOOKS OF ACCOUNT ARE AS UNDER: ANNEXURE - 1 JOURNAL ENTRIES PASSED BY PFIZER IN THE BOOKS OF ACCOUNT: A) AT THE TIME OF MAKING THE YEAR END PROVISION PARTICULARS DEBIT (`.) CREDIT(`.) EXPENSE A/C DR . XXX TO PROVISION FOR EXPENSES A/C XXX B) AT THE TIME OF REVERSAL ON FIRST DAY OF THE NEXT FINANCIAL YEAR PARTICULARS DEBIT (`.) CREDIT (`.) PROVISION FOR EXPENSES A/C DR. XXX TO EXPENSES A/C XXX C) AT THE TIME OF MAKING PAYME NT TO PARTIES ON THE BASIS OF THE ACTUAL INVOICES RECEIVED BY PFIZER. PARTICULARS DEBIT (`.) CREDIT (`.) EXPENSES A/C DR. XXX TO PARTYS A/C XXX TO TDS PAYABLE A/C XXX 10. AS CAN BE SEEN FROM THE ABOVE ENTRIES, WHEN THE PAYMENT/C REDIT WAS MADE TO THE INDIVIDUAL PAYEE IDENTIFIED, ALL THE PROVISIONS OF TDS ARE MADE APPLICABLE WHETHER TO A RESIDENT OR TO A NONRESIDENT AS THE CASE MAY BE. IN THE ABSENCE OF ANY IDENTIFIABLE PAYEE, THE PROVISIONS OF TDS ARE NOT APPLICABLE AS WAS HELD B Y THE ITAT IN THE CASE OF IDBI VS. I.T.O 107 ITD 45(MUM). IN THAT THE CASE THE FACTS ARE AS UNDER: ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 10 THE ASSESSEE, A FINANCIAL INSTITUTION, WAS FOLLOWING FINANCIAL YEARS AS ITS ACCOUNTING YEAR. IT ISSUED 'REGULAR RETURN BONDS'. THE TERMS AND CONDITIONS FO R PAYMENT OF INTEREST ON THESE BONDS PROVIDED THAT THE ASSESSEE WAS LIABLE TO PAY INTEREST AT THE RATE OF 16 PER CENT ANNUALLY IN RESPECT OF REGULAR RETURN BONDHOLDERS, THAT THE INTEREST WAS PAYABLE ON 9TH JUNE OF EACH CALENDAR YEAR, EXCEPT IN THE YEAR OF MATURITY, WHEN INTEREST WAS PAYABLE ON MATURITY, THAT THE INTEREST, EXCEPT AT THE LIME OF MATURITY, WAS TO BE PAID TO THE PERSON WHOSE NAME WAS REGISTERED IN THE RECORDS OF THE ASSESSEE COMPANY AS ON 15TH MAY OF EACH CALENDAR YEAR, AND THAT THE BONDS WER E TRANSFERABLE BY ENDORSEMENT AND DELIVERY, AND THE ASSESSEE DID NOT, IN ANY WAY, CONTROL SUCH TRANSFER OF OWNERSHIP. THE ASSESSEE AT THE END OF THE RELEVANT PREVIOUS YEAR AS ON 31.3.1994 MADE A PROVISION FOR 'INTEREST ACCRUED BUT NOT DUE' IN RESPECT OF R EGULAR RETURN BONDS AND CLAIMED DEDUCTION OF THE SAME IN COMPUTATION OF BUSINESS INCOME. THE ASSESSEE FURTHER CREDITED THE SAID PROVISION TO THE INTEREST PAYABLE ACCOUNT AND REFLECTED THE SAME IN THE BALANCE SHEET. THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE IN RESPECT OF THE PROVISION SO MADE. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE DID NOT DEDUCT TAX IN TERMS OF PROVISION SO MADE THOUGH IN TERMS OF THE PROVISIONS OF SECTION 193, PARTICULARLY READ WITH EXPLANATION THERETO, IT WAS REQUIRED TO DEDUCT TAX AT SOURCE FROM THE CREDIT TO 'INTEREST PAYABLE ACCOUNT' AND DEPOSIT THE SAME WITH THE GOVERNMENT. THE ASSESSING OFFICER WAS OF VIEW THAT THE ASSESSEE KNEW THE IDENTITY OF ALL THE BONDHOLDERS AS ON 31 - 3 - 1994 BECAUSE IT WAS MAINTAINING A REGISTER OF BO NDHOLDERS, AND, THEREFORE, IT COULD NOT