IBM India Private Limited, Bangalore V. ITO, Bangalore

ITA 749/BANG/2012

• Counselvise Citation: 74921114 RSA 2012
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 25-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO CITIDR
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Recovery proceedings; Wholly owned subsidiary; Non-deduction of tax
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER ITA NOS.749 TO 752/BANG/2012 & 1588 TO 1591/BANG/2012 ASSESSMENT YEARS : 2006-07 TO 2009-10 IBM INDIA PRIVATE LTD., NO.12, SUBRAMANYA ARCADE, BANNERGHATTA MAIN ROAD, BANGALORE 560 093. PAN: AAACI 4403L VS. THE INCOME TAX OFFICER (TDS) LTU, BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, CA RESPONDENT BY : SHRI C.H. SUNDAR RAO, CIT-I(DR) DATE OF HEARING : 24.04.2015 DATE OF PRONOUNCEMENT : 14.05.2015 O R D E R PER BENCH THESE ARE BATCH OF 8 APPEALS BY THE ASSESSEE AGAI NST A COMMON ORDER DATED 30.3.2012 OF CIT(A)-LTU, RELATING TO AY S 2006-07 TO 2009-10. BY THE IMPUGNED ORDERS, THE CIT(A) CONFIRMED THE OR DER OF THE ASSESSING OFFICER TREATING THE ASSESSEE AS AN ASSESSEE IN DEF AULT U/S.201(1) AND ALSO ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 2 OF 39 LEVYING INTEREST ON TAX NOT PAID U/S.201(1A) OF THE ACT. THE ASSESSEE FILED 4 APPEALS VIZ., ITA NOS.749 TO 752/BANG/2012, CHALL ENGING THE ACTION OF THE REVENUE IN TREATING THE ASSESSEE AS AN ASSESSEE IN DEFAULT U/S.201(1) AND ALSO LEVYING INTEREST ON TAX NOT PAID U/S.201(1 A) OF THE ACT. ACCORDING TO THE REGISTRY, SEPARATE APPEALS HAD TO BE FILED A GAINST THE ORDER OF THE REVENUE IN TREATING THE ASSESSEE AS AN ASSESSEE IN DEFAULT U/S.201(1) AND SEPARATE APPEALS HAD TO BE FILED IN RESPECT OF THE ACTION OF THE REVENUE IN LEVYING INTEREST ON TAX NOT PAID U/S.201(1A) OF THE ACT. HENCE THE ASSESSEE HAS FILED APPEALS BEING ITA NOS.1588 TO 15 91/BANG/2012 WHICH RELATE TO CHALLENGE TO LEVY OF INTEREST U/S.201(1A) OF THE ACT. ITA NOS. 749 TO 752/BANG/2012 ARE TREATED AS APPEALS FILED CHALL ENGING THE ORDER PASSED U/S.201(1) OF THE ACT. 2. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF IB M WORLD TRADE CORPORATION, US (IBM WTC). THE ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE MAKES PROVISION FOR CERTAIN EXPENSES IN ITS BOOKS OF ACCOUNTS. AS PER THE GLOB AL GROUP ACCOUNTING POLICY, EACH OF THE ENTITY OF IBM GROUP WORLDWIDE H AS TO QUANTITY ITS EXPENSES EVERY QUARTER, WITHIN 3 DAYS OF THE END OF EVERY QUARTER. IN RESPECT OF EXPENSES FOR WHICH INVOICES HAVE BEEN SU BMITTED OR THE PAYMENTS HAVE BECOME DUE IN RESPECT OF THE EXPENSES , THE SAME ARE ACCOUNTED FOR AND IF TAX DEDUCTION AT SOURCE (TDS) IS FOUND TO BE APPLICABLE ON THESE EXPENSES, THE SAME IS ACCOUNTED FOR. HOWEVER, IN RESPECT OF EXPENSES IN RESPECT OF WHICH ONLY SERVIC E/WORK HAS BEEN ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 3 OF 39 PROVIDED/PERFORMED BY THE VENDORS, BUT FOR WHICH TH E INVOICES HAVE NOT BEEN FURNISHED OR IN RESPECT OF WHICH THE PAYMENTS HAVE NOT FALLEN DUE FOR PAYMENT TO THE VENDORS, A PROVISION FOR SUCH EXPENS ES IS MADE IN THE BOOKS OF ACCOUNT RECOGNISING THE LIABILITY THAT HAS BEEN INCURRED. THE EXPENSES ARE DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THE PROVISIONS ARE CREDITED TO A PROVISION ACCOUNT AND NOT TO THE VEND OR ACCOUNTS AS THESE HAVE NOT FALLEN DUE FOR PAYMENT. THESE EXPENSES, A LTHOUGH CREDITED TO THE PROVISION ACCOUNT, DO NOT LOSE THE COLOUR OF BEING ASCERTAINED LIABILITIES. ON THE BASIS OF ITS KNOWLEDGE OF HAVING RECEIVED THE S ERVICES AND INCURRED AN EXPENSE FOR IT, THE ASSESSEE RECOGNISES SUCH EXPENS ES BY PROVIDING FOR IT AS OF THE YEAR END. SUCH EXPENSE PROVISIONS ARE HO WEVER CREATED ON RELIABLE ESTIMATES OF THE PAYMENT THAT IS EXPECTED TO BE MADE ON THE SETTLEMENT DATES IN FUTURE, THAT FALL IN THE NEXT A CCOUNTING YEAR. IN THE SUBSEQUENT FINANCIAL YEARS, THE PROVISION ENTRIES A RE REVERSED AND ON RECEIPT OF INVOICES IN RESPECT OF THE RESPECTIVE EX PENSES, THE SAME ARE RECORDED AS LIABILITIES DUE TO THE RESPECTIVE PARTI ES, AT WHICH POINT IN TIME TAXES ARE WITHHELD AT SOURCE AND PAID TO THE GOVERN MENT IN THE DUE COURSE. 3. EVEN THOUGH LIABILITY FOR CERTAIN EXPENSES MIGH T NOT HAVE ACCRUED OR ARISEN TO THE ASSESSEE IN ACCORDANCE WITH THE MERCA NTILE SYSTEM OF ACCOUNTING, THE ASSESSEE ON THE BASIS OF SCIENTIFIC METHODOLOGY ESTIMATES SUCH EXPENSES AND CREATES A PROVISION FOR SUCH EXPE NSES EVERY QUARTER WITHIN 3 DAYS OF THE END OF THE QUARTER. AT THE TI ME OF CREATION OF PROVISION ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 4 OF 39 IT IS NOT POSSIBLE FOR THE ASSESSEE TO IDENTIFY PAR TIES OR IF PARTIES ARE IDENTIFIED TO ARRIVE AT THE EXACT SUM ON WHICH TDS IS TO BE DONE. 4. THE PROVISION SO CREATED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS FOR THE VARIOUS ASSESSMENT YEARS ARE AS FOLLOWS:- F.Y. 2005-06 PARTICULARS AMOUNT SECTION PERCENTAGE AMT TO BE DEDUCTED INTEREST SUB-CONTRACTING CHARGES 196063727 194C 1.13% 210250 1766116 COMMISSION 23787112 194H 5.65% 1343971 1128936 PROFESSIONAL CHARGES 24241731 194J 5.65% 1369657 1150512 CONTRACTORS CHARGES 33159502 194C 2.26% 749404 629499 SUB-CONTRACTING CHARGES 1428358659 194C 1.13% 16140452 13557980 FOREIGN PAYMENTS (WTC) 775791935 195 10% 77579193 62063354 TOTAL 2471402665 9739292 80296397 F.Y. 2006-07 PARTICULARS AMOUNT SECTION PERCENTAGE AMT TO BE DEDUCTED INTEREST COMMISSION 8823629 194H 5.65% 498535 358945 SUBCONTRACTING 1334844862 194C 1.13% 15083746 10860297 PROFESSIONAL & CONSULTANCY 71477952 194J 5.65% 4038504 2907723 ADVT & MARKETING 21641814 194C 1.13% 244552 176077 RECRUITMENT 46079329 194C 2.26% 1041392 749802 REPAIR & MAINTENANCE 4420775 194C 2.26% 99909 71934 GENERAL EXP. EDUCATION EXP. 92581732 194C 2.26% 2092347 1506489 RENT 174993369 194I 22.66% 39653497 28550518 OTHER EXPENSES 16154003 194C 2.26% 365080 262857 FOREIGN PAYMENTS 1134433077 195 10% 1344330 967917 TOTAL 2905450542 64461892 46412559 ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 5 OF 39 FY 2007-08 PARTICULARS AMOUNT SECTION PERCENTAGE AMT TO BE DEDUCTED INTEREST COMMISSION 233671617 194H 5.65% 13202446 7921467 SUBCONTRACTING 479760513 194C 1.13% 5421293 3252776 PROFESSIONAL & CONSULTANCY 127571394 194J 5.65% 7207783 4324670 ADVT & MARKETING 213424632 194C 1.13% 2411698 1447019 RECRUITMENT 237073540 194C 2.26% 5357862 3214717 REPAIR & MAINTENANCE - 194C 2.26% - GENERAL EXP. EDUCATION EXP. - 194C 2.26% - RENT 331697952 194I 22.66% 75162755 45097653 OTHER EXPENSES 469931105 194C 2.26% 10620442 6372265 TOTAL 2093130753 119384279 16730567 FY 2008-09 PARTICULARS AMOUNT SECTION PERCENTAGE AMT TO BE DEDUCTED INTEREST PROFESSIONAL FEES 816228909 194J 11.33% 92478735 44389792 CONTRACTORS/SUB- CONTRACTORS 243440622 194C 2.26% 5501758 2640843 FOREIGN PAYMENTS 112899026 195 15% 169348804 81287425 COMMISSION 234463891 194H 11.33% 26564759 12751084 RENT 273153222 194I 22.26% 61896520 2971032 OTHERS 1368936161 194C 11.33% 155100467 74448224 TOTAL 4065214831 510891043 218488400 5. ACCORDING TO THE REVENUE, IN RESPECT OF THE PROV ISION SO CREATED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS, TAX AT SOURC E WAS DEDUCTIBLE IN TERMS OF THE PROVISIONS OF LAW REFERRED IN THE CHAR T GIVEN ABOVE AS PROVIDED UNDER CHAPTER XVII-B OF THE ACT. THE LAST COLUMN I N THE CHART REFERRED TO ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 6 OF 39 ABOVE GIVES THE AMOUNT PAYABLE U/S.201(1A) OF THE A CT, FOR FAILURE TO DEDUCT AND PAY TDS WITHIN THE TIME REQUIRED. 