2012 (9) TMI 1065 - AT - Income Tax

Summary

Issues involved:
The judgment involves the following Issues:
1. Allowability of TDS amount as a deduction in the hands of the assessee.
2. Interpretation of TDS payments made to VISA and MASTER Card as a business expense.

Issue 1: Allowability of TDS amount as a deduction:
The appellant appealed against the CIT(A)'s order, contending that the TDS amount of Rs. 21,61,004 on payments to VISA and MASTER Card should not be allowed as a deduction in the hands of the assessee. The AO had added this amount to the income of the assessee company, stating that it was not incurred wholly and exclusively for business purposes.

Issue 2: Interpretation of TDS payments as a business expense:
The assessee-company, engaged in credit card operations, claimed expenses towards non-reimbursement TDS for Master Card and VISA Card under 'operating expenses'. The AO questioned this claim, stating it was not a liability of the assessee. The FAA, however, held that as per the agreement between the parties, the TDS payments were part of a contractual liability and allowable as a deduction from business expenses.

In the judgment, the ITAT Mumbai considered the arguments presented by both parties. The AO acknowledged that the assessee had a contractual obligation to bear the tax liability as per the agreement with VISA and Master Card agencies. The ITAT Mumbai opined that payments made as a result of contractual obligations are allowable expenditures. Additionally, the ITAT Mumbai noted that a previous decision by the 'I' Bench of ITAT had ruled in favor of the assessee on a similar issue.

The ITAT Mumbai referred to a case involving Standard Polygraph Machines P. Ltd., where it was held that amounts paid by the assessee to discharge a liability under an agreement were allowable deductions. The ITAT Mumbai also cited decisions by the Madras High Court and Karnataka High Court supporting the view that payments made in discharge of contractual liabilities are allowable expenses.

Ultimately, the ITAT Mumbai dismissed the appeal filed by the Assessing Officer, upholding the FAA's decision to allow the deduction of the TDS amount in question. The judgment was pronounced on 18th September 2012.