2017 (10) TMI 1421 - AT - Income Tax

Disallowance on account of non deduction of TDS on bank charges deducted by the bank while making payment to the assessee for the goods purchased by the customers of the bank against the Debit and Credit cards issued by the bank to its customers - Held that - As decided in CIT vs. JDS Apparels (P) Ltd. (2014 (11) TMI 732 - DELHI HIGH COURT) has held that since the bank was making the payment to the assessee after making deduction of bank charges, there was no occasion for the assessee to deduct tax at source and, further, the bank was not acting on behalf of the assessee but on the other hand was acting on behalf of the customers while processing payments through debit cards and credit cards. In the present case we further feel the said principle should be applied as HDFC would necessarily have acted as per law and it is not the case of the Revenue that the bank had not paid taxes on their income. It is not a case of loss of Revenue as such or a case where the recipient did not pay their taxes - decided against revenue. Provision for gratuity was not an ascertain liability, whereas assessee has been contending that it is an ascertain liability - Held that - CIT (A) on facts held that in this case, the provision for gratuity is an ascertained liability and while placing reliance on the decision reported in ACIT vs. NHPC Limited decided by a coordinate bench of this Tribunal he granted the relief. Nothing contrary is established before us to show that the provision for gratuity in this case is not an ascertained liability. No ascertain liability, whether or not the payment was made in future could be added back, as such, we uphold the finding of the CIT (A) and dismissed this ground of appeal.

Summary

Issues:
1. Disallowance of expenditure under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of provision for retirement benefits for calculating book profit.

Issue 1 - Disallowance under Section 40(a)(ia):
The appeal by the Revenue challenged the deletion of an addition under section 40(a)(ia) of the Income Tax Act, 1961, in the order dated 28.05.2015 by the Ld. Commissioner of Income Tax (Appeals)-7, Delhi. The Revenue contended that the provision created was to meet an unascertained liability and should be added back. However, the Ld. CIT (A) relied on precedents to conclude that there was no requirement of TDS on bank charges, emphasizing the principle of doubtful penalization and strict construction of penal provisions. The Tribunal upheld the Ld. CIT (A)'s decision, dismissing the appeal.

Issue 2 - Disallowance of Provision for Retirement Benefits:
The AO disallowed a sum for retirement benefits provision, claiming it was not an ascertained liability. Conversely, the assessee argued that it was an ascertained liability. Ld. CIT (A) found the provision for gratuity to be an ascertained liability based on a precedent and granted relief. The Tribunal upheld this finding, stating that no ascertain liability, regardless of future payment, could be added back. Consequently, this ground of appeal was dismissed.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the decisions of the Ld. CIT (A) regarding the disallowance under section 40(a)(ia) and the provision for retirement benefits. The judgment emphasized the application of legal principles and precedents to determine the tax implications in the case, ultimately resulting in the dismissal of the Revenue's appeal.