6. IN TERMS OF SEC.40(A)(I) OF THE ACT, IF TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B OF THE ACT AND WHERE IT IS NOT SO DEDUCTED AT SOURCE ON THE AMOUNT OF ANY INTEREST OR ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THE ACT, WHICH IS PAYABLE OUTS IDE INDIA OR IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, THE SAME SHALL NOT BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS. IN TERMS OF SEC.40(A)(IA) OF THE ACT, IF TAX IS DED UCTIBLE AT SOURCE UNDER CHAPTER XVII-B OF THE ACT AND WHERE IT IS NOT SO DE DUCTED AT SOURCE ON THE AMOUNT OF ANY INTEREST, COMMISSION OR BROKERAGE, R ENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR F OR CARRYING OUT ANY WORK), THE SAME SHALL NOT BE ALLOWED AS DEDUCTION WHILE CO MPUTING INCOME FROM BUSINESS. THE RELEVANT STATUTORY PROVISIONS READ AS FOLLOWS: AMOUNTS NOT DEDUCTIBLE. 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION', ( A ) IN THE CASE OF ANY ASSESSEE ( I ) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSUE D FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 19 38), ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 7 OF 39 ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM C HARGEABLE UNDER THIS ACT, WHICH IS PAYABLE, ( A ) OUTSIDE INDIA; OR ( B ) IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCT ION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE S UBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB- SECTION (1) OF SECTION 200: PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN D EDUCTED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEA R AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200, SUCH SUM SHALL BE ALLOWED AS A DEDU CTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION. FOR THE PURPOSES OF THIS SUB-CLAUSE, ( A ) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE ( VI ) OF SUB-SECTION (1) OF SECTION 9; ( B ) 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE ( VII ) OF SUB-SECTION (1) OF SECTION 9; ( IA ) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SER VICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR S UB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDIN G SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE P REVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIM E PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEE N DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN DEDUCT ED IN THE ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 8 OF 39 PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTIO N 200, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING TH E INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION. FOR THE PURPOSES OF THIS SUB-CLAUSE, ( I ) 'COMMISSION OR BROKERAGE' SHALL HAVE THE SAME MEANI NG AS IN CLAUSE (I) OF THE EXPLANATION TO SECTION 194H; ( II )'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE ( VII ) OF SUB-SECTION (1) OF SECTION 9; ( III ) 'PROFESSIONAL SERVICES' SHALL HAVE THE SAME MEAN ING AS IN CLAUSE ( A ) OF THE EXPLANATION TO SECTION 194J ; ( IV ) 'WORK' SHALL HAVE THE SAME MEANING AS IN EXPLANATION III TO SECTION 194C; ( V ) 'RENT' SHALL HAVE THE SAME MEANING AS IN CLAUSE ( I ) TO THE EXPLANATION TO SECTION 194-I; ( VI ) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE ( VI ) OF SUB-SECTION (1) OF SECTION 9; 7. THE ASSESSEE WHILE FILING RETURN OF INCOME FOR T HE VARIOUS ASSESSMENT YEARS REFERRED TO ABOVE, DISALLOWED ON I TS OWN THE AMOUNTS REFERRED TO IN THE CHART ABOVE IN THE COMPUTATION O F INCOME BECAUSE IN TERMS OF SEC.40(A)(I) AND SEC.40(A)(IA) OF THE ACT, THE ABOVE AMOUNTS ARE NOT ALLOWABLE AS DEDUCTION. 8. ANOTHER CONSEQUENCE, APART FROM DISALLOWANCE OF THE RELEVANT AMOUNT WHILE COMPUTING INCOME FROM BUSINESS, IS THA T THE ASSESSEE IS LIABLE TO PROCEEDED AGAINST U/S.201(1) & 201(1A) OF THE ACT. UNDER SEC.201(1) IF THE PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT OR NON- ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 9 OF 39 RESIDENT , ANY INCOME CHARGEABLE TO TAX UNDER THE A CT, FAILS TO DEDUCT TAX AT SOURCE, THEN HE CAN BE CONSIDERED AS AN ASSESSEE IN DEFAULT IN RESPECT OF THE TAX PAYABLE ON SUCH INCOME. UNDER SEC.201(1A) SUCH PERSON IS ALSO LIABLE TO PAY INTEREST ON SUCH TAX FROM THE DATE ON WHICH IT OUGHT TO HAVE BEEN PAID TILL THE TIME IT IS ACTUALLY PAID TO THE CREDIT OF THE GOVERNMENT. ACCORDING TO THE AO, THE ASSESSEE WAS THEREFORE LIA BLE TO TREATED AS ASSESSEE IN DEFAULT AND WAS ALSO LIABLE TO PAY INTE REST ON TAX PAYABLE. CONSEQUENCES OF FAILURE TO DEDUCT OR PAY. 201. (1) IF ANY SUCH PERSON REFERRED TO IN SECTION 20 0] AND IN THE CASES REFERRED TO IN SECTION 194, THE PRINCIPAL OFF ICER AND THE COMPANY OF WHICH HE IS THE PRINCIPAL OFFICER DOES N OT DEDUCT THE WHOLE OR ANY PART OF THE TAX] OR AFTER DEDUCTING FA ILS TO PAY THE TAX AS REQUIRED BY OR UNDER THIS ACT, HE OR IT SHALL, W ITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE OR IT MAY INCUR, BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF THE TAX : PROVIDED THAT NO PENALTY SHALL BE CHARGED UNDER SECTION 221 FROM SUCH PERSON, PRINCIPAL OFFICER OR COMPANY UNLESS TH E ASSESSING OFFICER IS SATISFIED THAT SUCH PERSON OR PRINCIPAL OFFICER OR COMPANY, AS THE CASE MAY BE, HAS WITHOUT GOOD AND S UFFICIENT REASONS FAILED TO DEDUCT AND PAY THE TAX. (1A) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SE CTION (1), IF ANY SUCH PERSON, PRINCIPAL OFFICER OR COMPANY AS IS REFERRED TO IN THAT SUB-SECTION DOES NOT DEDUCT THE WHOLE OR ANY P ART OF THE TAX OR AFTER DEDUCTING FAILS TO PAY THE TAX AS REQUIRED BY OR UNDER THIS ACT, HE OR IT SHALL BE LIABLE TO PAY SIMPLE INTERES T AT TWELVE PER CENT PER ANNUM ON THE AMOUNT OF SUCH TAX FROM THE D ATE ON WHICH SUCH TAX WAS DEDUCTIBLE TO THE DATE ON WHICH SUCH T AX IS ACTUALLY PAID AND SUCH INTEREST SHALL BE PAID BEFORE FURNISHING T HE QUARTERLY STATEMENT FOR EACH QUARTER IN ACCORDANCE WITH THE PROVISIONS OF SUB-SECTION (3) OF SECTION 200 . (2) WHERE THE TAX HAS NOT BEEN PAID AS AFORESAID AF TER IT IS DEDUCTED, THE AMOUNT OF THE TAX TOGETHER WITH THE A MOUNT OF ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 10 OF 39 SIMPLE INTEREST THEREON REFERRED TO IN SUB-SECTION (1A) SHALL BE A CHARGE UPON ALL THE ASSETS OF THE PERSON, OR THE CO MPANY, AS THE CASE MAY BE, REFERRED TO IN SUB-SECTION (1). 9. IN VIEW OF THE CLEAR ADMISSION ON THE PART OF TH E ASSESSEE THAT IT WAS OBLIGED TO DEDUCT TAX AT SOURCE IN TERMS OF CHAPTER XVII-B OF THE ACT ON THE VARIOUS AMOUNTS FOR THE VARIOUS ASSESSMENT YEARS IN THE CHART SET OUT ABOVE, BY MAKING DISALLOWANCE U/S.40(A)(I) & 40(A) (IA) OF THE ACT OF THE AMOUNTS REFERRED TO IN THE CHART ABOVE IN THE RETUR N OF INCOME FILED FOR THE VARIOUS ASSESSMENT YEARS, THE AO INITIATED PROCEEDI NGS U/S.201(1) & 201(1A) OF THE ACT AGAINST THE ASSESSEE. 10. IN REPLY TO THE SHOW CAUSE NOTICE ISSUED U/S.2 01(1) & 201(1A) OF THE ACT, THE ASSESSEE SUBMITTED THAT INVOICES WERE NOT RECEIVED IN RESPECT OF THE UNDERLYING EXPENSES AND THEREFORE THERE WAS NEI THER ACCRUAL OF EXPENDITURE NOR WAS THE PAYEE IDENTIFIED AS THE AMO UNT WAS NOT CREDITED TO THE ACCOUNT OF THE PAYEE BUT TO A SUSPENSE ACCOUNT. IN OTHER WORDS THE STAND OF THE ASSESSEE WAS THAT THERE WAS NO ACCRUAL OF EXPENDITURE IN ACCORDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE THERE WAS NO OBLIGATION ON ITS PART TO DEDUCT TAX SOURCE. THE ASSESSEE TOOK A STAND THAT THOUGH UNDER THE RELEVANT PROVISIONS OF LAW IN CHAPTER XVII-B OF THE ACT THERE WAS OBLIGATION TO DEDUCT TAX AT SOURC E EVEN WHEN THE AMOUNT IS CREDITED TO A SUSPENSE ACCOUNT, THERE SHOULD B E LEGAL LIABILITY TO PAY AND THE PAYEE SHOULD BE KNOWN AND ONLY THEN THE OBL IGATION TO DEDUCT TAX AT SOURCE ARISES. THE ASSESSEE ALSO SUBMITTED THAT THE PROVISION ENTRIES ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 11 OF 39 ARE REVERSED IN THE SUBSEQUENT FINANCIAL YEAR(S) AN D NECESSARY TAXES ARE WITHHELD AT SOURCE AT THE TIME OF ACTUAL PAYMENT (W HEN LEGAL LIABILITY TO PAY ARISES AND THE IDENTITY OF THE PARTY IS KNOWN). 