BE SAID THAT THE ASSESSEE DID NOT KNOW THE NAMES OF THE PERSONS TO WHOM INTEREST WAS TO BE CREDITED. THE ASSESSING OFFICER, THEREFORE HELD THAT THE ASSESSEE DID NOT COMPLY WITH PROVISIONS OF SECTION 193 AND IMPOSED PENALTY UNDER SECTION 201 UPON THE ASSESSEE ON ACCOUNT OF NON - DEDUCTION OF TAX AT SOURCE IN RESPECT OF INTEREST LIABILITY CREDITED TO 'INTEREST PAYABLE ACCOUNT HE ALSO IMPOSED THE PENALTY UNDER SECTION 221 UPON THE ASSESSEE. ON APPEAL, THE COMMISSIONER (A PPEALS) UPHELD THE IMPUGNED ORDER. IT WAS HELD THAT THE LIABILITY OF TAX DEDUCTION AT SOURCE IS IN THE NATURE OF A VICARIOUS OR SUBSTITUTIONARY LIABILITY, WHICH PRESUPPOSES EXISTENCE OF A PRINCIPAL OR PRIMARY LIABILITY. CHAPTER XVII - B IS TITLED 'COLLECTION AND RECOVERY OF TAX - DEDUCTION OF TAX AT SOURCE: THIS TITLE ALSO INDICATES THAT THE NATURE OF TAX DEDUCTION AT SOURCE OBLIGATION IS OBLIGATION FOR COLLECTION AND RECOVERY OF TAX. UNDER THE ACT, TAX IS ON THE INCOME AND IT IS IN THE HANDS OF THE PERSON WHO RECEIVES SUCH INCOME, EXCEPT IN THE CASE OF DIVIDEND DISTRIBUTION TAX WHICH IS LEVIED UNDER SECTION 115 - 0, A SECTION OUTSIDE THE CHAPTER PROVIDING FOR COLLECTION AND RECOVERY MECHANISM AND SET OUT UNDER A SEPARATE CHAPTER ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 11 'DETERMINATI ON OF TAX IN CERTAIN SPECIAL CASES - SPECIAL PROVISION RELATING TO TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES: A PLAIN READING OF SECTION 190 AND SECTION 191, WHICH ARE FIRST TWO SECTIONS UNDER THE CHAPTER XVII, AND OF SECTIONS 199, 202 AND 203(1), WOULD SHOW THIS UNDERLYING FEATURE OF THE TAX DEDUCTION AT SOURCE MECHANISM. SECTION 190 MAKES IT CLEAR THAT THE SCHEME OF TAX DEDUCTION AT SOURCE IS ONE OF THE METHODS OF RECOVERING THE TAX DUE FROM A PERSON AND IT IS NOTWITHSTANDING THE FACT THAT THE T AX LIABILITY MAY ONLY ARISE IN A LATER ASSESSMENT YEAR. THE TAX LIABILITY IS OBVIOUSLY IN THE HANDS OF THE PERSON WHO EARNS THE INCOME AND TAX DEDUCTION AT SOURCE MECHANISM PROVIDES FOR METHOD TO RECOVER SUCH TAX LIABILITY. THEREFORE, THIS TAX DEDUCTION A T SOURCE LIABILITY IS A SORT OF SUBSTITUTIONARY LIABILITY. SECTION 191 FURTHER MAKES THIS POSITION CLEAR WHEN IT LAYS DOWN THAT IN A SITUATION TDS MECHANISM IS NOT PROVIDED FOR A PARTICULAR TYPE OF INCOME OR WHEN THE TAXES HAVE NOT BEEN DEDUCTED AT SOUR CE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII, INCOME - TAX SHALL BE PAYABLE BY ASSESSEE DIRECTLY. THIS PROVISION, THUS, SHOWS THAT TAX DEDUCTION LIABILITY IS A VICARIOUS LIABILITY AND THE PRINCIPAL LIABILITY IS OF THE PERSON WHO IS TAXABLE IN RESPECT OF SUCH INCOME. SECTION 199 MAKES IT EVEN MORE CLEAR BY LAYING DOWN THAT THE CREDIT FOR TAXES DEDUCTED AT SOURCE CAN ONLY BE GIVEN TO THE PERSON FROM WHOSE INCOME THE TAXES ARE SO DEDUCTED. THEREFORE, WHEN TAX DEDUCTOR CANNOT ASCERTAIN BENEFICIARIES