2019 (7) TMI 16 - AT - Income Tax

TDS u/s 194H - advertising agency commission - addition made u/s. 40(a)(ia) - net revenue from advertisement was booked after adjusting of advertising agency commission - assessee has not claimed advertising agency commission expenses as separate expenses in its books of accounts and in P L account prepared by it. - HELD THAT - Decision of Hon‟ble Supreme Court in the case of Director, Prasar Bharati 2018 (4) TMI 201 - SUPREME COURT held that Section 194H are applicable to the appellant because the payments made by the appellant pursuant to the agreement in question were in the nature of payment made by way of commission and, therefore, the appellant was under statutory obligation to deduct the income tax at the time of credit or/and payment to the payee. The judgment was rendered 3rd April, 2018 and Hon‟ble Supreme Court has held that applicability of provisions of Section 194H will depend upon facts and circumstances of each case and hence it was held that there is a need to evaluate the factual matrix of each case before applying provisions of Section 194H to advertising agency commissions paid by Media/Broadcasting companies including evaluating commercial terms and conditions of the contract existing between and inter-se all the relevant parties to this process of advertisement in Media/Broadcasting companies. The Hon‟ble Supreme Court has laid down tests to determine as to applicability of Section 194H to advertising commission paid by Media /Broadcasting companies to advertising agencies. The aforesaid decision of Hon‟ble Supreme Court was rendered on 03.04.2018, while Mumbai-tribunal passed an orders in assessee‟s case for AY 2011-12 and 2012-13 2017 (3) TMI 427 - ITAT MUMBAI which was pronounced prior to the aforesaid judgment of Hon‟ble Supreme Court. Thus, tribunal did not had the benefit of judgment of Hon‟ble Supreme Court in the case of Director, Prasar Bharati(supra) - Thus issue needs to be restored to the file of the AO to determine applicability of Section 194H to advertising commission paid by assessee to advertising agencies keeping - Decided in favour of Revenue for statistical purposes. Allowability of website development expenses - revenue expenses u/s 37(1) - HELD THAT - As in the case of Polyplex Corporation Limited v. ITO 2008 (8) TMI 400 - ITAT DELHI-F and R.R.Kabel Limited v. Addl.CIT 2012 (6) TMI 513 - ITAT MUMBAI wherein website development expenses were held to be Revenue expenses. Respectfully following the foresaid decisions, we decide this issue in favour of the assessee by holding these website creation charges as revenue expenses and are allowed u/s 37(1). We uphold the appellate orders of learned CIT(A) Excess commission paid to BCCL - disallowance by the AO to the tune of 50% being 2.5% of the commission expenses paid to BCCL on business procured by BCCL for the assessee - HELD THAT - This issue was decided by tribunal in assessee‟s own case AY 2008-09 and 2009-10 as held commission @ 5% was paid to BCCL. The range of commission in such type of business varies from 5% to 20%. - Decided in favour of assessee. Disallowance of interest u/s. 36(1)(iii) - investments/loans to subsidiary at low interest rate - sufficiency of own funds - HELD THAT - The interest free own funds available with the assessee were higher than investments/loans made by the assessee and in the absence of any specific findings that interest bearing borrowed funds were used for making investments/loans, the presumption shall apply that the assessee invested its own interest free funds for making investments in securities. Case of CIT v. Reliance Utilities and Power Limited 2009 (1) TMI 4 - BOMBAY HIGH COURT and CIT v. HDFC Bank Limited 2014 (8) TMI 119 - BOMBAY HIGH COURT are relevant. However, this claim of the assessee that interest free funds available with it are more than investments/loans made by it requires verification of facts from records and for this very limited purposes, we are remitting the issue back to file of the AO for verification from records that its own interest free funds were higher than investments/loans made by it as there are no categorical finding of fact recorded by authorities below on these facts which are contended by assessee before the Bench Disallowance of business promotion expenses u/s. 37(1) - addition to 20% of the expenses incurred on the ground that the assessee could not prove business nexus of these expenses - HELD THAT - We donot find any reason to deviate from the aforesaid decision of ITAT, Mumbai in assessee‟s own case for AY 2008-09 and 2009-10, which we Respectfully follow. The decision of Hon‟ble Supreme Court in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT is relevant. Thus, ground number 1 of the assessee‟s appeal is allowed. Disallowance u/s 14A r.w. Rule 8D(2)(ii) and 8D(2)(iii) - HELD THAT - As relying on BALLARPUR INDUSTRIES LIMITED 2016 (10) TMI 1039 - BOMBAY HIGH COURT no disallowance of expenditure purported to be incurred for earning of an exempt income be made u/s 14A in view of the claim that no exempt income being earned by the assessee. However, this claim of the assessee that it did not earn any exempt income and also that interest free funds available with it are more than investments made by it requires verification of facts from records and for this very limited purposes, we are remitting the issue back to file of the AO for verification from records that no exempt income was earned by the assessee and secondly that its own interest free funds were higher than investments made by it as there are no categorical finding of fact recorded by authorities below on these two facts which are now contended by assessee before the Bench. Disallowance u/s. 14A r.w.s. 115JB to compute book profit on which MAT - HELD THAT - This issue is required to be restored to the file of AO to be decided afresh in accordance with ratio of law laid down by Hon‟ble Special Bench of Delhi Tribunal in the case of ACIT v. Vireet Investment Private Limited 2017 (6) TMI 1124 - ITAT DELHI . This ground of appeal filed by the assessee is allowed for statistical purposes. Depreciation on software expenses which were capitalised in AY 2007-08 - HELD THAT - Prayers are made by learned counsel for the assessee to restore this issue back to the file of the AO for necessary verifications and grant of appropriate depreciation on merits in accordance with law after due verifications. The learned DR did not object if the issue is restored back to the file of the AO for necessary verifications and fresh adjudication on merits in accordance with law. Non grant of credit of TDS - HELD THAT - Prayer are made by learned counsel for the assessee to restore this issue back to the file of the AO for verification and grant of appropriate credit for TDS after due verification. The learned DR did not object if the issue is restored back to the file of the AO for necessary verifications and grant of appropriate credit for TDS on merits in accordance with law.