11. THE ASSESSEE RELIED ON CBDT CIRCULAR NO.3/2010 DATED 2.3.2010. THE ABOVE CIRCULAR WAS ISSUED IN THE CONTEXT OF THE PROVISIONS OF SEC.194A OF THE ACT DEALING WITH TDS OBLIGATION AT THE TIME OF CREDIT OF INTEREST INCOME TO THE ACCOUNT OF THE PAYEE AND IN RESPONSE TO REPRESENTATIONS RECEIVED FROM INDIAN BANKS ASSOCIATION (IBA) SEEKIN G CLARIFICATION REGARDING DEDUCTION OF TAX AT SOURCE FROM PAYMENT O F INTEREST ON TIME DEPOSITS BY BANKS USING CORE-BRANCH BANKING SOLUTIO NS (CBS) SOFTWARE. IN CASE OF BANKS USING CBS SOFTWARE, INTEREST PAYAB LE ON TIME DEPOSIT IS CALCULATED GENERALLY ON DAILY BASIS OR MONTHLY BASI S AND IS SWEPT AND PARKED ACCOUNTING IN THE PROVISIONING ACCOUNT FOR T HE PURPOSES OF MACRO- MONITORING ONLY. HOWEVER, CONSTRUCTIVE CREDIT IS G IVEN TO THE DEPOSITORS/PAYEES ACCOUNT EITHER AT THE END OF THE FINANCIAL YEAR OR AT PERIODIC INTERVALS AS PER PRACTICE OF THE BANK OR A S PER THE DEPOSITORS/PAYEES REQUIREMENT OR ON MATURITY OR ON ENCASHMENT OF TIME DEPOSITS, WHICHEVER IS EARLIER. THE CBDT CLARIFIED THE TDS OBLIGATIONS IN SUCH CASES AS FOLLOWS: AS PER PROVISIONS OF SECTION 194A OF THE INCOME TAX ACT 1961, INCOME TAX HAS TO BE DEDUCTED AT SOURCE AT THE TIME OF CREDIT OF INTEREST INCOME TO THE ACCOUNT OF THE PAYEE OR AT T HE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 12 OF 39 OTHER MODE, AT THE RATES IN FORCE IF SUCH INTEREST AMOUNT EXCEEDS SPECIFIED LIMIT. FURTHER, EXPLANATION TO SECTION 19 4A STATES THAT FOR THE PURPOSE OF THIS SECTION, WHERE ANY INCOME BY WAY OF INTEREST AS AFORESAID IS CREDITED TO ANY ACCOUNT, W HETHER CALLED INTEREST PAYABLE ACCOUNT OR SUSPENSE ACCOUNT OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE 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 PROVISIO NS OF THIS SECTION SHALL APPLY ACCORDINGLY. 2. REPRESENTATIONS HAVE BEEN RECEIVED FROM INDIAN B ANKS ASSOCIATION (IBA) SEEKING CLARIFICATION REGARDING D EDUCTION OF TAX AT SOURCE FROM PAYMENT OF INTEREST ON TIME DEPO SITS BY BANKS USING CORE-BRANCH BANKING SOLUTIONS (CBS) SOFTWARE. IN CASE OF BANKS USING CBS SOFTWARE, INTEREST PAYABLE ON TIME DEPOSITS IS CALCULATED GENERALLY ON DAILY BASIS OR MONTHLY BASI S AND IS SWEPT & PARKED ACCORDINGLY IN THE PROVISIONING ACCOUNT FO R THE PURPOSES OF MACRO-MONITORING ONLY. HOWEVER, CONSTRU CTIVE CREDIT IS GIVEN TO THE DEPOSITORS / PAYEES ACCOUNT EITHE R AT THE END OF THE FINANCIAL YEAR OR AT PERIODIC INTERVALS AS PER PRACTICE OF THE BANK OR AS PER THE DEPOSITORS / PAYEES REQUIREMEN T OR ON MATURITY OR ON ENCASHMENT OF TIME DEPOSITS; WHICHEV ER IS EARLIER. 3. THE MATTER HAS BEEN CONSIDERED BY THE BOARD. EXP LANATION TO SECTION 194A WAS INTRODUCED WITH EFFECT FROM 1.4.19 87 BY THE FINANCE ACT, 1987 TO PLUG THE LOOPHOLE OF AVOIDING DEDUCTION OF TAX AT SOURCE BY CREDITING INTEREST IN THE BOOKS OF ACCOUNTS UNDER ACCOUNTING HEADS INTEREST PAYABLE ACCOUNT OR SUS PENSE ACCOUNT INSTEAD OF TO THE DEPOSITORS / PAYEES ACCOUNT. THEREFORE, THE PAGE 2 OF 2 EXPLANATION IS NOT MEANT TO APPLY IN CA SES OF BANKS WHERE CREDIT IS MADE TO PROVISIONING ACCOUNT ON DAILY/MONTHLY BASIS FOR THE PURPOSES OF MACRO MONIT ORING ONLY BY THE USE OF CBS SOFTWARE. 4. IN VIEW OF THE ABOVE POSITION, IT IS CLARIFIED T HAT SINCE NO CONSTRUCTIVE CREDIT TO THE DEPOSITORS / PAYEES AC COUNT TAKES PLACE WHILE CALCULATING INTEREST ON TIME DEPOSITS O N DAILY OR MONTHLY BASIS IN THE CBS SOFTWARE USED BY BANKS, TA X NEED NOT BE DEDUCTED AT SOURCE ON SUCH PROVISIONING OF INTEREST BY BANKS FOR THE PURPOSES OF MACRO MONITORING ONLY. IN SUCH CASE S, TAX SHALL BE DEDUCTED AT SOURCE ON ACCRUAL OF INTEREST AT THE EN D OF FINANCIAL YEAR OR AT PERIODIC INTERVALS AS PER PRACTICE OF TH E BANK OR AS PER THE DEPOSITORS / PAYEES REQUIREMENT OR ON MATURIT Y OR ON ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 13 OF 39 ENCASHMENT OF TIME DEPOSITS; WHICHEVER EVENT TAKES PLACE EARLIER; WHENEVER THE AGGREGATE OF AMOUNTS OF INTEREST INCOM E CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FI NANCIAL YEAR BY THE BANKS EXCEEDS THE LIMITS SPECIFIED IN SECTION 1 94A. (EMPHASIS SUPPLIED) 12. THE ASSESSEE THEREFORE SUBMITTED THAT WITHHOLDI NG TAX PROVISIONS OF THE ACT WOULD NOT APPLY AUTOMATICALLY ON ANY EXPENS E BEING ACCOUNTED. THE OBLIGATION TO WITHHOLD TAXES ARISES ONLY ON THE AMOUNT PAYABLE IS EXACTLY IDENTIFIED ALONG WITH THE PAYEE TO WHOM SUC H AMOUNT IS PAYABLE. 13. THE AO DID NOT ACCEPT THE ABOVE SUBMISSION OF THE ASSESSEE FOR THE FOLLOWING REASONS:- 1. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN THE B ASIS ON WHICH THE PROVISION WAS QUANTIFIED. ACCORDING TO THE AO THE ASSESSEE DID NOT EXPLAIN AS TO HOW THE EXPENSES HAVE BEEN QUANTIFIED . 2. ACCORDING TO THE AO THE EXPLANATION OF THE ASSES SEE WAS THAT IT RECOGNISES THE EXPENSES IN THE FINANCIAL YEAR IN WH ICH INVOICES ARE RECEIVED IN RESPECT OF THE UNDERLYING EXPENSES. WH EN NO INVOICES ARE RECEIVED THE BOOKING OF SUCH EXPENSES IN THE AC COUNTS AND CLAIMING THEM AS EXPENDITURE OF THE PREVIOUS YEAR W AS ERRONEOUS. 3. WHEN INVOICES ARE RECEIVED THE ASSESSEE CLAIMS TO REVERSE THE ENTRIES AND RECORD THE LIABILITY IN ITS BOOKS OF AC COUNTS. AT THIS POINT OF TIME THE ASSESSEE WITHHOLDS TAXES. 14. ACCORDING TO THE AO, THE ABOVE PROCEDURE FOLLOW ED BY THE ASSESSEE WAS CONTRARY TO THE ACCOUNTING POLICY BECAUSE ONCE EXPENDITURE IS BOOKED IN THE PROFIT AND LOSS ACCOUNT, IT CANNOT BE REVERS ED. ACCORDING TO THE AO, ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 14 OF 39 THE REVERSAL ENTRY AS WELL AS THE BOOKING OF EXPENS ES BASED ON INVOICES DONE IN SUBSEQUENT YEAR IS ROUTED THROUGH THE PROFI T AND LOSS A/C. THIS SHOWS THAT THE REVERSALS ARE TAKEN AS INCOME AND TH E EXPENSES BOOKED ON RECEIPT OF INVOICES ARE INCLUDED IN CURRENT EXPENSE S OF THAT YEAR. THOUGH IT IS CONSIDERED THAT THE WHOLE OF DISALLOWANCE MADE I N THE COMPUTATION U/S 40(A)(IA) IS REVERSED SINCE THIS AMOUNT IS CLAIMED AS DEDUCTION IN THE COMPUTATION IN THE YEAR WHEN TDS IS MADE, WHETHER T HE WHOLE OF THE AMOUNT IS AGAIN BOOKED AND SUBJECTED TO TDS IS QUES TIONABLE. THE AO REFERRED TO THE EXPLANATION OFFERED BY THE AR OF TH E ASSESSEE AT THE TIME OF ASSESSMENT PROCEEDINGS THAT THERE CANNOT BE ANY DOU BT THAT THE EXPENSES ARE CLAIMED TWICE ONCE AS A PROVISIONAL ENTRY AND A NOTHER BOOKED AS PER INVOICE, THERE IS NO CLARIFICATION THAT TDS IS MADE ON THE WHOLE OF THE PROVISIONAL ENTRIES SO AS TO ALLOW THE DISALLOWANCE U/S 40(A)(IA) IN THE YEAR OF TDS EFFECTED. ACCORDING TO THE AO, THE PROCEDURE FOLLOWED BY THE ASSESSEE MAY ALSO LEAD TO THE ALLOWING OF THE EXPEN DITURE BY ONE YEAR PRIOR TO THE INCURRING OF THE ACTUAL EXPENSES. ACCO RDING TO THE AO, THOUGH THERE IS NO CLAIM OF EXPENSES AS THE SAME IS ADDED BACK U/S 40(A)(IA), TREATING OF SUCH DISALLOWANCE AS A PROVISION TOWARD S CONTINGENT LIABILITY CANNOT BE RULED OUT. THE DETAILS OF THE TDS MADE ON SUCH PROVISIONS MADE AT THE END OF THE YEAR IS ALSO PROVIDED BY THE ASSE SSEE ON SAMPLE BASIS, CONTENDING THAT THE NUMBER OF ENTRIES ARE HUGE AND HENCE CANNOT BE PROVIDED IN FULL WITHIN LIMITED PERIOD. THE COMPLEX ITY OF THE ACCOUNTING ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 15 OF 39 ASPECT FOLLOWED BY THE ASSESSEE GIVES RISE TO THE N ON-VERIFICATION OF THE DEDUCTIONS CLAIMED UNDER THE INCOME TAX ACT. 15. THE AO CALLED FOR DETAILS OF PAYMENT OF TDS BU T THE ASSESSEE COULD NOT PRODUCE THE SAME. IN THE CIRCUMSTANCES, THE AO TREATED THE ASSESSEE AS AN ASSESSEE IN DEFAULT IN RESPECT OF TA XES NOT DEDUCTED AT SOURCE IN RESPECT OF PROVISION FOR EXPENSES MADE IN THE BOOKS OF ACCOUNTS AND ALSO LEVIED CONSEQUENT INTEREST ON TAXES NOT PA ID TO THE CREDIT OF THE CENTRAL GOVERNMENT. 