OF A CREDIT, THE TAX DEDUCTION MECHANISM CANNOT BE PUT INTO SERVICE. SECTION 202 LAYS DOWN THAT TAX DEDUCTION AT SOURCE PROVISIONS ARE WITHOUT ANY PREJUDICE TO ANY OTHER MODE OF RECOVERY FROM ASSESSEE, WHICH AGAIN POINTS OUT TO THE TAX DEDUCTION LIABILITY BEING VICARIOUS LIABILITY IN NATURE. SECTION 203(1) THEN LAYS DOWN THAT FOR ALL TAX DEDUCTIONS AT SOURCE, THE TAD DEDUCTOR HAS TO FURNISH TO THE PERSON TO WHOSE ACCOUNT SUCH CREDIT IS GIVEN OR TO WHOM SUCH PAYMENT IS MADE OR THE CHEQUE OR WARRANT IT ISSUED WHI CH PRESUPPOSES THAT AT THE STAGE OF TAX DEDUCTION THE TAX DEDUCTOR KNOWS THE NAME OF PERSON TO WHOM THE CREDIT IS TO BE GIVEN, THOUGH WHETHER BY WAY OF CREDIT TO THE ACCOUNT OF SUCH PERSON OR BY WAY OF CREDIT TO SOME OTHER ACCOUNT. THIS AGAIN SHOWS THAT T AX DEDUCTION AT SOURCE LIABILITY IS A VICARIOUS LIABILITY TO PAY TAX ON BEHALF OF THE PERSON WHO IS TO BE BENEFICIARY OF THE PAYMENT OR CREDIT, WITH A CORRESPONDING RIGHT TO RECOVER SUCH TAX PAYABLE FROM THE PERSON TO WHOM CREDIT IS AFFORDED OR PAYMENT IS MADE. THUS, THE WHOLE SCHEME OF TAX DEDUCTION AT SOURCE PROCEEDS ON THE ASSUMPTION THAT THE PERSON WHOSE LIABILITY IS TO PAY AN INCOME KNOWS THE IDENTITY OF THE BENEFICIARY OR THE RECIPIENT OF THE INCOME. IT IS A SINE QUA NON FOR A VICARIOUS TAX DEDUCTION LIABILITY THAT THERE HAS TO BE A PRINCIPAL TAX LIABILITY IN RESPECT OF THE RELEVANT INCOME FIRST, AND A PRINCIPAL TAX LIABILITY CAN COME INTO EXISTENCE WHEN IT CAN BE ASCERTAINED AS TO WHO WILL RECEIVE OR EARN THAT INCOME BECAUSE THE TAX IS ON THE INCOME A ND IN THE HANDS OF THE PERSON WHO EARNS THAT INCOME. THEREFORE, TAX DEDUCTION AT SOURCE MECHANISM CANNOT BE PUT INTO PRACTICE UNTIL IDENTITY OF THE PERSON IN WHOSE HANDS IT IS INCLUDIBLE AS INCOME CAN BE ASCERTAINED. IT IS INDEED CORRECT THAT EXPLANATION T O SECTION 193 LAYS DOWN THAT EVEN WHEN AN INCOME IS CREDITED TO ANY ACCOUNT IN THE BOOKS OF ACCOUNT OF THE ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 12 PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS S ECTION SHALL APPLY ACCORDINGLY, BUT THE FACT THAT THE CREDIT TO ANY ACCOUNT IS TO BE DEEMED TO BE CREDIT TO THE PAYEES ACCOUNT ALSO PRESUPPOSES THAT IDENTIFY OF THE PAYEE CAN BE ASCERTAINED. THEREFORE, THIS DEEMING FICTION CAN ONLY BE ACTIVATED WHEN THE IDENTITY OF THE PAYEE CAN BE ASCERTAINED. THEREFORE, THE EXPLANATION TO SECTION 193 CANNOT BE INVOKED IN A CASE WHERE THE PERSON WHO IS TO RECEIVE THE INTEREST CANNOT BE IDENTIFIED AT THE STAGE AT WHICH THE PROVISION FOR INTEREST ACCRUED BUT NOT DUE IS MAD E. THIS POSITION IS ALSO ACCEPTED BY THE CBDT IN ITS LETTER DATED 5 - 7 - 1996 ADDRESSED TO THE TATA IRON & STEEL CO. LTD (LETTER NO.257/126 IT(B). IN THE INSTANT CASE, THE REGULAR RETURN BONDS BEING TRANSFERABLE ON SIMPLE ENDORSEMENT AND DELIVERY AND THE REL EVANT REGISTRATION DATE