2017 (4) TMI 1517 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - In the case of the assessee the provisions of Section14A r.w.r. 8D will not be applicable in regard to investments made in group concern i.e. subsidiary joint venture associate concern etc. Accordingly we remit the matter back to the file of the AO with a direction to re-compute the disallowance u/s 14A r.w.r. 8D after deleting investments made by the assessee in group concern i.e. subsidiary joint venture associate concern etc. The company has sufficient own funds therefore disallowance under second limb of Rule 8D (2) is also not warranted. TDS u/s 194J/194H - disallowance under section 40(a)(ia) in respect of commission on credit card companies paid to various banks for non-deduction of tax at source - HELD THAT - Since facts of the case are exactly similar to the A.Y. 2010-11 for which we have already given our finding. Accordingly the disallowance made by the Assessing Officer cannot be sustained and the Order of the CIT (Appeals) deleting the aforesaid disallowance is upheld. Accordingly these grounds stands dismissed. Interest paid on late payment of TDS while computing book profit u/s. 115JB - HELD THAT - Interest on TDS is not included in the explanation also. We have carefully considered the submissions and perused the records. We find considerable cogency in the submission of the assessee. Further the interest amount on late payment does not include income tax payment or provision therefore. Therefore the same cannot be covered under the provisions of section 115JB. Hence the AO is directed to delete the said addition. Accordingly we allow this ground of appeal.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Disallowance under Section 40(a)(ia) regarding commission on credit card transactions.
3. Treatment of payment for credit card processing services under Section 194H and Section 194J.
4. Addition under Section 115JB on account of interest paid on late payment of TDS.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A:
The Assessing Officer (AO) disallowed expenses incurred on earning exempt income under Section 14A read with Rule 8D, amounting to ?62.58 crores. The CIT(A) reduced this disallowance. The Revenue argued that the AO properly recorded satisfaction for invoking Rule 8D, contending that investment decisions incur administrative expenses. The Assessee countered that the AO mechanically applied Section 14A without recording dissatisfaction with the Assessee’s claim. The Assessee argued that its investments were made using its own funds, and most investments were in subsidiaries that did not declare dividends. The Tribunal held that Section 14A read with Rule 8D is not applicable to investments in group concerns and directed the AO to re-compute the disallowance, excluding investments in subsidiaries and associates. The Tribunal found that the Assessee had sufficient own funds, negating the need for disallowance under Rule 8D(2).

2. Disallowance under Section 40(a)(ia) regarding commission on credit card transactions:
The AO disallowed the commission paid to banks for credit card transactions under Section 40(a)(ia), treating it as commission for technical services under Section 194H, and alternatively under Section 194J. The CIT(A) reversed this disallowance. The Revenue argued that the payment was for complex services requiring TDS under Section 194H or 194J. The Assessee relied on Tribunal decisions in similar cases, arguing that such commission was not subject to TDS. The Tribunal upheld the CIT(A)’s decision, noting that the facts were similar to previous years where the disallowance was not sustained. The Tribunal dismissed the Revenue’s appeal on this ground.

3. Treatment of payment for credit card processing services under Section 194H and Section 194J:
The AO held that the relationship between the Assessee and the bank was that of a principal and commission agent, requiring TDS under Section 194H. The CIT(A) disagreed, stating that the relationship was not of a principal and agent, and the payment was bank charges, not commission. The AO also considered the payment as fees for technical services under Section 194J. The Tribunal, referencing past decisions, held that the payment for credit card processing services did not qualify as fees for technical services under Section 194J and upheld the CIT(A)’s decision.

4. Addition under Section 115JB on account of interest paid on late payment of TDS:
The AO added ?1,67,335/- as interest on late payment of TDS to the book profit under Section 115JB, considering it a provision for income tax. The CIT(A) upheld this addition. The Assessee argued that interest on TDS is not included in the explanation to Section 115JB. The Tribunal agreed with the Assessee, stating that interest on TDS is not a provision for income tax and directed the AO to delete the addition. The Tribunal allowed the Assessee’s appeal on this ground.

Conclusion:
The Tribunal dismissed the Revenue’s appeal and allowed the Assessee’s appeal, directing re-computation of disallowance under Section 14A, upholding the CIT(A)’s decision on commission disallowance under Section 40(a)(ia), and deleting the addition under Section 115JB for interest on late payment of TDS. The order was pronounced on May 5, 2017.