16. BEFORE CIT(A), THE ASSESSEE EXPLAINED THE MANN ER IN WHICH PROVISION WAS CREATED IN THE BOOKS AND HOW THE SAME WAS REVERSED AND ACTUAL EXPENSES BOOKED IN THE PROFIT AND LOSS ACCOU NT AND THE POINT OF TIME AT WHICH TDS IS MADE AND PAID TO THE GOVERNMENT. BEFORE CIT(A), THE ASSESSEE PROVIDED A SUMMARY OF THE YEAR-END PROVISI ON FOR THE FY RELEVANT FOR AY 2007-08 AMOUNTING TO RS, 209,31,30, 953/-. SCRUTINY OF THE SAME REVEALED THAT THE PROVISION CONSTITUTED EXPENS ES SUCH AS COMMISSION TO SELLING AGENTS/ORC COMMISSION, SUB-CONTRACTING C HARGES, PROFESSIONAL & CONSULTANCY FEE, RENT, ETC. THE ASSESSEE PROVIDED A NOTE ON TRAIL OF EVENTS BETWEEN BOOKING OF YEAR-END PROVISIONS, SUBSEQUENT REVERSALS AND EFFECTING TDS ON VENDOR PAYMENTS. THE ASSESSEE CLA RIFIED THAT IN ORDER TO COMPREHEND THE ENTIRE MECHANISM, IT WAS PERTINENT T O NOTE THAT THE FOLLOWING EVENTS TOOK PLACE CHRONOLOGICALLY:- ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 16 OF 39 BOOKING OF THE EXPENSES PROVISION (AS OF THE FINA NCIAL YEAR-END); REVERSAL OF THE EXPENSES PROVIDED (IN THE SUBSEQU ENT FINANCIAL YEAR); ACTUAL BOOKING OF EXPENSE LIABILITIES (BASED ON V ENDOR INVOICES) AND TDS THEREON; AND PAYMENT OF TDS TO THE CREDIT OF CENTRAL GOVERNMEN T. 17. THE FOLLOWING CHART WAS PRODUCED BY THE ASSESSE E WITH REGARD TO COMMISSION TO SELLING AGENTS - ORC COMMISSION TO BUTTRESS THE ABOVE ARGUMENT:- TABLE 3 MONTH OF ENTRY AMOUNT OF PROVISIONS ACCRUED/ (REVERSED) IN RS.) ACTUAL EXPENSES BOOKED IN SUBSEQUENT YEAR AGAINST PROVISION TDS THEREON (IN RS.) MARCH 2007 1,33,84,537 (A) 1,33,84,537 JUNE 2007 (86,32,603) 89,71,547 5,07,693 JULY 2007 (20,49,382) 20,64,067 2,33,858 SEPT. 2007 (10,79,806) 10,79,806 1,22,344 OCT. 2007 (10,40,888) 10,40,888 1,17,934 NOV. 2007 (5,81,858) 5,67,025 64,243 (B) (1,33,84,536) 1,37,23,333 10,46,072 DIFFERENCE (A)-(B) 0 18. ACCORDING TO THE ASSESSEE,, IT WAS QUITE APPARE NT FROM THE ABOVE TABLE THAT THE ENTIRE PROVISIONS WERE BEING REVERSE D IN SUBSEQUENT YEARS, ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 17 OF 39 ACTUAL EXPENDITURE BASED ON INVOICES WERE BEING BOO KED AND TDS WAS BEING DEDUCTED AND DULY PAID TO THE CREDIT OF THE C ENTRAL GOVT. IN THIS CONNECTION, COPIES OF CHALLANS EVIDENCING PAYMENT O F TDS ON THE COMMISSION TO SELLING AGENTS/ORC COMMISSION TOTALIN G TO RS. 23,36,71,818/- (RS. 1,33,84,537/- + RS. 22,02,87,28 1/-) ON VARIOUS DATES WERE FURNISHED:- 05-05-2007 - RS. 13,96,863/- 07-06-2007 - RS. 16,43,674/- 06-08-2007 - RS. 16,53,150/- 06-09-2007 - RS. 1,00,94,276/- 05-10-2007 - RS. 38,67,182/- 06-11-2007 - RS. 16,15,951/- 06-12-2007 - RS. 40,50,902/- IT WAS FURTHER CLARIFIED THAT AT THE TIME OF MAKING THE YEAR-END PROVISIONS, THE SAME WAS BEING DISALLOWED BY THE APPELLANT IN T HE COMPUTATION STATEMENTS AND SUFFERED TAX IN THE YEAR IN WHICH TH E DISALLOWANCE WAS MADE. HOWEVER, IN THE SUBSEQUENT YEAR, THE EARLIER YEAR-END PROVISIONS WERE REVERSED BY CREDITING THE SAME TO THE PROFIT A ND LOSS ACCOUNT (IMPLYING AN INCOME) AS AND WHEN ACTUAL EXPENSES (V ENDOR LIABILITY) WERE BOOKED. TDS WAS DONE AT THE TIME OF ACTUAL EXPENSE BOOKING. AT THE TIME OF REVERSING THE PROVISIONS IN THE SUBSEQUENT YEAR, THESE PROVISIONS WERE CREDITED TO THE P & L A/C AND THE PROFIT FOR THE SU BSEQUENT YEAR WAS INFLATED TO THAT EXTENT. WHEN THE ACTUAL EXPENSES WERE BOOKE D (I.E. THE VENDOR LIABILITY), THE SAME WAS DEBITED TO THE P & L A/C, IT WAS POINTED OUT THAT ANY SHORT/EXCESS PROVISIONS WOULD THEREFORE AUTOMATICAL LY GET ADJUSTED IN THE ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 18 OF 39 P&L A/C. IN THE RETURN OF INCOME, THE DISALLOWANCE (MADE IN THE EARLIER YEAR) WAS CLAIMED AS AN ALLOWANCE SEPARATELY OWING TO THE TDS HAVING BEEN DONE IN THAT YEAR AND CONSEQUENTLY THERE WAS N O DOUBLE DEDUCTION CLAIMED IN THE ABOVE PROCESS. ACCORDING TO THE ASSE SSEE, IF THE ACTUAL EXPENSES BOOKED WERE NOT ALLOWED AS A DEDUCTION IN THE SUBSEQUENT YEAR, IT WOULD RESULT IN DOUBLE TAXATION OF THE SAME AMOU NT, ONCE IN THE YEAR WHEN THE PROVISION WAS MADE AND ALSO IN THE YEAR OF REVERSAL. THE ASSESSEE OPINED THAT IT WAS A FUNDAMENTAL RULE OF L AW THAT THE SAME INCOME COULD NOT BE TAXED TWICE. RELIANCE WAS PLACE D ON SUPREME COURT RULING IN THE CASE OF ITO, A WARD, LUCKNOW VS BAC HU LAL KAPOOR [60 ITR 74] WHEREIN THIS PRINCIPLE WAS CONSIDERED THAT THE PROVISIONS OF THE INCOME TAX ACT DID NOT ENVISAGE DOUBLE TAXATION OF SAME IN COME. 19. THE BASIS OF QUANTIFICATION OF THE PROVISION FO R EXPENSES WAS EXPLAINED BY THE ASSESSEE AS FOLLOWS:- 3.3 AS REGARDS THE BASIS FOR QUANTIFICATION OF TH E PROVISIONS FOR EXPENSES IN R/O WHICH DISALLOWANCES WERE MADE U/S 4 0(A)(IA) IN THE 4 AYS CONCERNED, THE APPELLANT, VIDE WRITTEN SU BMISSIONS DT. 23-11-2011, SUBMITTED THAT THERE WERE BROADLY TWO W AYS OF DETERMINING THE PROVISION AMOUNTS. FIRSTLY, IF THE EXPENDITURE WAS BY VIRTUE OF A CONTRACTUAL OBLIGATION, I.E., IF A PURCHASE ORDER HAD BEEN RAISED, THE PROVISION WAS MADE ON THE BASI S OF THE SAME. HOWEVER, THE VENDORS INVOICE WOULD NOT HAVE BEEN RECEIVED/ACCOUNTED FOR BY THE APPELLANT IN ITS ACCO UNTS PAYABLE SYSTEMS WHICH MAY BE EITHER BECAUSE THE INVOICES WE RE NOT DUE AS PER THE CONTRACT BETWEEN THE APPELLANT AND THE V ENDOR OR BECAUSE THE VENDOR HAD NOT MADE A CLAIM ON THE APPE LLANT. THEREFORE, PENDING A DEMAND MADE BY THE VENDORS ON THE ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 19 OF 39 APPELLANT, THE APPELLANT MERELY MADE ACCOUNTING PRO VISIONS IN ITS BOOKS OF ACCOUNTS BASED ON THE PURCHASE ORDERS AND ESTIMATES OF THE PROBABLE AMOUNTS THAT COULD BE RAISED ON THE AP PELLANT BY THE VENDORS. WITH REGARD TO THE BREAK-UP PROVIDED BY TH E APPELLANT ON ONE OF THE EXPENSES PERTAINING TO ORC COMMISSION PROVISION REVERSAL IN SEPT. 2007, SAMPLE COPIES OF PURCHASE O RDERS OF 2 PARTIES, VIZ., IRIS AND M/S WIPRO LTD. WERE CALLED FOR IN THE ABSENCE OF INVOICES TO SUBSTANTIATE THE APPELLANTS CLAIM. TILL DATE, NO EFFORTS WERE MADE TO PROVIDE COPIES OF EIT HER THE SAMPLE PURCHASE ORDERS OR THE INVOICES SUBSEQUENTLY RECEIV ED IN R/O THE ABOVE 2 PARTIES. 3.3.1 SECONDLY, IT WAS CONTENDED THAT FOR CERTAIN EXPENSES WHERE THERE WERE NO SPECIFIC INVOICES RECEIVED OR P URCHASE ORDER RAISED WHICH WERE INCURRED ON A RECURRING BASIS SUC H AS RENT, ETC., PROVISIONS WERE MADE BASED ON THE PAST YEARS DATA. FOR CERTAIN EXPENSES, IT WAS STATED THAT IF THE MONTHLY EXPENDI TURE WAS CONSTANT, THEN A PROVISION OF SAME AMOUNT WOULD BE MADE FOR THE LAST ACCOUNTING MONTH. FURTHER, IF THERE WAS A PROG RESSIVE INCREASE IN THE AMOUNT OF EXPENDITURE ON A MONTH-ON -MONTH BASIS OR YEAR-ON-YEAR BASIS, THE SAME PROGRESSION PERCENT AGE WAS CONSIDERED FOR ACCOUNTING THE PROVISION. THUS, ACCO RDING TO THE APPELLANT, A SCIENTIFIC METHOD WAS BEING FOLLOWED T O ARRIVE AT THE PROVISION AMOUNTS. HOWEVER, SINCE THERE WAS AN ELEM ENT OF ESTIMATION INVOLVED, THE PROVISIONS DID NOT PARTAKE THE NATURE OF A LIABILITY PAYABLE TO THE VENDORS (AT THE TIME OF MA KING THE PROVISIONS), THE SAME COULD NOT BE CONSIDERED AS IN COME IN THE HANDS OF THE VENDORS. ACCORDINGLY, THE APPELLANT CO NCLUDED THAT THE PROVISIONS OF TAX DEDUCTION AT SOURCE (TDS) W ERE NOT APPLICABLE. IN THIS CONTEXT, THE APPELLANT WAS DIRE CTED TO FURNISH INSTANCES OF EXPENSES INCURRED ON A RECURRING BASIS , INSTANCES OF PAST YEARS DATA RELIED UPON AS WELL AS A WRITE-UP O N CONSTANT EXPENSES SUITABLY BACKED BY CORROBORATIVE EVIDENCE. NONE OF THE ABOVE PARTICULARS WERE PROVIDED AT ANY POINT OF TIM E DURING APPELLATE PROCEEDINGS. 