BEING A DATE SUBSEQUENT TO THE CLOSURE OF BOOKS OF ACCOUNT, ASSESSEE COULD NOT HAVE ASCERTAINED THE PAYEES AT THE POINT OF TIME WHEN THE PROVISION FOR INTEREST ACCRUED BUT NOT DUE WAS MADE. ACCORDINGLY, NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE IN RESPECT OF THE PROVISION FOR INTEREST PAYABLE MADE BY ASSESSEE WHICH REFLECTED PROVISION FOR INTEREST ACCRUED BUT NOT DUE IN A SITUATION WHERE THE ULTIMATE RECIPIENT OF SUCH INTEREST ACCRUED BUT NOT DUE COULD NOT HAVE BEEN ASCERTA INED AT THE POINT OF TIME WHEN THE PROVISION WAS MADE. ASSESSEE HAD DULY DEDUCTED THE TAX SOURCE AT THE TIME OF PAYMENT I.E. ON 9.6.1994 AND THERE WAS NO LOSS OF REVENUE AS SUCH. THEREFORE, ASSESSEE DID NOT HAVE ANY LIABILITY TO DEDUCT TAX AT SOURCE IN RES PECT OF PROVISION FOR INTEREST ACCRUED BUT NOT DUE IN RESPECT OF REGULAR RETURN BONDS, MADE ON 31.3.1994. WHEN THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE, THERE COULD NOT BE ANY QUESTION OF LEVY OF PENALTY OR INTEREST. THE NEXT QUESTION FOR CONSIDERAT ION IN THE INSTANT CASE WAS AS TO WHETHER AO COULD HAVE IMPOSED THE PENALTY AT ALL UNDER SECTION 221 UPON ASSESSEE. A COORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF ITO V. TITAGARH STEEL LTD (2001) 79 ITD 532, DEALING WITH THE CONSEQUENCES OF NON - D EDUCTION OR SHORT DEDUCTION OF TAX AT SOURCE, HAD HELD THAT POST 1 - 4 - 1989, PENALTY FOR NONDEDUCTION OF TAX AT SOURCE OR SHORT DEDUCTION OF TAX AT SOURCE CAN ONLY BE IMPOSED UNDER SECTION 271C. THE CBDT ITSELF HAD IN CIRCULAR NO.551, DATED 23 - 1 - 1990 ACCEPTE D THAT UNTIL SECTION 271C WAS INSERTED IN THE ACT, NO PENALTY WAS PROVIDED FOR FAILURE TO DEDUCT TAX AT SOURCE. IT WAS NOT ONLY MERELY A QUESTION OF MENTIONING A WRONG SECTION, WHICH COULD PERHAPS BE COVERED BY RECOURSE TO SECTION 292B, IT WAS ALSO IMPOR TANT TO BEAR IN MIND THAT THE IMPUGNED PENALTY WAS LEVIED BY AN OFFICER OF THE RANK OF THE INCOME TAX OFFICER, WHEREAS PENALTY UNDER SECTION 271C COULD ONLY HAVE BEEN LEVIED BY AN OFFICE OF THE RANK OF THE DEPUTY (NOW JOINT) COMMISSIONER. THE ITO WAS, FROM THIS POINT OF VIEW, NOT COMPETENT TO IMPOSE THE IMPUGNED PENALTY. FURTHER, IN THE INSTANT CASE, EVEN ACCORDING TO THE REVENUE, THE DEFAULT WAS ON ACCOUNT OF DEDUCTION OF TAX AT SOURCE. SUCH A DEFAULT COULD NOT BE VISITED WITH PENALTY UNDER SECTION 221. HE NCE, THE IMPUGNED PENALTY UNDER SECTION 221 WAS UNSUSTAINABLE IN LAW. ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 13 11. IN VIEW OF THE ABOVE DECISION OF COORDINATE BENCH, SINCE THE PAYEE IS NOT IDENTIFIABLE IN THIS CASE ALSO AT THE TIME OF MAKING PROVISI ON, NO TDS NEED TO BE MADE ON THE ABOVE A MOUNT. FURTHER THE ENTIRE PROVISION HAS BEEN WRITTEN BACK IN THE NEXT YEAR AND THE ACTUAL AMOUNTS PAID/CREDITED WERE SUBJECTED TO TDS AS PER THE DETAILED STATEMENTS FILED BEFORE THE AUTHORITIES ON WHICH THERE IS NO DISPUTE. THEREFORE, ASSESSEE IS FOLLOWI NG THE PROVISIONS OF TDS AS AND WHEN THE AMOUNTS ARE PAID/CREDITED TO RESPECTIVE PARTIES. 