2017 (4) TMI 1538 - AT - Income Tax

Additions on account of notional interest relating to alleged delayed payment of receivables from AEs - HELD THAT - As relying on own case 2016 (4) TMI 202 - ITAT BANGALORE we deem it appropriate to remand this issue back to the file of the Assessing Officer j TPO for examination as to whether there was any agreement for charging interest on late payments or not and if it is found that there was no such agreement then the T.P. Adjustment made in this regard requires to be deleted. To the extent the corresponding grounds are treated as allowed. Expenses on account of Electronic Data Processing (EDP) - holding the same as capital expenditure but granting depreciation on it @60% - HELD THAT - Since this Tribunal has upheld this addition in the earlier years supra and since there is no factual change this issue fails and the corresponding grounds are dismissed. Disallowance of club expenses - HELD THAT - It is seen from the assessment order that the AO has not examined the nature of these expenditures. The assessee also pleaded that it was not given adequate opportunity in this regard. In the facts and circumstances we deem it fit to remit this issue to the AO who shall re-examine this issue and after affording due opportunity to the assessee shall pass a speaking order. Short credit of taxes deducted at source - HELD THAT - We remit this issue back to the file of the Assessing Officer to examine and rework the short credit of taxes deducted at source. Levy of interest u/ss. 234B C D - HELD THAT - As charging of interest is mandatory and there is no discretion in the matter as held by the Hon ble Apex Court in the case of Anjum M.H. Ghaswala 2001 (10) TMI 4 - SUPREME COURT . We therefore uphold the action of the AO in charging of the interest u/ss. 234B C D. The AO is directed to recomputed the interest u/ss 234B C D after giving effect to this order.

Summary

Issues:
1. Transfer pricing adjustment made by the TPO
2. Imputing notional interest on outstanding advance balances
3. Disallowance of expenses on Electronic Data Processing (EDP)
4. Disallowance of club membership expenses
5. Credit for tax deducted at source as per revised return
6. Levy of interest under sections 234B, 234C, and 234D

Transfer Pricing Adjustment:
The appellant, engaged in manufacturing and trading, appealed against the TPO's addition of income by imputing notional interest on outstanding advance balances. The DRP upheld this issue, citing a previous ITAT decision. However, the ITAT Bangalore Bench in a different case deleted similar additions, emphasizing that no actual income was earned, leading to a remand for further examination by the AO/TPO.

Imputing Notional Interest:
The AO disallowed expenses on club membership and Electronic Data Processing, treating the latter as capital expenditure. The appellant contested these disallowances, arguing that the expenses were recurring and wholly for business purposes. The Tribunal remanded the EDP issue to the AO for reexamination due to lack of proper assessment by the AO.

Club Membership Expenses:
Regarding club membership expenses, the AO disallowed them, considering them to provide enduring benefits. The appellant argued that these expenses were not capital in nature and should be allowed as they were incurred wholly and exclusively for business purposes. The Tribunal remanded this issue to the AO for a detailed reassessment.

Credit for Tax Deducted at Source:
The appellant claimed a credit for tax deducted at source as per the revised return, which the AO did not fully grant. The Tribunal remanded this issue to the AO for a thorough reevaluation and recalculation of the credit.

Levy of Interest:
The AO levied interest under sections 234B, 234C, and 234D, which the Tribunal upheld, citing the mandatory nature of interest charges. The AO was directed to recalculate the interest after considering the Tribunal's order. Ultimately, the appellant's appeal was partly allowed by the Tribunal.

This judgment underscores the importance of detailed assessments by tax authorities and the necessity for proper justification of disallowances, especially concerning transfer pricing adjustments and expenses classification. The Tribunal's decisions highlight the need for thorough examinations and adherence to legal provisions in tax assessments.