3.3.2 AS FOR THE CONSOLIDATED PROVISION A/C CALLED FOR IN R/O OF ALL 4 AYS WITH OPENING BALANCES, ENTRIES MADE RELAT ING TO TRANSACTIONS MADE DURING THE YEAR AND CLOSING BALAN CES, VIDE ITS SUBMISSIONS DT. 30-12-2011, THE APPELLANT PROVIDED AN ILLUSTRATION FOR SUB-CONTRACTING EXPENSE PROVISION CREATED FOR A Y 2007-08 TO ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 20 OF 39 THE TUNE OF RS. 87.03 CRORES COMPRISING OF THE FOLL OWING 4 AMOUNTS:- SUB-CONTRACTING - SO ACCRUAL RS. 39,52,94,762/- SUB-CONTRACTING - ITS ACCRUAL RS. 7,03,51,510 /- SUB-CONTRACTING - ITS ACCRUAL RS. 2,48,70,918 /- SUB-CONTRACTING - EXPORTS ACCRUAL RS. 37.98.73.4 72/- TOTAL RS. 87,03,90.662/- AT THE TIME OF ACCOUNTING THE VENDOR INVOICE, IN SO FAR AS TDS WAS CONCERNED IT WAS POINTED OUT THAT BROADLY THERE COULD BE FOUR POSSIBILITIES: - TDS APPLIES ON THE AMOUNT MENTIONED IN THE VENDOR INVOICE (AND ACCORDINGLY TDS IS MADE BY IBM) - TDS DOESNT APPLY ON THE VENDOR INVOICE OWING TO TH E VENDOR HAVING PROVIDED A NIL WITHHOLDING/LOWER WITHHOLDING CERTIFICATE FROM THE INCOME-TAX DEPARTM ENT AS PER SECTION 197 OF THE ACT. - TDS DOESNT APPLY ON THE VENDOR INVOICE AS THE VEND OR LIABILITY PERTAINS TO AMOUNTS ON WHICH TDS PROVISIO NS DONT APPLY (FOR E.G. IN THE CASE OF SUPPLY OF GOOD S, ETC.) - TDS DOESNT APPLY ON EXCESS PROVISIONS REVERSED. AT THE TIME OF ACCOUNTING THE VENDOR LIABILITIES AS ABOVE (IN THE SUBSEQUENT YEAR), ANY EXCESS PROVISION THAT WAS MAD E AS OF MARCH 3L OF THE LAST YEAR IS REVERSED. SINCE IT IS REVERSAL, NO TDS WAS REQUIRED AT THE TIME OF ACCOUNTING THE PROVISION IN THE PREVIOUS YEAR. 20. A RECONCILIATION STATEMENT FOR THE SUB-CONTRAC TING EXPENSE PROVISION MADE IN FY 2006-07 WAS FURNISHED AS UNDER:- ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 21 OF 39 TABLE 4 PARTICULARS AMOUNT (IN RS.) AMOUNT (IN RS.) YEAR END PROVISIONS AS PER TAX AUDIT REPORT (A) SUBSEQUENT PAYMENTS SUFFERING TDS SUBSEQUENT PAYMENTS ON WHICH TDS IS NOT APPLICABLE SUBSEQUENT VENDOR PAYMENTS FOR WHICH VENDOR HAS NIL WITHHOLDING CERTIFICATES TOTAL SUBSEQUENT PAYMENTS REVERSAL OF PROVISIONS WITH NO SUBSEQUENT PAYMENTS MISCELLANEOUS / EXCHANGE RATE DIFFERENCE TOTAL REVERSAL AND MISCELLANEOUS/ EXCHANGE RATE DIFFERENCE 63,43,23,399 . 19,22,10,319/- 19,58,393 ---------------- 3,87,03,702 31,94,849 87,03,90,662 . 82,84,92,111 . 4,L8,98,551 DIFFERENCE = (A) (B) (C) - THEREFORE, HAVING REMITTED THE TDS AMOUNT IN FY 07- 08, THE TDS DEMAND SHOULD NOT ARISE AND SHOULD BE DELETED. 3.3.3 A CONSOLIDATED CAS CERTIFICATE DT. 29-02-20 12 FOR THE AFOREMENTIONED YEARS (VIZ., AYS 2006-07 TO AY 2009- 10) WAS FURNISHED ALONG WITH THE APPELLANTS LETTER DT. 08- 03-2012 IN R/O A REVIEW CONDUCTED TO ASCERTAIN COMPLIANCE IN R/O TAX DEDUCTED AT SOURCE (TDS) AS APPROPRIATE IN THE IMMEDIATELY SU CCEEDING FINANCIAL YEARS ON SUCH EXPENSES. THE CA CERTIFIED THAT THE PROCEDURES PERFORMED SOLELY FOR THE SAID FINANCIAL YEARS WAS CARRIED OUT IN THE IMMEDIATELY SUCCEEDING FINANCIAL YEAR IN R/O SUB-CONTRACTING AND COMMISSION EXPENSES ONLY. ITS FIRST STEP WAS TO EXAMINE WHETHER THE EXPENSE PROVISION A CCRUALS MADE (WHICH WERE DISALLOWED U/S 40(A)(IA) OF THE AC T) WERE ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 22 OF 39 RECONCILED WITH THE SUBSEQUENT VENDOR PAYMENTS MADE AGAINST THESE PROVISIONS. THE MATCHING EXERCISE WAS DONE BA SED ON CERTAIN FACTORS SUCH AS DESCRIPTION AND PERIOD OF S ERVICES MENTIONED IN THE VENDOR INVOICES. IN THE SECOND STE P, ALL THE PAYMENTS FOR THE SERVICES PERTAINING TO PRIOR YEAR (INDENTIFIED IN STEP 1 ABOVE) WERE TRACED INTO THE ELECTRONICALLY F ILED TAX DEDUCTION AT SOURCE (TDS) STATEMENTS, TO IDENTIFY AND ESTABLISH THE TDS DONE ON THESE PAYMENTS. IT FINDINGS WERE RE PORTED IN THE ANNEXURE TO ITS REPORT WHICH IS REPRODUCED BELOW:- TABLE - 5(A) COMMISSION FY OF 40A DISALLOWA NCE AMOUNT AS PER TAX AUDIT REPORT SUBSEQUENT PAYMENTS RECONCILED REVERSAL OF PROVISION TOTAL COVER- AGE 2005-06 88,23,629 89,97,179 - 89,977,179 102.0% 2006-07 23,36,17,817 12,55,32,537 10,95,39,468 23,50,72,005 100.6% 2007-08 23,44,63,891 14,24,40,793 9,91,47,524 24,15,88,31 103.0% 2008-09 9,92,92,523 9,66,74,505 4,23,65,028 13,90,39,533 140.0% TABLE - 5(A) SUBCONTRACTING FY OF 40A DISALLOWA NCE AMOUNT AS PER TAX AUDIT REPORT SUBSEQUENT PAYMENTS RECONCILED REVERSAL OF PROVISION TOTAL COVER- AGE 2005-06 133,48,44,862 134,00,22,479 - 134,00,22,479 100.4% 2006-07 87,03,90,662 88,26,06,149 - 88,26,06,149 101.4% 2007-08 24,34,40,622 24,78,15,584 - 24,78,15,584 101.8% 2008-09 34,17,44,583 35,30,92,487 - 35,30,92,487 103.3% 21. THE CIT(A) HOWEVER DID NOT AGREE WITH THE SUBMI SSIONS OF THE ASSESSEE FOR THE FOLLOWING REASONS:- ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 23 OF 39 (I) UNDER MERCANTILE SYSTEM OF ACCOUNTING ACCRUAL OF LIABILITY FOR ANY EXPENDITURE IS NOT DEPENDENT OF RECEIPT OF INVOICE FROM THE PERSON TO WHOM PAYMENT FOR EXPENDITURE HAS TO BE MADE. THE A CCOUNTING PRACTICE FOLLOWED BY THE ASSESSEE WAS CONTRARY TO T HE MERCANTILE SYSTEM OF ACCOUNTING. (II) THE CLAIM OF THE ASSESSEE THAT IT CREATES PR OVISION IN THE BOOKS OF ACCOUNT ON AN ESTIMATED BASIS IN SOME CASES, ON A H ISTORICAL BASIS IN OTHER AND USING SOME SORT OF ARITHMETICAL OR GEO METRIC PROGRESSION IN OTHERS, WAS NOT ACCEPTABLE. THE ASS ESSEE HAD NOT ESTABLISHED THIS PLEA WITH CONCRETE EVIDENCE. THE CONCLUSION THEREFORE IS THAT THE ASSESSEE HAS FULL KNOWLEDGE O F WHAT IS DUE TO ITS VENDORS, SUB-CONTRACTORS, COMMISSION AGENTS ETC . THEREFORE THERE WAS NO NECESSITY TO CREATE PROVISION. (III) THE ARGUMENT REGARDING CHARGEABILITY TO TAX IN THE HANDS OF THE PAYEE OR THE TIME AT WHICH THE PAYEE RECOGNISES INC OME IN RESPECT OF THE PAYMENT RECEIVED FROM THE ASSESSEE WAS IRREL EVANT. THUS THE ORDER U/S.201(1) & 201(1A)OF THE ACT WERE UPHELD IN PRINCIPLE BY THE CIT(A). 22. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS PREFERRED THE PRESENT APPEALS BEFORE THE TRIBUNAL. ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 24 OF 39 23. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED C OUNSEL FOR THE ASSESSEE AND THE LEARNED DR. THE LEARNED COUNSEL F OR THE ASSESSEE AT THE OUTSET BROUGHT TO OUR NOTICE THAT PENDING DISPO SAL OF THE APPEALS, THE ASSESSEE HAD FURNISHED BEFORE THE AO, DETAILS REGAR DING THE ACTUAL PAYMENT OF TDS IN SUBSEQUENT FINANCIAL YEAR, ON THE PROVISIONS MADE IN THE VARIOUS FINANCIAL YEARS. THESE DETAILS WERE VE RIFIED BY THE AO. THE AO HAS ADDRESSED A LETTER TO THE DR IN WHICH THE AO AF TER VERIFICATION HAS FOUND THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE AT THE TIME WHEN THE PROVISION MADE IN ONE FINANCIAL YEAR IS SUBSEQUENTL Y REVERSED AND THE EXPENSE BOOKED IN THE SUBSEQUENT FINANCIAL YEAR. TH E FOLLOWING ARE THE CONTENTS OF THE SAID LETTER (COPY FILED BY DR IN CO URT) , IN SO FAR AS IT RELATES TO TAXES DEDUCTIBLE AT SOURCE. 3. DURING THE COURSE OF APPELLATE PROCEEDINGS BEF ORE THE HONBLE ITAT THE ASSESSEE COMPANY TOOK THE SAME PLE A THAT IT HAD DEDUCTED TAX AT SOURCE IN THE SUBSEQUENT YEAR O N ALL THE AMOUNTS THAT WAS DISALLOWED U/S. 40A(I) AND 40A(IA) AS AND WHEN THESE AMOUNTS WERE PAID. THE HONBLE ITAT THEREFORE DIRECTED THAT SUCH DETAILS BE PRODUCED BEFORE THE INCOME TAX OFFICER (TDS) FOR VERIFICATION. 4. AT THE REMAND STAGE THE ASSESSEE COMPANY HAS NO W SUBMITTED YEAR WISE DETAILS OF RENTAL CHARGES PAID, PROFESSIONAL CHARGES PAID, CONTRACT AMOUNTS PAID AND DETAILS OF OTHER PAYMENTS. THE DETAILS OF YEAR END PROVISIONS AS PER TAX AUDIT REPORT (DISALLOWED U/S. 40A(I) AND 40A(IA)), PAYMEN TS MADE IN SUBSEQUENT YEAR IN RESPECT OF THESE PROVISIONS AND DETAILS OF TAX DEDUCTED AT SOURCE ON SUCH PAYMENTS ALONG WITH PROO F OF DEPOSIT OF SUCH TDS INTO GOVT. ACCOUNT WERE CALLED FOR AND SYSTEMATICALLY VERIFIED. SINCE, THE TRANSACTIONS WE RE ENORMOUS IN RESPECT OF THESE FOUR ASSESSMENT YEARS, VERIFICATIO NS WERE CARRIED OUT RANDOMLY FOR DIFFERENT MONTHS FOR THESE ASSESSM ENT YEARS. ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 25 OF 39 AFTER THOROUGH VERIFICATION OF THE TRANSACTIONS IN RESPECT OF THE MONTHS SELECTED RANDOMLY AND AFTER ANALYSIS OF CONSOLIDATED ANNUAL FIGURES SEPARATELY FOR EACH SEC TIONS OF TDS, IT IS SEEN THAT THE AMOUNTS WHICH WERE SHOWN A S PROVISIONS AS ON 31 MARCH OF A PARTICULAR YEAR, WHE THER EITHER LIQUIDATED BY WAY OF PAYMENT OR WAS ADDED BA CK TO THE PROFIT AND LOSS ACCOUNT IN SUBSEQUENT YEAR. WHEREVE R PAYMENTS WERE MADE TAX HAS BEEN DEDUCTED AT SOURCE UNDER THE RELEVANT PROVISIONS OF THE IT ACT AND REMITTED TO THE GOVT. ACCOUNT. 