Summary

Issues Involved:

1. Business Promotion Expenses
2. Disallowance under Section 14A
3. Addition to Book Profits under Section 115JB due to disallowance under Section 14A
4. Depreciation on Software Expenses disallowed in Assessment Year 2007-08
5. Credit for Tax Deducted at Source
6. Grant of Interest under Section 244A
7. Charge of Interest under Section 234C
8. Charge of Interest under Section 234D
9. Addition under Section 40(a)(ia) for Agency Discount treated as Commission under Section 194H
10. Disallowance of Website Development Expenses
11. Disallowance of Excess Commission paid to Parent Company
12. Disallowance under Section 36(1)(iii) for Interest Expenses

Detailed Analysis:

1. Business Promotion Expenses:
The assessee claimed business promotion expenses of ?16,75,990/-. The AO disallowed 20% of these expenses (?3,35,198/-) on the grounds that the business nexus was not proven. The CIT(A) upheld this disallowance, stating that expenses like food, bouquets, sweets, movie tickets, and cricket match tickets appeared personal in nature. The ITAT, following its earlier decision, allowed the assessee's appeal, stating that adhoc disallowances without rejecting the books of accounts are not justified.

2. Disallowance under Section 14A:
The AO disallowed ?62,16,426/- under Section 14A read with Rule 8D, attributing it to expenses incurred for earning exempt income. The CIT(A) upheld this disallowance. The ITAT, however, noted that the assessee claimed no exempt income was earned during the year and that its own funds exceeded the investments. The ITAT remitted the issue back to the AO for verification of these claims.

3. Addition to Book Profits under Section 115JB:
The AO added the disallowance under Section 14A to the book profits for MAT calculation. The CIT(A) upheld this addition. The ITAT remitted the issue back to the AO to be decided afresh in light of the Special Bench decision in ACIT v. Vireet Investment Private Limited.

4. Depreciation on Software Expenses disallowed in Assessment Year 2007-08:
The assessee claimed depreciation on software expenses capitalized in AY 2007-08. The CIT(A) did not direct the AO to grant this depreciation. The ITAT remitted the issue back to the AO for verification and appropriate allowance of depreciation.

5. Credit for Tax Deducted at Source:
The assessee claimed that the AO did not grant credit for TDS of ?1,75,228/-. The ITAT remitted the issue back to the AO for verification and appropriate credit.

6. Grant of Interest under Section 244A:
The CIT(A) did not direct the AO to grant interest under Section 244A. The ITAT did not specifically address this issue separately, as it is consequential.

7. Charge of Interest under Section 234C:
The CIT(A) did not direct the AO to levy interest under Section 234C based on the returned income. The ITAT did not address this separately, treating it as consequential.

8. Charge of Interest under Section 234D:
The CIT(A) did not direct the AO to levy interest under Section 234D only on the refund withdrawn. The ITAT did not address this separately, treating it as consequential.

9. Addition under Section 40(a)(ia) for Agency Discount treated as Commission under Section 194H:
The AO disallowed ?27,43,52,361/- for non-deduction of TDS on agency discounts treated as commission under Section 194H. The CIT(A) deleted this addition, stating that the relationship between the assessee and advertising agencies was principal-to-principal, not principal-agent. The ITAT remitted the issue back to the AO for re-evaluation in light of the Supreme Court decision in Director, Prasar Bharati v. CIT.

10. Disallowance of Website Development Expenses:
The AO treated website development expenses of ?3,87,047/- as capital expenditure and allowed depreciation, disallowing ?1,54,819/-. The CIT(A) allowed the expenses as revenue expenditure. The ITAT upheld the CIT(A)'s decision, following precedents that website development expenses are revenue in nature.

11. Disallowance of Excess Commission paid to Parent Company:
The AO disallowed 50% of the commission paid to Bennett Coleman & Company Limited (BCCL) as excessive. The CIT(A) deleted this disallowance, and the ITAT upheld the CIT(A)'s decision, following its earlier rulings that the commission was not excessive.

12. Disallowance under Section 36(1)(iii) for Interest Expenses:
The AO disallowed ?80 lakhs of interest expenses, claiming that borrowed funds were used for non-business purposes. The CIT(A) deleted this disallowance, following the ITAT's earlier decisions in the assessee's favor. The ITAT upheld the CIT(A)'s decision, noting that the assessee's own funds exceeded the investments, and remitted the issue back to the AO for verification of this claim.

Conclusion:
The ITAT provided relief to the assessee on several issues, remitted some issues back to the AO for verification, and upheld the CIT(A)'s decisions on others, ensuring a thorough and fair evaluation of the case.