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2021 (12) TMI 311 - AT - Income TaxTDS u/s 194H - Disallowance u/s 40(a)(ia) - no tax has been deducted on the bank guarantee commission and credit card commission paid to the banks - CIT(A) has deleted the addition holding that the provisions of Section 194H are not applicable to the transactions made by the assessee as relying on JDS APPARELS PRIVATE LIMITED 2014 (11) TMI 732 - DELHI HIGH COURT - HELD THAT - As assessee having engaged in the business of trading and manufacturing of jewellery and it is the normal trade practice in this business to accept the payment through credit cards and debit cards. For facilitating the payment through credit cards and debit cards, the bank deducts some bank charges and these charges are deducted by the respective bank automatically upon receipt of payment. Only the net amount is actually received by the respondent. The assessee would not be in a position to deduct TDS on expenditure which was incurred on account of Credit Card and Debit Card Commission between Merchant Establishment and acquirer bank prior to 01.01.2013. This issue is stands adjudicated in assessee s own case 2017 (10) TMI 1421 - ITAT DELHI bank was making the payments to the assessee after making the deduction of the charges to it, as such, there is no occasion for the assessee to deduct the TDS and further bank was not working for the assessee but on the other hand, it was working for its customers, as such, there is no requirement of TDS on bank charges - Decided in favour of assessee. Estimation of income - bogus purchases - addition @12.5% on purchases as the income of the assessee on account of inflation of purchase price of diamonds on purchases from accommodation entry providers - CIT(A) has held that the disallowance made is not valid as the Assessing officer has accepted the value and quantitative record of purchases and sales duly recorded in the books - HELD THAT - CIT(A) has considered the quantitative details, stock and the payment made by the assessee with regard to this purchases - As per reasoning of the ld. CIT(A) and the retraction statement of Sh. Rajendra Jain, we decline to interfere with the order of the ld. CIT(A) on this issue for the A.Y. 2013-14 and A.Y. 2014-15. Expenditure on working capital - assessee intends to claim the said expenditure as allowable as the assessee has not carried out any extension or setting up new unit and the provision of section 35D shall not be applicable except ₹ 41.02 crores on shown room expenditure - HELD THAT - As the claim of the assessee that the expenditure is in the nature of revenue expenses and hence allowable u/s 37(1) of the Act for the years in appeal in computing the total income under the normal provisions of the act as the fund raised is used as working capital by the company except an amount of ₹ 41.02 crores. As the assessee has utilised 92% of receipts on account of public issue on working capital and hence 92% of ₹ 38 crores of share issue expenditure would be revenue expenditure and balance 8% of share issue expenditure which was spent on capital expenditure would not be treated as revenue expenditure. The proceeds utilized for capital expenditure, is allowable u/s 35D of the Act. Appeal of the assessee on this ground is allowed. Book Profit u/s 115JB - assessee has submitted that the expenditure on IPO shall be allowable in computing Book profit u/s 115JB - HELD THAT - As the issue is directly covered by the order of Hon ble Jurisdictional High Court SAIN PROCESSING AND WEAVING MILLS (P) LTD. 2008 (12) TMI 20 - DELHI HIGH COURT the AO is directed to compute the book profit after considering the IPO expenditure amounting to ₹ 38 Crores. AO is directed to consider the Explanation 1 to Section 115JB and also considered the book profits taking into the treatment given to the receipt of the share capital in finalization of the accounts. Appeal of the assessee on this ground is allowed for statistical purpose. Allowability of Education Cess - additional grounds raised pertaining to deduction of Education Cess - HELD THAT - Education Cess is not of the nature described in sections 30 to 36, Education Cess is not in the nature of capital expenditure, Education Cess is not personal expense of the Assessee, it is mandatory for it to pay Education Cess and for the purpose of computation of Education Cess, the Income Tax is taken as the criteria for computational purpose. Thus, the expense of Education Cess is mandatory expenses to be paid but does not fall under capital expense and personal expenditure and hence may be allowed as deduction. We have also gone through the various judgments of judicial authorities pan India wherein the fresh claim of the assessee is considered and the deduction u/s 37 of Education Cess has been allowed. The Hon ble High Court of Bombay held that the appellate authorities may confirm, reduce, enhance or annul the assessment or remand the case to the AO, because the basic purpose of a tax appeal was to ascertain the correct tax liability in accordance with the law. Thus keeping in view the provisions of the Act pertaining to Section 40(a)(ii) and Section 115JB, Circular of the CBDT No. 91/58/66 ITJ(19), the orders of Co-ordinate Benches of ITAT and judicial pronouncements of the Hon ble High Court of Bombay and Hon ble High Court of Rajasthan, we hereby hold that the assessee is eligible to claim the deduction of the Education Cess as per the provisions of Section 37 of the Income Tax Act.
