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2017 (5) TMI 1745 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - HELD THAT - In the case of the assessee, the provisions of Section 14A r.w.r. 8D will not be applicable in regard to investments made in group concern i.e. subsidiary, 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 concerni.e. subsidiary, associate concern etc for computing average value of investment. The company has sufficient own funds therefore disallowance under second limb of Rule 8D (2) is also not warranted. Ground no. 1 raised by assessee allowed for statistical purposes. TDS u/s 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 - Delhi High Court in the case of JDS Apparels (P.) Ltd 2014 (11) TMI 732 - DELHI HIGH COURT has held that Commission' to bank on payments received from customers who had made purchases through credit cards is not liable to TDS under section 194H - Thus commission paid to the credit card companies is not subject to the TDS provisions of the Act. Accordingly the disallowance made by the Assessing Officer cannot be sustained and the Order of the CIT(Appeals) deleting the aforesaid disallowance, is upheld. Disallowance of interest under Section 36(1)(iii) - HELD THAT - It appears that the facts remain the same as earlier years and the loans and advances have been given to group companies as a part of routine business operations, Further it has also been brought to our attention by the Assessee company that the Assessing Officer in earlier as well as subsequent years, accepted the interest claimed under section 36(1)(iii) on similar facts. The AO has made a disallowance during the year under consideration based on his surmises without giving any cogent reason. Hence this disallowance ought to be deleted. Disallowance on account of forfeiture of share warrants - AO disallowed the said amount considering as revenue receipt - HELD THAT - The basic nature of the transaction relates to raising of capital through convertible warrants. The amount forfeited on account of non payment of subsequent amounts cannot be treated as a income of the assessee in view of the various judicial pronouncements as well as the basic nature of the receipt. Thus, we hold that amount received on account of forfeiture of amount due to non payment towards warrants issue has to be treated as capital receipt and since the assessee has also transferred it to the capital reserve account in the balance sheet, the amount cannot be taxed as income. AO has observed in the assessment order that this addition should be treated as income from other sources as the assessee has become richer but the DR could not throw any light on this aspect. It solely indicates that Assessing Officer was not certain about the nature of these receipts. Thus, considering the above facts, we come to the conclusion that the nature of receipt in this case has clearly been established as being the capital receipt. The provision of Income Tax Act does not provide for taxation of such capital receipt, even if it is forfeiture of amount. Accordingly, in the background of the aforesaid discussions and precedents, we do not find any infirmity in the order of the Ld. CIT(A). Addition to the book profit while computing minimum alternative tax, under Clause (c) to Explanation 1 of section 115JB (2) for disallowance u/s 14A - HELD THAT - There is ruling of the Mumbai tribunal in the case of RBK Share Broking (P) Ltd 2013 (12) TMI 74 - ITAT MUMBAI and Dabur India Ltd. 2013 (12) TMI 1009 - ITAT MUMBAI held that expenditure incurred to earn exempt income will be disallowed under Section 14A while computing MAT Profits, therefore relying on the same ruling in the present case has held that the disallowance under Section 14A will be applicable while arriving at the book profits under Section 115JB(2) of the Act. Disallowance of various expenses - AO concluded to disallow proportionate amount of administrative expenses, finance charges and peak credit - AO concluded that the assessee had entered into circular trading transactions wherein the assessee showed purchase of goods from Nitcowithout delivery and subsequent sale thereof to another company again without delivery which in turn showed sales without delivery to Nitco - HELD THAT - On perusal of the statements of senior management/directors recorded in the Assessment Order, it appears that the fictitious sales and purchases admittedly involved only the bill entry and transfer of funds through banks. The department has also not alleged that the assessee company had any more role in the entire scheme of things apart from the specific role mentioned above. Given this, if any expense is to be attributed to the aforesaid transaction then it would be the salary of the senior managerial personnel and employee s wages, packaging material and other expenses involved in directing the aforesaid transactions. However it would be entirely incorrect to attribute the mall maintenance charges to the aforesaid transactions since these expenses do not appear to have any relation to the aforesaid transactions. It would be in the fitness of things if this matter be restored to the file of the AO with direction to disallow that portion of the Directors salary and employees wages, expenses on packaging material and other expenses as are directly involved in affecting the said turnover to NITCO. - Ground of assessee s appeal is allowed for statistical purposes. Exemption of long term capital gain u/s. 47 (iv) - directing the A.O. to restrict the relief given by him to the Appellant on account of exemption to the returned income of the Appellant, by invoking the proviso of section 240 of the Act - HELD THAT - AO ought to have examined whether the assessee s claim made in the course of assessment proceedings that the transfer of its value retail business to Future Value Retail was not exigible to LTCG, as declared by it, in view of the provision of section 47(iv) of the Act, instead of summarily rejecting it at the threshold since no revised return of income was filed. We set aside the findings of the Ld. CIT(A) and restore the matter to the file of AO for examination and adjudication thereon after affording the assessee adequate opportunity of being heard.