2020 (11) TMI 64 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - In the case of the assessee own case 2017 (5) TMI 1745 - ITAT MUMBAI assessee has incurred administrative expenses purely for administration of its affairs. We do not agree with the submission of Ld. AR that assessee has not incurred any expenditure and not warranted to remit this issue back to AO. The investment does require constant monitoring even though it is made within the group concern. Sometimes, the method applied as per rule 8D(2)(iii) gives absurd result, like the disallowance is more than the actual administrative expenses. We are directing AO to determine the total administrative expenses and also determine the total income earned by assessee including taxable and exempt income, apply the ratio of income to determine the administrative expenses and can be apportioned to exempt income. Simultaneously, calculate 0.5% of the investment as per rule 8D(2)(iii) of the rule, in applying the rules, he should consider only those investments which has actually earned dividend /exempt income. Then compare the both method of calculation and in order to apply provision of section 14A, he should consider the amount calculated above said two methods whichever is less. Accordingly, ground no. 1 raised by assessee is allowed for statistical purposes. 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 2017 (5) TMI 1745 - ITAT MUMBAI 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. Addition of amount forfeited by assessee on share warrants u/s 43(5) - HELD THAT - As decided in own case 2017 (5) TMI 1745 - ITAT MUMBAI 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 Departmental Representative could not throw any light on this aspect. It solely indicates that AO 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.- Decided against revenue.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on credit card commission.
3. Addition of amount forfeited on share warrants under Section 43(5) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The assessee contested the disallowance under Section 14A, arguing that the Assessing Officer (AO) did not record any satisfaction before rejecting the claim. The assessee cited previous ITAT decisions in its favor, asserting that investments in group concerns (subsidiaries, associates) should not be considered for disallowance as they were made for strategic business purposes. The ITAT agreed, noting that the company had sufficient own funds and no administrative expenditure was incurred for earning exempt income. The ITAT directed the AO to re-compute the disallowance by excluding investments in group concerns and considering only those investments that yielded exempt income. The ITAT dismissed the revenue's ground and allowed the assessee's ground for statistical purposes.

2. Disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on credit card commission:
The assessee argued that the disallowance for non-deduction of TDS on credit card commission was incorrect, referring to previous ITAT decisions stating that such payments to banks are in the nature of bank charges, not commission, and thus not liable for TDS under Section 194H. The ITAT upheld this view, referencing multiple judicial precedents and confirming that the commission paid to credit card companies is not subject to TDS provisions. Consequently, the ITAT dismissed the revenue's grounds on this issue.

3. Addition of amount forfeited on share warrants under Section 43(5) of the Income Tax Act:
The assessee contended that the amount received from the forfeiture of share warrants should be treated as a capital receipt and not as income from other sources. The ITAT agreed, noting that the amount received was on account of part payment for convertible warrants and should be considered a capital receipt. The ITAT referenced several judicial pronouncements supporting this view and concluded that the forfeited amount should be treated as a capital receipt, not taxable as income. The ITAT dismissed the revenue's grounds on this issue.

Conclusion:
The ITAT dismissed the revenue's appeal and allowed the assessee's appeal for statistical purposes. The order was pronounced beyond the usual 90-day period due to the exceptional circumstances of the COVID-19 lockdown, as justified by relevant judicial precedents.