TDS need not be paid on year end provisions for expenses not fully converting into actual expenses:

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TDS need not be paid on year end provisions for expenses not fully converting into actual expenses:

Toyota Kirloskar Motor (P) Ltd [TS-249-HC-2021(KAR)]

Short overview: 

  1. Provision for year end expenses was made in the books of the assessee of Rs 111.47 Cr. Out of the same Rs. 8.71 Cr were reversed before filing the Income Tax Returns (ITR) and Rs 55.89 L were booked as expenses in the subsequent year. So, it follows that TDS was paid on the rest of the amount of provisions before filing the ITR.
  1. The reversal of Rs 8.71 Cr had to take place, since after negotiations with the vendors and finalization of the amounts, the amount of Rs 8.71 cr was not payable. So no TDS was paid on this amount and expenses of that amount were also reversed in the ITR.
  1. The AO held the assessee in default U/S 201 and 201(1A) in respect of the reversed amount and determined the amount of Rs 17.1 L as payable towards TDS and interest.

The Hon. Kar HC held as below:

  1. The SC in Shoorji Vallabh Das [1962] 46 ITR 144 (SC) has held that tax is levied on Income ie accrual or receipt, but on income.
  1. Thus in the absence of income, no tax can be levied, even though there is a hypothetical entry in the books of accounts.

Above judgment will be of a great help as Many companies make provisions for expenses at the end of the year. However before filing of returns, the actual amount of expense may be lesser than that provided for.

This judgement confirms that TDS need not be paid on the provision not finally resulting into income for the deductee.

CA Aniket Kulkarni



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