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance under Section 40(a)(ia) for non-deduction of TDS on credit card commission. 3. Principal and Commission Agent relationship under Section 194H. 4. Classification of bank charges as commission under Section 194H. 5. Classification of credit card processing services as 'fees for technical services' under Section 194J. 6. Disallowance under Section 36(1)(iii) for interest expenses. 7. Treatment of forfeited share warrants as capital receipt or speculation gains. 8. Ad hoc disallowance of various expenses. 9. Adjustment to book profit under Section 115JB. 10. Exemption of long-term capital gain under Section 47(iv) of the Act. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: During the assessment proceedings, the Assessing Officer (AO) disallowed expenses under Section 14A read with Rule 8D amounting to ?33 crores. The CIT(A) reduced this disallowance. The Revenue argued that the AO properly invoked Rule 8D, but the Assessee contended that the AO did not record his dissatisfaction with the Assessee's claim. The Tribunal held that Section 14A read with Rule 8D would not apply to investments made in group concerns (subsidiaries, associates). The matter was remitted back to the AO to re-compute the disallowance excluding investments in group concerns. The Revenue's ground was dismissed. 2. Disallowance under Section 40(a)(ia) for non-deduction of TDS on credit card commission: The AO disallowed commission on credit card payments to banks under Section 40(a)(i), considering it as commission under Section 194H or technical services under Section 194J. The CIT(A) reversed this decision, and the Tribunal upheld the CIT(A)'s order, citing various judicial precedents that payments to banks for credit card facilities are bank charges, not commission, and not subject to TDS under Section 194H or 194J. The Revenue's grounds were dismissed. 3. Principal and Commission Agent relationship under Section 194H: The Revenue argued that the relationship between the Assessee and the acquirer bank was that of a Principal and Commission Agent. The CIT(A) and Tribunal disagreed, stating that the relationship does not necessarily have to be of a principal and agent for Section 194H to apply. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's grounds. 4. Classification of bank charges as commission under Section 194H: The Revenue contended that bank charges for credit card services should be classified as commission. The Tribunal, following judicial precedents, held that such charges are bank charges, not commission, and thus not subject to TDS under Section 194H. The Revenue's grounds were dismissed. 5. Classification of credit card processing services as 'fees for technical services' under Section 194J: The AO classified credit card processing services as technical services under Section 194J. The Tribunal upheld the CIT(A)'s decision that these services do not involve significant human intervention and thus do not qualify as technical services under Section 194J. The Revenue's grounds were dismissed. 6. Disallowance under Section 36(1)(iii) for interest expenses: The AO disallowed interest expenses under Section 36(1)(iii), which the CIT(A) reversed. The Tribunal found that the loans and advances were part of routine business operations and upheld the CIT(A)'s order, dismissing the Revenue's ground. 7. Treatment of forfeited share warrants as capital receipt or speculation gains: The AO treated the forfeited share warrants as revenue receipts, while the CIT(A) treated them as capital receipts. The Tribunal upheld the CIT(A)'s decision, stating that the forfeited amount is a capital receipt and not taxable as income. The Revenue's grounds were dismissed. 8. Ad hoc disallowance of various expenses: The AO made ad hoc disallowances of administrative, finance expenses, and peak credit related to circular trading transactions. The Tribunal remitted the matter back to the AO to disallow only the portion of expenses directly involved in the fictitious transactions, allowing the Assessee's ground for statistical purposes. 9. Adjustment to book profit under Section 115JB: The CIT(A) upheld the AO's addition to book profit while computing MAT under Section 115JB. The Tribunal, relying on judicial precedents, held that disallowance under Section 14A applies while computing book profits under Section 115JB. The Assessee's ground was quashed. 10. Exemption of long-term capital gain under Section 47(iv) of the Act: The AO rejected the Assessee's claim for exemption of long-term capital gain under Section 47(iv) for not filing a revised return. The Tribunal set aside the CIT(A)'s findings and remitted the matter back to the AO for examination and adjudication, allowing the Assessee's ground for statistical purposes. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the Assessee's appeal for statistical purposes, remitting certain issues back to the AO for re-examination.
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