No penalty for non-deduction of tax at year-end if amount payable to payees wasn’t identifiable: ITAT

Case Details: ACIT v. Parsons Brinckershoff India (P.) Ltd. - [2022] 140 taxmann.com 645 (Delhi-Trib.)

Judiciary and Counsel Details

• • R.K. Panda, Accountant Member & Kul Bharat, Judicial Member
  • Divyanshu Agarwal and Akarsh Gard, Advs. for the Appellant.
  • Parikshit Singh, Sr. DR for the Respondent.

Facts of the Case

Assessee was a company engaged in the business of providing engineering consultancy services, supply of manpower services, and providing multidisciplinary consultancy services.

Assessee was informed by the Assessing Officer that there was a failure on part of assessee to deduct tax at the source. A show cause notice was issued by AO asking the assessee as to why penalty under section 271C read with section 274(1) should not be imposed.

Assessee explained that it was not a case of non-deduction of tax at all. The assessee had duly deducted and deposited the taxes with the government treasury in the subsequent years when the liability to pay such expenses was crystallized on receipt of invoices.

Matter reached before the CIT(A) wherein the ruling was given in favour of assessee. Aggrieved-AO filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal had upheld that order of CIT(A) wherein it was held that no income had accrued to the payees and a mere ad-hoc provision was made in the books of accounts at the year-end. The existence/accrual of income in the hands of the payee is a pre-condition to fasten the liability of tax deduction at source in the hands of the payer.

In the instant case, the exact amount payable to the payees was not identifiable, and therefore, no liability to deduct tax at source arose. The mere fact that the taxes have not been deducted on the year-end provision but have been subsequently deducted and deposited upon crystallization of liability to pay the expenses will not automatically justify the imposition of penalty under section 271C.

Thus, the assessee was prevented by a reasonable cause to withhold taxes on the year-end provisions.

List of Cases Referred to

• • ITO v. DLF Southern Homes (P.) Ltd. 2017 SCC Online ITAT 148 (para 6)
  • Dy. CIT v. Telco Construction Equipment Co. Ltd. [IT Appeal No. 478 (Bang.) of 2012, dated 7-3-2014] (para 6).