SOCOMES INDIA PRIVATE LIMITED,HARAYANA V. DY. CIT TDS CIRCLE, GURGAON

ITA 5115/DEL/2025

AI Insights

The case involves M/s. SOCOMEC India Pvt. Ltd, which appealed against the orders of the Deputy Commissioner of Income Tax, TDS Circle, Gurgaon, and the Commissioner of Income Tax (Appeals), Bhubaneswar. The dispute centered on whether the appellant should be considered an 'assessee in default' for not deducting tax at source on certain provisions for expenses made in the accounting year 2018-19. The appellant had made a voluntary disallowance of 30% on these provisions under Section 40(a)(ia) of the Income-tax Act, 1961, despite not crediting the accounts of the payees within the accounting period. The lower authorities treated this voluntary disallowance as a basis for default under Section 201(1) and imposed interest under Section 201(1A). The Tribunal, referencing decisions from various Tribunals and a specific case of Mahindra and Mahindra Ltd., found in favor of the appellant, stating that the mere act of making a voluntary disallowance does not constitute default under Section 201(1).

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 840087 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2018-2019
• Appeal Filed On: 22-08-2025
• Other Referred Cases: Mahindra and Mahindra Ltd. v. Dy. CIT [2020] 117 taxmann.com 518
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANKUSH KALRA
• Keywords: TDS
• Section: 201(1); 40(a)(ia)

Judgement Text

"INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 5115/Del/2025 (Assessment Year: 2018-19) M/s. SOCOMEC India Pvt. Ltd, Plot NO. 756, Pace City-II, Sector-37, Gurgugram Vs. Dy. CIT, TDS Circle, Gurgaon (Appellant) (Respondent) PAN: AAECS2270D Assessee by : None Revenue by: Ms. Ankush Kalra, Sr. DR Date of Hearing 17/02/2026 Date of pronouncement 25/02/2026 O R D E R PER M. BALAGANESH, AM 1. The appeal in ITA No.5115/Del/2025 for AY 2018-19, arises out of the order of the ld. Commissioner of Income Tax (Appeals)/ Addl/ JCIT(A), Bhubaneswar [hereinafter referred to as ‘ld. JCIT(A)’, in short] dated 25.06.2025 against the order of assessment passed u/s 201 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 31.10.2023 by the Assessing Officer, DCIT, TDS Circle, Gurgaon (hereinafter referred to as ‘ld. AO’). 2. The only issue to be decided in this appeal is as whether the ld CIT(A) was justified in treating the assessee as an ‘assessee in default’ in terms of Section 201(1) of the Act and consequentially interest u/s 201(1A) of the Act in respect of voluntary disallowance made by the assessee in the return of income u/s Printed from counselvise.com ITA No. 5115/Del/2025 M/s. SOCOMEC India Pvt. Ltd Page | 2 40(a)(ia) of the Act in respect of provision made for expenses, in the facts and circumstances of the instant case. 3. An adjournment letter was received from the office of the assessee vide letter dated 16.02.2026. Since the issue involved is small, the bench proceeded with the appeal and disposed of the same on hearing the ld DR and after perusing the materials available on record. 4. The assessee is a company engaged in the business of manufacturing of Switch gears and UPS systems. It is not in dispute that the assessee had made certain provision for expenses by not crediting to the concerned account of the payees or by identifying the names of the payees. But since those expenses have been debited in the profit and loss account, the assessee voluntarily disallowed 30% of those expenses u/s 40(a)(ia) of the Act in the return of income. The practice of the assessee is as and when the bills are received from the concerned vendors, the assessee would deduct tax at source while giving credit to the account of the concerned payee and remit their TDS within the due date to the account of the Central Government. The bills were received from the vendors after the end of the accounting period. Hence, the deduction of tax at source and remittance to the Central Government account had been made in subsequent assessment year by the assessee in respect of services received by the assessee during the year under consideration for which provision for expenses have been made by the assessee without giving corresponding credit to the account of the concerned payee. There are decisions of various Tribunals favouring the assessee which had held that since the account of the payee is not identifiable and since there was no credit to the account of the payee as at the end of the previous year in respect of provision for expenses, there would be no Printed from counselvise.com ITA No. 5115/Del/2025 M/s. SOCOMEC India Pvt. Ltd Page | 3 obligation on the part of the payer to deduct tax at source and consequently, there would be no disallowance u/s 40(a)(ia) of the Act. Despite these rulings, the assessee, on a conservative basis, proceeded to make disallowance u/s 40(a)(ia) of the Act @ 30% of such expenses on year end provision for expenses in the return of income as a mark of abundant caution and in order to avoid protracted litigation thereon. Based on this suo moto disallowance made by the assessee in the return, the ld TDS Officer treated the assessee as an ‘assessee in default’ and proceeded to collect the tax u/s 201(1) of the Act in the sum of ₹5,32,140/- and consequential interest u/s 201(1A) of the Act amounting to ₹3,56,534/-, vide order u/s 201(1) /201(1A) of the Act dated 30.10.2023 on the ground that the voluntary disallowance made u/s 40a(ia) would automatically result in treating the assessee as an ‘assessee in default’ in terms of Section 201(1) of the Act and consequently of interest u/s 201(1A) of the Act. This action of the ld AO was of upheld by the ld CIT(A). 5. The facts narrated above are not in dispute before us. The assessee had indeed given the complete details of amounts being credited to the account of the concerned payee in subsequent year after due deduction of tax at source and remittance of the said TDS to the account of the Central Government. The assessee had also given proper explanation as to why no credit was given to the account of the concerned payee as on 31.03.2018. Merely because suo moto disallowance has been made u/s 40(a)(ia) of the Act in the computation of income, such sum would not automatically result in assessee being treated as ‘assessee in default’ in terms of section 201(1) of the Act and consequential levy of interest u/s 201(1A) of the Act. The assessee had only made suo moto disallowance on a conservative basis u/s 40(a)(ia) of the Act, In fact, the coordinate bench of Mumbai Tribunal in the case of Mahindra and Mahindra Ltd. Printed from counselvise.com ITA No. 5115/Del/2025 M/s. SOCOMEC India Pvt. Ltd Page | 4 v. Dy. CIT reported in [2020] 117 taxmann.com 518 dated 19.06.2020 had decided this issue in favour of the assessee holding that there would be no disallowance u/s 40(a)(ia) of the Act in respect of the year end provision where the payee is not identifiable. Hence, there is absolutely no scope for the assessee to be treated as an ‘assessee in default’ in terms of Section 201 of the Act. Hence, there cannot be any demand raised on the assessee u/s 201(1) of the Act and consequential interest u/s 201(1A) of the Act. Accordingly, the grounds raised by the assessee are allowed. 6. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 25/02/2026. -Sd/- -Sd/- (MAHAVIR SINGH) (M. BALAGANESH) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 25/02/2026 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Printed from counselvise.com "