2022 (2) TMI 773 - AT - Income Tax

Disallowance u/s 40(a)(ia) - bank guarantee commission paid to a schedule Indian bank - HELD THAT - Admittedly the payment which is the subject matter of disallowance under Section 40(a)(ia) of the Act is bank guarantee commission paid to a schedule Indian bank. As rightly held by learned Commissioner (Appeals) by placing reliance on certain judicial precedents there is no element of agency between the assessee and the bank insofar as it relates to payment of guarantee commission. We are also of the view that learned Commissioner (Appeals) has correctly applied the extant Circular of CBDT as it is clarificatory in nature. In view of the aforesaid we uphold the decision of learned Commissioner (Appeals) by dismissing the grounds raised.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for non-deduction of TDS on guarantee commission paid to the bank.
2. Applicability of Circular No. 56 of 2012 issued by CBDT.
3. Rectification under Section 154 of the IT Act.
4. Ex parte disposal of the appeal due to absence of the assessee.
5. Maintaining the disallowance amount under section 40(a)(ia).

Analysis:

1. The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2013-14, challenging the disallowance of ?1,61,52,564 under section 40(a)(ia) for non-deduction of TDS on guarantee commission paid to the bank. The Assessing Officer had initially disallowed this amount, but upon the assessee's application under Section 154, the disallowance was reduced to ?95,68,829. The Commissioner (Appeals) deleted the disallowance based on Circular No. 56 of 2012 and judicial precedents, stating that TDS provisions did not apply to bank guarantee commission payments to certain banks listed in the RBI Act, excluding foreign banks.

2. The Tribunal noted that the Assessing Officer, in the rectification application, acknowledged that the actual payment to the bank for guarantee commission was ?95,68,829. Therefore, the disallowance under section 40(a)(ia) should be limited to this amount. The Tribunal observed that the tax effect on the disputed amount was less than ?50 lakhs as per CBDT Circular No. 17/2019. Consequently, the Revenue's appeal was deemed not maintainable and was dismissed. Additionally, the Tribunal upheld the Commissioner (Appeals) decision, emphasizing that there was no error in considering the bank guarantee commission payment to a scheduled Indian bank, as there was no agency element involved, and the Circular of CBDT was correctly applied.

3. The Tribunal concluded that the appeal was dismissed, affirming the decision of the Commissioner (Appeals) and maintaining the disallowance amount under section 40(a)(ia) at ?95,68,829. The judgment highlighted the factual position established by the Assessing Officer's own admission and the correct application of legal provisions and precedents in determining the tax liability on the disputed amount.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the Tribunal's decision regarding the disallowance of TDS on guarantee commission paid to the bank.