5. THOUGH, THE TAX HAS BEEN DEDUCTED AT SOURCE AT THE TIME OF PAYMENTS IN RESPECT OF PROVISIONS MADE AS ON 3L MAR CH, IT IS BE STATED THAT IT WAS THE ASSESSEE COMPANYS RESPONSIB ILITY TO DEDUCT TAX AT SOURCE AND REMIT IT TO THE GOVT. ACCOUNT AS SOON AS ITEM OF EXPENDITURE IS DEBITED BY IT IN THE BOOKS OF ACCOUN TS. REFERENCE IS INVITED TO SUB SECTION 2 OF SECTION 194C, WHICH MAN DATES THAT THE ANY AMOUNT CREDITED TO ANY ACCOUNT WHETHER CALLED SUSPENSE ACCOUNT OR BY ANY OTHER NAME, IN THE BOOKS OF ACCO UNTS SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCO ME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SEC TION SHALL APPLY ACCORDINGLY. SIMILAR PROVISIONS / EXPLANATION IS AL SO TO BE FOUND IN OTHER SECTIONS RELATING TO TDS. THUS, IT CAN BE SEEN THAT THE ASSESSEE COMPANY HAS FAILED TO DEDUCT TAX AT SOURCE ON THE PROVISIONS MADE BY IT AS AT 31ST MARCH WITHIN THE S TIPULATED TIME. THE ASSESSEE COMPANY HAS DEDUCTED TAX AT SOURCE O N THESE AMOUNTS IN THE SUBSEQUENT YEAR AS AND WHEN THE SAME WERE PAID BY IT. THUS, IT IS LIABLE FOR CHARGING OF INTEREST U/S. 201(1A) FOR DELAYED DEDUCTION AND REMITTANCE OF TAX TO GOVT. AC COUNT. (EMPHASIS SUPPLIED) 24. IN VIEW OF THE ABOVE, THE DEMAND ON ACCOUNT OF TAX U/S.201(1) OF THE ACT, IN OUR VIEW, WILL NO LONGER SURVIVE. HOWEVER THE APPEALS WILL SURVIVE WITH REGARD TO THE LIABILITY OF THE ASSESSEE TO INT EREST U/S.201(1A) OF THE ACT. THEREFORE THE APPEALS IN SO FAR AS IT RELATES TO CH ALLENGE TO ORDER U/S.201(1) OF THE ACT HAVE TO BE ALLOWED. ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 26 OF 39 25. AS FAR AS THE QUESTION WHETHER THE TDS PROVISI ONS ARE ATTRACTED WHEN THE ASSESSEE MAKES A PROVISION FOR EXPENDITURE IN THE BOOKS OF ACCOUNTS, THE LEARNED COUNSEL FOR THE ASSESSEE MADE SUBMISSIONS WHICH ARE IDENTICAL TO SUBMISSIONS MADE BEFORE THE AO/CIT (A). HIS SUBMISSIONS WERE:- 1. WHEN PAYEE IS NOT IDENTIFIED THERE CAN BE NO CH ARGE U/S.4(1) OF THE ACT AND THEREFORE THERE CAN BE NO OBLIGATION TO DEDUCT TAX AT SOURCE. 2. THE RETURNS OF TDS TO BE FILED UNDER THE INCOME TAX RULES, 1962 CONTEMPLATES FURNISHING OF NAMES OF PAYEES. 3. JUDICIAL DECISIONS RECOGNISE THAT THERE CAN BE NO TDS OBLIGATION IN THE ABSENCE OF PAYEE. 4. IF THERE IS NO INCOME CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE, THERE CAN BE NO TDS OBLIGATION. TDS OBLIGATIONS AR ISE ONLY WHEN THERE IS INCOME. TDS OBLIGATIONS DO NOT ARI SE ON THE BASIS OF MERE PAYMENT, WITHOUT THERE BEING INCOME A ND CORRESPONDING LIABILITY OF THE PERSON RECEIVING PAY MENT FROM THE ASSESSEE TO PAY TAX. 26. THE LEARNED DR SUBMITTED AS FOLLOWS:- (1) THE ASSESSEE ON HIS OWN HAD DISALLOWED THE EX PENDITURE IN QUESTION U/S.40(A)(I) & 40(A)(IA) OF THE ACT. THE DISALLOWA NCE U/S.40(A)(I) & 40(A)(IA) OF THE ACT ARISE ONLY WHEN THERE EXISTS A LIABILITY TO DEDUCT TAX AT SOURCE IN TERMS OF CHAPTER-XVII-B OF THE ACT. T HE ASSESSEE HAVING ON HIS OWN DISALLOWED EXPENDITURE U/S.40(A)(I) & 40 (A)(IA) OF THE ACT ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 27 OF 39 CANNOT NOW TURN AROUND AND SAY THAT THERE WAS NO OB LIGATION TO DEDUCT TAX AT SOURCE. (2) THE ASSESSEE DOES NOT ACCOUNT FOR EXPENDITURE ON ACCRUAL BASIS BUT ON RECEIPT OF INVOICE. THIS CANNOT BE THE POINT OF TIME AT WHICH ACCRUAL OF EXPENDITURE CAN BE SAID TO HAPPEN. IN OTHER WOR DS THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT IN TUNE WITH THE MERCANTILE SYSTEM OF ACCOUNTING. (3) WHEN THE ASSESSEE CREDITS SUSPENSE ACCOUNT FO R PAYMENTS DUE TO VARIOUS PERSONS, SUCH CREDIT ITSELF IS TREATED AS C REDIT TO THE ACCOUNT OF THE PAYEE BY A DEEMING FICTION IN THE VARIOUS PROVI SIONS OF INCOME TAX. THE ASSESSEE CANNOT THEREFORE BE HEARD TO SAY THAT THE PAYEE IS NOT IDENTIFIED. EVEN IN SUCH A SITUATION THE ASSESSEE HAS TO COMPLY WITH THE TDS PROVISIONS. (4) THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSES SEE RESULTS IN POSTPONEMENT OF TIME AT WHICH TAX HAD TO BE REMITTE D TO THE CREDIT OF THE GOVERNMENT. THIS CAN BE SEEN FROM THE FACT THA T THE ASSESSEE IN SOME CASES IS FOUND TO BE LIABLE TO CHARGE OF INTER EST U/S.201(1A) OF THE ACT FOR ABOUT 84 MONTHS. THE QUESTION WHETHER THE ASSESSEE IS INDULGING IN A DELIBERATE EXERCISE IN THIS REGARD I S IRRELEVANT. THE FACT THAT THE REVENUE IS PUT TO LOSS BY REASON OF THE SY STEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND THE FACT THAT OTHERWIS E THE MONEY ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 28 OF 39 SHOULD HAVE REACHED THE COFFERS OF THE REVENUE MUCH EARLIER, IS SUFFICIENT TO UPHOLD THE LEVY OF INTEREST U/S.201(1 A) OF THE ACT. (5) WHEN THE ASSESSEE ARGUES THAT THE PAYEES ARE NOT IDENTIFIED, IT IS NOT OPEN TO THE ASSESSEE TO ALSO CONTEND THAT THERE IS NO ACCRUAL OF INCOME IN THE HANDS OF THE PAYEE OR THAT THE PAYMEN T IS NOT CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE IN INDI A. (6) THE CBDT CIRCULAR NO.3/2010 IS IN THE CONTEXT OF BANKS CREDITING INTEREST ON FIXED DEPOSITS OF CUSTOMERS AND THE DEC ISIONS RENDERED BY THE JUDICIAL FORUMS BASED ON THOSE CIRCULAR ARE ALL NOT RELEVANT AS THE SAME ARE RELEVANT ONLY IN THE CASE OF BANKS AND CAN NOT BE PRESSED INTO SERVICE IN OTHER CASES SUCH AS THE CASE OF THE ASSESSEE. 27. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. PROVISIONS OF SEC.40 OF THE ACT START WITH A NON OBSTANTE CLAUSE AND PROVIDES THAT, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIO NS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION'. SEC.40(A)(I) AND 40(A)(IA) OF THE ACT LISTS OF CERT AIN ITEMS OF EXPENDITURE AND CATEGORIES PAYEES AS RESIDENTS NON-RESIDENTS. IN RESPECT OF THE ITEMS OF SUCH EXPENDITURE THERE IF THERE IS AN OBLIGATION TO DEDUCT TAX AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDU CTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YE AR, THAN THE EXPENDITURE CANNOT BE CLAIMED AS A DEDUCTION. SEC. 200(1) APPEARS IN ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 29 OF 39 CHAPTER XVII-B OF THE ACT AND IT PROVIDES THAT ANY PERSON DEDUCTING ANY SUM IN ACCORDANCE WITH THE FOREGOING PROVISIONS OF THIS CHAPTER I.E., CHAPTER XVII-B SHALL PAY WITHIN THE PRESCRIBED TIME , THE SUM SO DEDUCTED TO THE CREDIT OF THE CENTRAL GOVERNMENT OR AS THE B OARD DIRECTS. SEC.201(1) OF THE ACT IS TRIGGERED WHEN IF ANY SUCH PERSON REF ERRED TO IN SECTION 200 DOES NOT DEDUCT THE WHOLE OR ANY PART OF THE TAX OR AFTER DEDUCTING FAILS TO PAY THE TAX AS REQUIRED BY OR UNDER THIS ACT, HE OR IT SHALL, WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE OR IT MAY INCUR, BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF THE TAX. THE CON TENTION OF THE LEARNED DR THAT THE ASSESSEE HAVING ADMITTED ITS DEFAULT U/S.4 0(A)(I) & 40(A)(IA) OF THE ACT, CANNOT IN PROCEEDINGS U/S.201(1) OF THE ACT, B E HEARD TO SAY THAT THERE WAS NO DEFAULT UNDER CHAPTER XVII-B OF THE ACT IS T HEREFORE CORRECT. THE DISABILITY U/S.40(A)(I) & 40(A)(IA) OF THE ACT, AN D THE LIABILITY AND SEC.201(1) OF THE ACT CANNOT BE DIFFERENT AND THEY ARISE OUT O F THE SAME DEFAULT. ONCE THERE IS A DISALLOWANCE U/S.40(A)(I) & 40(A)(IA) OF THE ACT, IT IS NOT POSSIBLE TO ARGUE THAT THERE WAS NO LIABILITY UNDER CHAPTER XVII-B OF THE ACT AND THEREFORE THE PROVISIONS OF SEC.201(1) OF THE ACT W ILL NOT BE ATTRACTED. 28. NOW LET US EXAMINE THE VARIOUS POINT OF TIME A T WHICH LIABILITY TO DEDUCT TAX AT SOURCE IS LAID DOWN IN THE VARIOUS PR OVISIONS OF THE ACT. SEC.192(1) FIXES THE POINT OF TIME WHEN PAYMENT MAD E IS IN THE NATURE OF SALARY AND THE POINT OF TIME AT WHICH TAX HAD TO BE DEDUCTED IS AT THE TIME OF MAKING PAYMENT. SEC.194 OF THE ACT FIXES THE PO INT OF TIME WHEN DIVIDEND IS PAID AND LAYS DOWN THAT OBLIGATION TO D EDUCT TAX AT SOURCE IS ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 30 OF 39 BEFORE MAKING ANY PAYMENT IN CASH OR BEFORE ISSUING ANY CHEQUE OR WARRANT OR BEFORE MAKING ANY DISTRIBUTION OR PAYMEN T TO A SHAREHOLDER. 