12. AS ALREADY EXPLAINED AND EVIDENCED FROM THE COMPUTATION OF INCOME AS WELL AS THE ORDERS OF AO IN THE ASSESSMENT PROCEEDINGS, THE ENTIRE PROVISION HAS BEEN DISAL LOWED UNDER SECTION 40(A)(IA) AND SECTION 40(A)(I). ONCE THE AMOUNT HAS BEEN DISALLOWED UNDER THE PROVISIONS OF SECTION 40(A)(I) ON THE REASON THAT TAX HAS NOT BEEN DEDUCTED, IT IS SURPRISING THAT AO HOLDS THAT THE SAID AMOUNTS ARE SUBJECT TO TDS PROVISIO NS AGAIN SO AS TO DEMAND THE TAX UNDER THE PROVISIONS OF SECTION 201 AND ALSO LEVY INTEREST UNDER SECTION 201(1A). WE ARE UNABLE TO UNDERSTAND THE LOGIC OF AO IN CONSIDERING THE SAME AS COVERED BY THE PROVISIONS OF SECTION 194C TO 194J. ASSESSEE AS STATED HAS ALREADY DISALLOWED THE ENTIRE AMOUNT IN THE COMPUTATION OF INCOME AS NO TDS HAS BEEN MADE. ONCE AN AMOUNT WAS DISALLOWED UNDER SECTION 40(A)(I)/(IA) ON THE BASIS OF THE AUDIT REPORT OF THE CHARTERED ACCOUNTANT, THE SAME AMOUNT CANNOT BE SUBJECT TO THE PROVISIONS OF TDS UNDER SECTION 201(1) ON THE REASON THAT ASSESSEE SHOULD HAVE DEDUCTED THE TAX. IF THE ORDER OF AO WERE TO BE ACCEPTED THEN DISALLOWANCE UNDER SECTION 40(A)(I) AND 40(A)(IA) CANNOT BE MADE AND PROVISIONS TO THAT EXTENT MAY BECOME OTIOSE. IN VIEW OF THE ACTUAL DISALLOWANCE UNDER SECTION 40(A)(I) BY ASSESSEE HAVING BEEN ACCEPTED BY AO, WE ARE OF THE OPINION THAT THE SAME AMOUNT CANNOT BE CONSIDERED AS AMOUNT COVERED BY THE PROVISIONS OF SECTION 194C TO 194J SO AS TO RAISE TDS DEMAND AGAIN UN DER SECTION 201 AND LEVY OF INTEREST UNDER SECTION 201(1A). THEREFORE, ASSESSEES GROUND ON THIS ISSUE ARE TO BE ALLOWED AS THE ENTIRE AMOUNT HAS BEEN DISALLOWED UNDER THE PROVISIONS OF SECTION 40(A)(I)/(IA) IN THE COMPUTATION OF INCOME ON THE REASON THAT TDS WAS NOT MADE. FOR THIS REASON ALONE ASSESSEES GROUNDS CAN TO BE ALLOWED. CONSIDERING THE FACTS AND REASONS STATED ABOVE ASSESSEES GROUNDS ARE ALLOWED. 18. THE CIT(A) ON THE OTHER HAND HAS RELIED ON THE RATIO LAID DOWN BY THE COCHIN BENCH OF THE TR IBUNAL IN AGREENCO FIBRE FOAM (P) LTD. VS. ITO (SUPRA), WHEREIN A CONTRARY VIEW HAD BEEN TAKEN BY THE TRIBUNAL. WHILE CONSIDERING THE DECISION OF TRIBUNAL IN PFIZER LTD. VS. ITO (SUPRA), IT WAS OBSERVED BY THE COCHIN BENCH OF TRIBUNAL THAT THE ASSESSEE IN PFIZER LTD. VS. ITO (SUPRA) WAS HAVING BRANCHES AT MULTIFARIOUS LOCATIONS AND INNUMERABLE TRANSACTIONS AND HENCE, IT WAS FOLLOWING THE PRACTICE OF MAKING PROVISION FOR EXPENSES AT THE END OF THE YEAR. THE OBVIOUS REASON FOR WHICH WAS THAT IT DID NOT RECE IVE ALL THE BILLS BY THE TIME THE ACCOUNTS WERE FINALIZED. THE ADHOC PROVISION SO MADE WAS REVERSED IN THE SUCCEEDING YEAR IN WHICH ACTUAL EXPENSES WERE BOOKED UNDER SPECIFIC HEADS AND TDS COMPLIANCE WAS ALSO MADE