Issues Involved:
1. Disallowance under Section 40(a)(ia) of ?1,82,53,095. 2. Disallowance on account of bogus purchases. 3. Delayed payment of EPF and ESIC. 4. Admission of additional grounds by the assessee. 5. Claim of expenditure in relation to Initial Public Offer (IPO). 6. Deduction of education cess. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) of ?1,82,53,095: The Assessing Officer (AO) disallowed the amount under Section 40(a)(ia) due to non-deduction of tax on bank guarantee commission and credit card commission paid to banks. The CIT(A) deleted this addition, relying on the jurisdictional High Court's decision in CIT vs. JDS Apparels Pvt. Ltd., which held that Section 194H does not apply to such transactions. The Tribunal upheld this deletion, noting that the assessee could not deduct TDS on these charges as they were automatically deducted by the bank and only the net amount was received by the assessee. The Tribunal referenced its own prior decision in the assessee's case, affirming that the disallowance under Section 40(a)(ia) cannot be sustained. 2. Disallowance on account of bogus purchases: The AO made an addition of 12.5% on purchases amounting to ?60,51,691, alleging inflation of purchase prices from accommodation entry providers. The CIT(A) deleted the addition, noting that the AO accepted the value and quantitative records of purchases and sales, and no discrepancies were found in the audited books. The Tribunal upheld the CIT(A)'s decision, emphasizing the detailed documentary evidence provided by the assessee, including bank statements, stock registers, and confirmations from suppliers. The Tribunal also considered the retraction of the statement by the alleged entry operator, Mr. Rajendra Jain. 3. Delayed payment of EPF and ESIC: The Tribunal allowed the revenue's appeal on this ground, referencing the decision in ITA No. 1312/Del/2020 for A.Y. 2018-19 in the case of Vedvan Consultants Pvt. Ltd., which was applicable to the facts of the case. 4. Admission of additional grounds by the assessee: The Tribunal admitted the additional grounds raised by the assessee, following the Supreme Court's judgment in National Thermal Power Co. Ltd. vs. CIT, which allows the Tribunal to consider new grounds if they pertain to the correct assessment of tax liability. The Tribunal emphasized that the purpose of assessment proceedings is to correctly assess the tax liability in accordance with the law. 5. Claim of expenditure in relation to Initial Public Offer (IPO): The assessee claimed that the expenditure incurred in connection with the IPO should be allowed under Section 37(1) as it was used for working capital. The Tribunal, referencing various judicial decisions, including the Supreme Court's ruling in Brooke Bond India Limited vs. CIT, held that 92% of the share issue expenditure, used for working capital, should be treated as revenue expenditure and allowed under Section 37(1). The remaining 8%, used for capital expenditure, was to be treated under Section 35D. 6. Deduction of education cess: The assessee argued that education cess should be allowed as a deduction, relying on CBDT Circular No. 91/58/66-ITJ(19) and judicial precedents, including the Rajasthan High Court's decision in Chambal Fertilisers and Chemicals Ltd. vs. JCIT. The Tribunal agreed, noting that education cess is not covered under Section 40(a)(ii) and should be allowed as a deduction under Section 37. The Tribunal also referenced the definition of 'tax' under Section 2(43) and the specific inclusion of cess in Explanation 2 to Section 115JB, concluding that education cess is not a tax and is thus deductible. Conclusion: - The appeal of the Revenue in ITA No. 6649/Del/2017 is dismissed. - The appeal of the Revenue in ITA No. 6650/Del/2017 is partly allowed. - Both the cross-objections of the assessee are allowed.
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