29. SEC.194-C APPLIES WHEN PAYMENT IS MADE TO CONT RACTOR. THE POINT OF TIME AT WHICH TAX HAD TO BE DEDUCTED AT SOURCE I S AT THE TIME OF CREDIT TO THE ACCOUNT OF CONTRACTOR OR PAYMENT IN CASH OR CHE QUE, WHOEVER IS EARLIER. SUB-SECTION (2) OF SEC.194-C LAYS DOWN THAT WHERE A NY SUM REFERRED TO IN SUB-SECTION (1) IS CREDITED TO ANY ACCOUNT, WHETHER CALLED 'SUSPENSE ACCOUNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCO UNT OF THE 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 PROVISIO NS OF THIS SECTION SHALL APPLY ACCORDINGLY. SIMILAR PROVISION SUCH AS SEC. 194(2) EXISTS IN SEC.194- H EXPLANATION (II) OF THE ACT WHICH APPLIES WHEN TH E PAYMENT MADE IS IN THE NATURE OF COMMISSION OR BROKERAGE, IN SEC.194-J EXPLANATION (C ) WHEN PAYMENT MADE IS FEES FOR TECHNICAL OR PROFESSIONAL SERVICE AND SEC.195 EXPLN.-1 WHEN PAYMENT IS MADE TO NON-RESIDENT. THE REASON FOR INTRODUCTION OF PROVISIONS SUCH AS SEC.194(2) OF TH E ACT HAS BEEN EXPLAINED IN CBDT CIRCULAR NO.550 DATED 1.1.1990 AS FOLLOWS: 26.3 UNDER THE EXISTING PROVISIONS OF SECTION 193 OF THE INCOME- TAX ACT, TAX HAS TO BE DEDUCTED AT SOURCE BY THE PE RSON RESPONSIBLE FOR MAKING ANY PAYMENT IN THE NATURE OF INTEREST ON SECURITIES AT THE TIME OF PAYMENT. THE LIABILITY TO DEDUCT TAX AT SOURCE WAS BEING POSTPONED BY MAKING A PROVISION FO R SUCH PAYMENT. IN ORDER TO PREVENT THE POSTPONEMENT OF LI ABILITY TO DEDUCT TAX AND PAYMENT TO THE CREDIT OF THE CENTRAL GOVERNMENT, THE FINANCE ACT HAS PROVIDED THAT TAX WILL BE DEDUC TED AT SOURCE EITHER AT THE TIME OF CREDIT TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF, WHICHEVER IS EARLIER. FOR THIS PURPOSE, ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 31 OF 39 CREDIT TO ANY SUSPENSE ACCOUNT OR ANY OTHER ACCOUNT , BY WHATEVER NAME CALLED, SHALL BE DEEMED TO BE A CREDI T OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE. (EMPHASIS SUPPLIED) 30. IT IS THUS CLEAR FROM THE STATUTORY PROVISIONS THAT THE LIABILITY TO TAX AT SOURCE EXISTS WHEN THE AMOUNT IN QUESTION IS CREDIT ED TO A SUSPENSE ACCOUNT OR ANY OTHER ACCOUNT BY WHATEVER NAME CALL ED, WHICH WILL ALSO INCLUDE A PROVISION CREATED IN THE BOOKS OF ACCOU NTS. THEREFORE IT IS NOT POSSIBLE FOR THE ASSESSEE TO ARGUE THAT THERE WAS N O ACCRUAL OF EXPENDITURE IN ACCORDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNT AND THEREFORE THE TDS OBLIGATIONS DO NOT GET TRIGGERED. 31. WITH REGARD TO THE ARGUMENT OF THE LEARNED COU NSEL FOR THE ASSESSEE THAT THERE IS NO ACCRUAL OF EXPENDITURE AS PER THE MERCANTILE SYSTEM OF ACCOUNTING AND THAT THE PAYEE IS NOT IDEN TIFIED, WE AGREE WITH THE CONCLUSIONS OF THE CIT(A) ON THIS ASPECT. THE CIT( A) HAS RIGHTLY HELD THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING ACCRUAL O F LIABILITY FOR ANY EXPENDITURE IS NOT DEPENDENT OF RECEIPT OF INVOICE FROM THE PERSON TO WHOM PAYMENT FOR EXPENDITURE HAS TO BE MADE AND THAT ACC OUNTING PRACTICE FOLLOWED BY THE ASSESSEE WAS CONTRARY TO THE MERCAN TILE SYSTEM OF ACCOUNTING. THE CLAIM OF THE ASSESSEE THAT IT CRE ATES PROVISION IN THE BOOKS OF ACCOUNT ON AN ESTIMATED BASIS IN SOME CASE S, ON A HISTORICAL BASIS IN OTHER AND USING SOME SORT OF ARITHMETICAL OR GEOMETRIC PROGRESSION IN SOME OTHER CASES WAS NOT ACCEPTABLE. THE ASSESS EE HAD NOT ESTABLISHED THIS PLEA WITH CONCRETE EVIDENCE. THE CONCLUSION OF THE CIT(A) ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 32 OF 39 THAT THE ASSESSEE HAS FULL KNOWLEDGE OF WHAT IS DUE TO ITS VENDORS, SUB- CONTRACTORS, COMMISSION AGENTS ETC. THEREFORE THER E WAS NO NECESSITY TO CREATE PROVISION IN OUR VIEW IS JUSTIFIED IN THE FA CTS AND CIRCUMSTANCES OF THE PRESENT CASE. 32. WITH REGARD TO THE ARGUMENT OF THE LEARNED COUN SEL FOR THE ASSESSEE THAT THERE IS NO CHARGE U/S.4(1) OF THE ACT IN THE HANDS OF THE PAYEE AND THEREFORE THE TDS PROVISIONS ARE NOT TRIGGERED, WE FIND THAT CHAPTER XVII OF THE ACT DEALS WITH COLLECTION AND RECOVERY OF TAX. SEC.190(1) PROVIDES THAT NOTWITHSTANDING THAT THE REGULAR ASSESSMENT IN RES PECT OF ANY INCOME IS TO BE MADE IN A LATER ASSESSMENT YEAR, THE TAX ON SUCH INCOME SHALL BE PAYABLE BY DEDUCTION OR COLLECTION AT SOURCE OR BY ADVANCE PAYMENT. SEC.190(2) OF THE ACT PROVIDES THAT NOTHING IN SEC.190 SHALL PREJUDICE THE CHARGE OF TAX ON SUCH INCOME UNDER THE PROVISIONS O F SEC.4(1) OF THE ACT. THE STATUTORY PROVISIONS THEREFORE CLEARLY ENVISAGE COLLECTION AT SOURCE DE HORS THE CHARGE U/S. 4(1) OF THE ACT. THE SUM COLLECTED BY WAY OF TAX COLLECTION AT SOURCE IS APPROPRIATED AS TAX PAID BY THE PAYEE ONLY ON ASSESSMENT IN THE HANDS OF THE PAYEE. SEC.195 HOW EVER USES THE EXPRESSION CHARGEABLE TO TAX. IN THE PRESENT CAS E, IT IS NOT THE CASE OF THE ASSESSEE THAT PAYMENTS MADE TO NON-RESIDENTS AR E NOT CHARGEABLE TO TAX NOR HAS THE ASSESSEE BEEN ABLE TO DEMONSTRATE A S TO HOW PAYMENT MADE TO NON-RESIDENT IS NOT CHARGEABLE TO TAX. THE ASSESSEE IS A PERSON MAKING PAYMENT AND THE SIMPLE OBLIGATION CAST UPON HIM IS TO DEDUCT A SUM SPECIFIED BY THE ACT FROM AND OUT OF THE PAYMEN T AND REMIT TO THE ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 33 OF 39 CREDIT OF THE CENTRAL GOVERNMENT. THE PERSON MAKIN G PAYMENT AFTER DEDUCTION OF TAX AT SOURCE GETS A VALID DISCHARGE I N LAW FOR THE ENTIRE AMOUNT PAID. 33. AS RIGHTLY CONTENDED BY THE LEARNED DR, THE CB DT CIRCULAR NO.30/2010 IS A SPECIFIC CIRCULAR APPLICABLE IN THE CASE OF BANKS AND ISSUED UNDER PECULIAR CIRCUMSTANCES. THE ASSESSEE CANNOT TAKE SHELTER UNDER THE SAID CIRCULAR. 34. THE ARGUMENT THAT TDS PROVISIONS OPERATE ON IN COME AND NOT ON PAYMENT, IN THE FACTS AND CIRCUMSTANCES OF THE PRES ENT CASE, IS ERRONEOUS. AS WE HAVE ALREADY SEEN SEC.194C, 194J AND 195, WHI CH ARE THE SECTIONS APPLICABLE IN THE PRESENT CASE, DOES NOT USE THE EX PRESSION, INCOME. THE ABOVE SECTIONS USE THE EXPRESSION SUM AND TAX DED UCTION HAS TO BE ON THE SUM SO PAID. SEC.194H AND SEC.194-I DEAL WIT H TDS OBLIGATION ON PAYMENT OF COMMISSION AND RENTAL INCOME. THESE PAY MENTS BY ITS NATURE ARE SPECIFIC AND THE ENTIRE PAYMENT IS ATTRIBUTABLE TO COMMISSION OR RENT AND THEREFORE THE COMMISSION AND RENT PAID IS TREAT ED AS INCOME AND THEREFORE THE EXPRESSION INCOME BY WAY OF COMMISSIO N OR RENT IS FOUND IN THESE SECTIONS. MOREOVER AS PERSON RESPONSIBLE FOR MAKING PAYMENT, IT IS THE DUTY OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. SEC.194C, 194-J, 194-H AND 194-I DO NOT USE THE EXPRESSION CHARGEABLE TO TAX. AS WE HAVE ALREADY SEEN, IT IS NOT THE CASE OF THE ASSESSEE TH AT THE PAYMENTS ARE NOT CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE. AS WE HAVE ALREADY SEEN, THE ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 34 OF 39 ASSESSEE DEDUCTED TAX ON THE PROVISION MADE FOR VAR IOUS EXPENSES IN THE SUBSEQUENT FINANCIAL YEARS WHEN THE PROVISION ENTRI ES WERE REVERSED. THE ASSESSEE THEREFORE CANNOT TAKE A PLEA THAT THE PAYM ENTS IN QUESTION ARE NOT CHARGEABLE TO TAX AND THEREFORE THERE WAS NO OB LIGATION ON ITS PART TO DEDUCT TAX AT SOURCE. 35. WE WILL NOW DEAL WITH THE VARIOUS CASE LAWS ON WHICH THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE. IN DCIT VS. M/S.TELCO CONSTRUCTION EQUIPMENT CO.LTD., ITA NO.478/BANG/201 2 FOR AY 07-08 ORDER DATED 7.3.2014, THE QUESTION FOR CONSIDERATIO N WAS OBLIGATION TO DEDUCT TAX AT SOURCE IN RESPECT OF PROVISION CREATE D IN THE BOOKS TOWARDS COMMISSION PAYABLE UNDER SEC.194-H OF THE ACT. TH E COMMISSION AGENT HAD UNDERTAKEN TO SELL PRODUCT, COLLECT AMOUNTS FRO M CUSTOMERS AND ALSO OBTAIN C FORMS. THE SALE THROUGH THE AGENT HAD CON CLUDED. THE COMMISSION PAYABLE WAS SHOWN AS PROVISION SINCE T HE AGENT HAD TO COLLECT THE AMOUNTS FROM CUSTOMERS AND ALSO OBTAIN C FORMS. THE TRIBUNAL HELD IN PARA-6 OF THE AFORESAID ORDER THAT THE ASSESSEE HAD CREDITED THE AMOUNT TO A PROVISION ACCOUNT AND NOT TO THE AGENTS ACCOUNT AND THEREFORE PROVISIONS OF SEC.194H OF THE ACT ARE NOT ATTRACTED. THE TRIBUNAL ALSO HELD THAT THE AGENT WOULD GET A VESTE D RIGHT TO RECEIVE COMMISSION ONLY WHEN THEY FULFILL THE OBLIGATIONS U NDER THE AGREEMENT. EXPLN.(II) TO SEC.194H OF THE ACT WAS NEITHER BROU GHT TO THE NOTICE OF THE TRIBUNAL, NOR WAS THAT PROVISION CONSIDERED BY THE TRIBUNAL. IN THAT SENSE IT ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 35 OF 39 CAN BE SAID THAT THE PRECEDENT IS SUB SILENTIO AND THEREFORE NOT BINDING. BESIDES THE ABOVE, IN THE PRESENT CASE THE ASSESSEE S CLAIM THAT THERE WAS NO ACCRUAL OF LIABILITY, AS WE HAVE ALREADY SEEN IS NOT CORRECT. 36. THE NEXT DECISION ON WHICH THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE WAS THAT OF THE ITAT PUNE BENCH IN THE CASE OF DCIT VS. YEOTA MERCHANTS CO-OP.BANK LTD., ITA NO.805/PN/2011 FOR AY 07-08 ORDER DATED 31.8.2012 . IN THE AFORESAID CASE PROVISION FOR AUDIT FEES W AS DISALLOWED U/S.40(A)(IA) OF THE ACT FOR NON-DEDUCTI ON OF TAX AT SOURCE U/S.194J OF THE ACT. THE AUDIT FEE IN QUESTION WAS PAYABLE TO AUDITORS WHO ARE APPOINTED BY THE CO-OPERATIVE DEPARTMENT, AFTER THE END OF THE RELEVANT PREVIOUS YEAR. THE TRIBUNAL FOUND THAT SUCH AUDIT FEE WAS A STATUTORY LIABILITY PAYABLE AS PER THE PROVISIONS OF THE LAW OF STATE OF MAHARASHTRA APPLICABLE FOR STATE CO-OPERATIVE SOCIETIES. IT WA S THEREFORE HELD THAT THERE WAS NEITHER ACCRUAL OF LIABILITY NOR WAS THE PAYEE KNOWN AND THEREFORE TDS PROVISIONS WERE NOT IMPLEMENTED DUE TO PECULIAR SIT UATION AND THEREFORE THE DISALLOWANCE U/S.40(A)(IA) OF THE ACT WAS DELETED. IN THE PRESENT CASE, AS WE HAVE ALREADY SEEN, THERE IS NOTHING TO SHOW THAT THERE WAS NO ACCRUAL OF LIABILITY NOR WAS THERE ANY STATUTORY LIABILITY THA T EXISTED. 37. THE NEXT DECISION ON WHICH THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE WAS THE DECISION OF ITAT BANGALORE IN THE CASE OF BOVIS LEND LEASE (I) PVT.LTD. VS. ITO ITA NOS. 636/BANG/2 008 FOR AY 2003-04 TO 2005-06, ORDER DATED 28.8.2009 . THE FACTS OF THE CASE WERE ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 36 OF 39 THAT THE ASSESSEE ENGAGED A NON-RESIDENT FOR RENDER ING MANAGEMENT SERVICES. THE ASSESSEE CREDITED THE SUM PAYABLE TO NON-RESIDENT TO AN OUTSTANDING EXPENSES ACCOUNT. AS PER THE AGREEMENT WITH THE NON- RESIDENT HAD TO SUBMIT A STATEMENT OF SERVICE CHARG ES ALONG WITH INVOICE AND 30 DAYS FROM RECEIPT OF INVOICE THE ASSESSEE HA D TO PAY THE SUMS TO THE NON-RESIDENT. THE SERVICES WERE RENDERED BY T HE NON-RESIDENT AND SUMS DUE TO THE NON-RESIDENT WERE CREDIT IN AN OUTS TANDING EXPENSES ACCOUNT. THE ACCOUNT OF THE NON-RESIDENT WAS HOWEV ER CREDITED AFTER RECEIPT OF INVOICE WHICH WAS IN A LATER FINANCIAL Y EAR. THE ASSESSEE HAD OBTAINED ORDER U/S.197 OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE AND REMITTED THE AMOUNT TO THE NON-RESIDENT WITHOUT DED UCTION OF TAX AT SOURCE. THE REVENUE INITIATED PROCEEDINGS U/S.201(1) OF THE ACT ON THE GROUND THAT THE CERTIFICATE U/S.197 WAS NOT VALID AND THAT THE ASSESSEE WAS BOUND TO DEDUCT TAX AT SOURCE AT THE TIME OF CREDIT TO OUTST ANDING EXPENSE ACCOUNT. THE TRIBUNAL HELD THAT THE MANAGEMENT SERVICE FEE W AS NOT TAXABLE AND THEREFORE THERE WAS NO TDS OBLIGATION. THE LEARNED COUNSEL FOR THE ASSESSEE RELIES ON AN OBSERVATION IN PARA 88 OF THI S ORDER WHEREIN THE TRIBUNAL HAS OBSERVED THAT APPLICATION U/S.197 OF T HE ACT FOR NON-DEDUCTION OF TAX AT SOURCE NEED NOT BE MADE AT THE TIME OF CR EDIT OR PAYMENT, WHOEVER IS EARLIER AND CAN BE MADE BELATEDLY ALSO. FROM THIS PROBABLY HE WANTS TO CONCLUDE THAT TDS OBLIGATION ARISES ONLY A T THE TIME OF CREDIT TO THE ACCOUNT OF PAYEE OR ACTUAL PAYMENT WHICHEVER IS EAR LIER. THIS DECISION, IN OUR VIEW, IS NOT APPLICABLE TO THE PRESENT CASE. A S WE HAVE ALREADY SEEN, ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 37 OF 39 THE LAW PROVIDES FOR A DEEMING FICTION FORE E.G. SE C.194C(2), DEEMING CREDIT TO A SUSPENSE ACCOUNT AS A CREDIT TO THE ACC OUNT OF THE PAYEE. THIS FICTION IS NEITHER CONSIDERED NOR DEALT WITH ANY OF THE ORDERS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE. 38. THE NEXT DECISION CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE IS THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S.BHARATI AIRTEL LIMITED ITA NO.637-644 OF 2013 D ATED 14.8.2014 . IN THIS DECISION THE QUESTION WAS WHETHER THE DIFFE RENCE BETWEEN THE MAXIMUM RETAIL PRICE (MRP) AND THE PRICE AT WHICH P REPAID CARDS USED IN CELLULAR PHONES ARE SOLD TO A DEALER IS COMMISSION ON WHICH BHARATI AIRTEL LTD., HAD TO DEDUCT TAX AT SOURCE U/S.194-H OF THE ACT. THE HONBLE KARNATAKA HIGH COURT IN PARA-63 OBSERVED THAT WHERE EXISTENCE OF INCOME IN THE HANDS OF THE PAYEE IS ABSENT THERE CAN BE NO TDS OBLIGATION. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANC E ON THE ABOVE OBSERVATION. IN OUR VIEW THE QUESTION BEFORE THE COURT WAS DIFFERENT AND THE ISSUE WITH WHICH WE ARE CONCERNED IN THE PRESEN T APPEALS WAS NEVER UNDER CONSIDERATION BY THE HONBLE HIGH COURT. IT IS POSSIBLE TO PICK WORDS FROM A DECISION AND USE IT OUT OF CONTEXT. 39. IN THE CASE OF UCO BANK VS. UNION OF INDIA & OTHERS W.P.(C) 3563/2012 DATED 11.11.2014 , THE QUESTION BEFORE THE HONBLE DELHI HIGH COURT WAS AS TO WHETHER THE BANK IN WHICH DEPOSITS ARE KEPT BY THE REGISTRAR GENERAL OF DELHI HIGH COURT PURSUANT TO O RDERS OF COURT, SHOULD ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 38 OF 39 DEDUCT TAX AT SOURCE U/S.194A OF THE ACT. THE HON BLE COURT HELD THAT REGISTRAR GENERAL WAS NEITHER THE PAYEE NOR RECIPIE NT OF INCOME AND THAT THE FUNDS KEPT IN DEPOSIT ARE FUNDS WHICH ARE CUSTODIA LEGIS . THE HONBLE COURT OBSERVED THAT IF TDS IS DEDUCTED THAT WOULD A MOUNT TO RECOVERY OF TAX WITHOUT THE CORRESPONDING INCOME BEING ASSESSED IN THE HANDS OF ANY ASSESSEE. IN THE ABSENCE OF AN ASCERTAINABLE ASSES SEE THE MACHINERY OF RECOVERING TAX BY DEDUCTION OF TAX AT SOURCE BREAKS DOWN BECAUSE IT DOES NOT AID THE CHARGE OF TAX U/S.4 OF THE ACT BUT TAKE S A FORM OF A SEPARATE LEVY, INDEPENDENT OF OTHER PROVISIONS OF THE ACT WH ICH IS NOT PERMISSIBLE. IN OUR VIEW THE AFORESAID OBSERVATIONS ARE NOT APPLICA BLE TO THE PRESENT CASE. AS WE HAVE ALREADY SEEN, THE ASSESSEE IS FULLY AWAR E OF THE PAYEE BUT POSTPONES CREDIT TO THE ACCOUNT OF THE PAYEE FOR WA NT OF RECEIPT OF INVOICE. WE ARE, THEREFORE, OF THE VIEW THAT THE RATIO LAID DOWN IN THE AFORESAID DECISION WILL NOT BE ANY ASSISTANCE TO THE PLEA OF THE ASSESSEE BEFORE US. 40. THE LEARNED COUNSEL FOR ASSESSEE RELIED ON SOM E DECISIONS OF ITAT BENCHES WHERE IN THE CASE OF BANKS, TDS OBLIGATION WAS HELD TO BE NOT APPLICABLE BASED ON CIRCULAR NO.30/2010. WE HAVE A LREADY HELD THAT THE SAID CBDT CIRCULAR IS APPLICABLE TO BANKS AND CANNO T BE TAKEN ADVANTAGE BY THE ASSESSEE WHO IS NOT A BANK. WE ARE THEREFOR E NOT DISCUSSING THE SAID DECISIONS. 41. FOR THE REASONS GIVEN ABOVE, WE DO NOT FIND AN Y MERIT IN THE APPEALS THAT RELATE TO CHALLENGE OF LEVY OF INTERES T U/S.201(1A) OF THE ACT. ITA NO.749 TO 752/B/12 AND 1588 TO 1591/B/12 PAGE 39 OF 39 THE APPEALS, IN SO FAR AS IT RELATES TO HOLDING THE ASSESSEE AS AN ASSESSEE IN DEFAULT U/S.201(1) OF THE ACT ARE HOW EVER ALLOWED. 42. IN THE RESULTS, THE APPEALS THAT RELATE TO CHA LLENGE OF LEVY OF INTEREST U/S.201(1A) OF THE ACT ARE DISMISSED. THE APPEALS, IN SO FAR AS IT RELATES TO HOLDING THE ASSESSEE AS AN ASSESSEE IN DEFAULT U/ S. 201(1) OF THE ACT ARE HOWEVER ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF MAY , 2015 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 14 TH MAY , 2015 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR/ SENIOR PRIVATE SECRETARY ITAT, BANGALORE.