AT THAT TIME. THE COCHIN BENCH OF TRIBUN AL CONSIDERED THE LIABILITY TO DEDUCT TAX AT SOURCE IN RELATION TO THE ASSESSEE BEFORE BEFORE THEM ON THE INTEREST PAYMENT PRESCRIBED UNDER SECTION 194A AND OBSERVED THAT THE SAID SECTION USED THE TERM ANY INCOME BY WAY OF INTEREST AND IT HELD THAT THE P ROVISIONS OF SECTION 40(A)(IA) OF THE ACT DOES NOT OVERRIDE THE PROVISIONS OF SECTION 201(1) OF THE ACT. THE RELEVANT ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 14 FINDING OF THE COCHIN BENCH OF TRIBUNAL IN AGREENCO FIBRE FOAM (P) LTD. VS. ITO (SUPRA) IS AS UNDER: - 5.2 A READING OF SECTION 194A( 1) SHOWED THAT THE PERSON RESPONSIBLE TO PAY THE INTEREST IS LIABLE TO DEDUCT TAX AT SOURCE AT THE TIME OF CREDIT OR PAYMENT, WHICHEVER IS EARLIER. THE SECTION USES THE TERM ANY INCOME BY WAY OF INTEREST. THE INTEREST PAYMENT MAY CONSTITUTE IN THE HAND S OF THE PERSON MAKING THE PAYMENT, WHILE IT MAY CONSTITUTE INCOME IN THE HANDS OF THE PAYEE / RECIPIENT. SINCE THE SECTION USES THE TERM 'ANY INCOME BY WAY OF INTEREST', IT WAS HELD, IT SHOULD BE VIEWED FROM THE ANGLE OF THE RECIPIENT/PAYEE AND NOT FROM THE ANGLE OF THE PERSON MAKING THE PAYMENT. ACCORDINGLY, THE TAX TREATMENT GIVEN BY THE PAYER IN RESPECT OF INTEREST PAID BY HIM MAY NOT BE RELEVANT AT ALL FOR THE PURPOSES OF SEC. 194A. SO LONG AS THE INTEREST AMOUNT CONSTITUTES 'INCOME' IN THE HANDS OF R ECIPIENT, THE PAYER SHALL BE LIABLE TO DEDUCT TAX AT SOURCE ON THE INTEREST AMOUNT SO PAID. ACCORDINGLY, EVEN IF THE PAYER HAD DISALLOWED THE EXPENDITURE U/S 40 (A)(IA) OR DID NOT CLAIM THE SAME AS EXPENDITURE AT ALL, HE SHALL STILL BE LIABLE TO DEDUCT TAX AT SOURCE U/S 194A ON THE INTEREST AMOUNT SO PAID, IF THE SAID PAYMENT IS LIABLE FOR TAX DEDUCTION AT SOURCE, IT WAS NOTICED THAT PROVISIONS OF SEC. 40(A)(IA) DO NOT PROVIDE FOR ABSOLUTE DISALLOWANCE AS IN THE CASE OF SAY, SEC. 40A(3) OF THE ACT. THE AMOU NT DISALLOWED U/S 40(A)(IA) IN ONE YEAR CAN BE CLAIMED AS DEDUCTION IN THE YEAR IN WHICH THE TDS PROVISIONS ARE COMPLIED WITH. THUS, IN OUR VIEW, THE PROVISIONS OF SEC. 40(A)(IA) PROVIDE ONLY FOR DEFERMENT OF THE ALLOWANCE AND IT DOES NOT PROVIDE FOR ABSOL UTE DISALLOWANCE. THE OBJECTIVE OF SEC. 40(A)(IA) APPEARS TO BE TO COMPEL THE ASSESSEE TO DEDUCT TAX AT SOURCE IN ORDER TO CLAIM THE RELEVANT EXPENDITURE AS DEDUCTION. 5.3 & 5.4 SECTION 201 PROVIDES FOR TREATING AN ASSESSEE WHO HAD FAILED TO DEDUCT OR PAY THE TDS AMOUNT AS AN ASSESSEE IN DEFAULT, SO THAT THE GOVERNMENT WAS EMPOWERED TO COLLECT THE SAID AMOUNT FROM HIM. HOWEVER, IT WAS A WELL SETTLED PROPOSITION THAT THE GOVERNMENT SHALL NOT BE ENTITLED TO RECOVER THE SAID AMOUNT, IF THE RECIPIENT HAS DE CLARED THE SAID AMOUNT AS HIS INCOME IN THE INCOME TAX RETURN FILED BY HIM AND PAID THE TAX DUE THEREON. THUS, IT IS SEEN THAT THE OBJECTIVE OF PROVISIONS OF SEC. 201 IS ONLY TO COMPENSATE THE GOVERNMENT FOR THE FAILURE OF AN ASSESSEE TO DEDUCT OR PAY THE TDS AMOUNT. THUS, IT CAN BE SEEN THAT THE PROVISIONS OF SEC. 40(A)(IA) AND SEC. 201 OPERATE ON DIFFERENT OBJECTIVES. WE HAVE ALREADY NOTICED THAT THE PROVISIONS OF SEC. 40(A)(IA) DO NOT OVERRIDE THE PROVISIONS OF SEC.201 OF THE ACT. ACCORDINGLY, IT WAS HEL D THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON INTEREST PAYMENTS, EVEN IF IT HAS NOT CLAIMED THE SAME AS DEDUCTION WHILE COMPUTING ITS TOTAL INCOME, IN WHICH CASE THE REVENUE WAS ENTITLED TO INITIATE PROCEEDINGS U/S 201 FOR SUCH FAILURE. 19. W E FIND THAT THE FACTS OF THE PRESENT CASE BEFORE US ARE SIMILAR TO THE FACTS BEFORE THE MUMBAI BENCH OF TRIBUNAL IN PFIZER LTD. VS. ITO (SUPRA), WHERE THE ASSESSEE HAD NOT RECEIVED THE COMPLETE INFORMATION IN RESPECT OF THE PAYEES BECAUSE OF INNUMERABLE TR ANSACTIONS AND ADHOC PROVISION WAS MADE IN THE BOOKS OF ACCOUNT AT THE CLOSE OF THE YEAR; SUBSEQUENTLY, THE SAID ADHOC PROVISION WAS REVERSED IN THE SUCCEEDING YEAR AND THE EXPENDITURE ON ACTUAL BASIS WAS BOOKED IN THE BOOKS OF ACCOUNT ON THE RECEIPT OF TH E COMPLETE INFORMATION AND COMPLIANCE WAS MADE TO THE TDS PROVISIONS. THE LIABILITY OF ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 15 THE ASSESSEE TO DEDUCT TAX AT SOURCE WAS UNDER SECTION 194C, 194J, 194H, 194I AND 195 OF THE ACT AND EXCEPT FOR THE PROVISIONS OF SECTION 194H, THE LANGUAGE USED IN ALL THE SECTIONS WAS THAT TAX HAD TO BE DEDUCTED OUT OF THE SUM PAYABLE TO RESIDENTS. SECTION 194H TALKS OF PAYMENT OF ANY INCOME BY WAY OF COMMISSION OR BROKERAGE. HOWEVER, THE EXPLANATION OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT BECAUSE OF IT S WIDE NETWORK OF DEALING WITH MANY COMMISSION AGENTS, IT WAS NOT IN A POSITION TO IDENTIFY THE PAYEES TO WHOM THE COMMISSION HAD BECOME DUE. SINCE THE BILLS OF SALES AND OTHER ASPECTS WERE NOT MADE AVAILABLE TO THE ASSESSEE TILL THE CLOSE OF THE YEAR, HO WEVER, WHEN THE INFORMATION WAS RECEIVED BY THE ASSESSEE IN THE SUCCEEDING YEAR, THE PROVISION MADE ON THIS ACCOUNT WAS REVERSED AND BILLS WERE PASSED AND ENTRIES PASSED IN THE NAME OF RESPECTIVE PAYEES AND FURTHER, TAX WAS DEDUCTED AT SOURCE OUT OF SUCH P AYMENTS. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WHICH ARE SIMILAR TO THE FACTS BEFORE THE MUMBAI BENCH OF TRIBUNAL IN PFIZER LTD. VS. ITO (SUPRA), WE HOLD THAT THE PROPOSITION LAID DOWN IN THE SAID DECISION IS SQUARELY APPLICABLE TO TH E FACTS OF THE PRESENT CASE IN THE ABSENCE OF THE IDENTIFICATION OF PAYEES AND PROVISIONS HAVING BEEN MADE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AT THE CLOSE OF THE YEAR, WHICH IN TURN WAS REVERSED AND OFFERED TO TAX, IN VIEW OF THE PROVISIONS OF SECTION 40(A)/(IA) OF THE ACT. WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW THAT THE ASSESSEE HAD DEFAULTED IN NOT DEDUCTING THE TAX AT SOURCE OUT OF SUCH AMOUNTS DUE TO NON - EXISTING PAYEES AND HENCE, HAD DEFAULTED UNDER SECTION 201(1) OF THE ACT AND ALSO INTEREST WAS CHARGEABLE ON SUCH DEMAND UNDER SECTION 201(1A) OF THE ACT. WE HOLD THAT THE PROPOSITION LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN PFIZER LTD. VS. ITO (SUPRA), IN TURN FOLLOWING THE RATIO LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN IDBI VS. ITO (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE AND THERE WAS NO MERIT IN THE ORDERS OF AUTHORITIES BELOW. HOWEVER, AS POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, THERE IS A DEFAULT VIS - A - VIS PROVISION MADE AT THE END OF THE YEAR AND THE BILLS PASSED AND THOSE REVERSED IN THE SUCCEEDING YEAR. THE PERUSAL OF DETAILS REFLECT THAT AS AGAINST THE PROVISION MADE IN ASSESSMENT YEAR 2007 - 08 OF RS.4.91 CRORES, THE ASSESSEE IN THE SUCCEEDING HAD PASSED BILLS TOTALING RS.3.08 CRORES, ON WHICH TAX WAS DEDUCTED AT SOURCE AND HAD REVERSED ENTRIES TO THE EXTENT OF RS.1.53 CRORES I.E. TOTALING RS.4.60 CRORES. THE BALANCE OF APPROXIMATELY RS.30 LAKHS HAS NOT BEEN EXPLAINED BY THE ASSESSEE AND THE LEARNED AUTHORIZED REPRESEN TATIVE FOR THE ASSESSEE FAIRLY CONCEDED THAT THE SAID DIFFERENCE COULD NOT BE RECONCILED AND IN VIEW OF THE SAID DEFAULT, THE ASSESSEE WAS PREPARED TO PAY THE TAX DEDUCTIBLE ON SUCH PROVISION. SIMILARLY, IN ASSESSMENT YEAR 2008 - 09 AS AGAINST THE PROVISION OF RS.2.75 CRORES, THE ASSESSEE HAD PASSED BILLS TOTALING RS.32 LAKHS AND HAD REVERSED ENTRIES TO THE EXTENT OF RS.2.29 CRORES AND HAS FAILED TO RECONCILE THE BALANCE OF RS.14 LAKHS, HENCE THE ASSESSEE IS IN DEFAULT FOR NON - DEDUCTION OF TAX IN RESPECT OF THE ABOVE SAID BALANCE AMOUNTS AND THE ASSESSING OFFICER IS DIRECTED TO WORK OUT THE DEMAND UNDER SECTION 201(1) OF THE ACT AND ALSO CHARGE INTEREST UNDER SECTION 201(1A) OF THE ACT. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN BOTH THE APPEALS ARE THU S, PARTLY ALLOWED. 14. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS NOT LIABLE TO LEVY OF PENALTY UNDER SECTION 271C OF THE ACT. WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. ITA NO. 356 /P U N/20 1 6 CO NO.121/PUN/2017 BAJAJ FINANCE LTD. 16 15. IN VIEW OF DISMISSAL OF APPEAL OF REVENUE, CROSS OBJECTIONS FILED BY THE ASSESSEE BECOME ACADEMIC AND THE SAME ARE DISMISSED. 16 . IN THE RESULT, APPEAL OF REVENUE AND CROSS OBJECTIONS OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF APRIL , 201 8 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 27 TH APRIL , 201 8 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELL ANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) , PUNE - 10 ; 4. THE CIT (TDS), PUNE ; 5. , , / DR B , ITAT, PUNE; 6. / GUARD FILE. / BY ORDER , / / TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE