2025 (2) TMI 913 - AT - Income Tax

TDS u/s 194H - disallowance of discount extended to prepaid distributors u/s. 40(a)(i) - assessee has paid sum to its various distributors of prepaid SIM cards/recharge coupons as amount represents the difference between MRP of the talk time and prepaid connections and the price at which these are transferred to pre-paid distributors and discount in nature - HELD THAT - Whether TDS is to be deducted by the cellular mobile services company on the discount given to distributor has now been settled by the decision of Bharti Cellular Ltd 2024 (3) TMI 41 - SUPREME COURT wherein as held that Section 194H of the Act is not applicable in respect of payment made by the distributor/franchise - Thus disallowances made by AO is not sustainable. The ground of appeal is accordingly allowed. Disallowance of year-end accruals u/s. 40(a)(ia) - AO has disallowed the year end provision debited on the last day of accounting - HELD THAT - Provision has been reversed and credited back on the next day and such expenditure has been debited on the basis of actual bill and TDS deducted wherever applicable in the next financial year. We find that the issue whether TDS is to be deducted on year-end provisions which is reversed on the first day of the subsequent year has been decided in the case of Subex Ltd. 2023 (1) TMI 778 - KARNATAKA HIGH COURT held if no income is attributable to the payee there is no liability to deduct tax at source in the hands of the tax deductor. The existence or absence of entries in the books of accounts is not decisive or conclusive factor in deciding the right of the assessee claiming deduction. See KEDARNATH JUTE MANUFACTURING COMPANY LIMITED 1971 (8) TMI 10 - SUPREME COURT - Decided in favour of assessee. Nature of expenses - Disallowance of club expenses - AO has made disallowance of entry fee/subscription charges paid by the assessee on the ground that the said expenditure is capital expenditure - HELD THAT - The assessee has incurred club expenses and claimed as revenue expenditure. The A.O without examining the nature of expenditure has held it capital expenditure. As decided in the case Ingersoll-Rand India Ltd. 2020 (4) TMI 550 - KARNATAKA HIGH COURT has held that expenditure spend on club expenses are revenue in nature. Respectfully following the decision of Hon ble Karnataka High Court supra the addition made on disallowance of club expenses is deleted. The ground of appeal is accordingly deleted. Appeal filed by the assessee is allowed.

Summary

The appeal in this case pertains to the Assessment Year (AY) 2010-11 and arises from an order by the Commissioner of Income Tax (Appeals) and the Assessing Officer under the Income-tax Act, 1961. The key issues presented and considered in this judgment are as follows:1. Ground No. 1: Assessment order validity based on limitation period under section 153(2) of the Act.2. Ground No. 2: Disallowance under section 40(a)(ia) of the Act for non-deduction of tax on discounts to prepaid distributors.3. Ground No. 3: Disallowance of year-end accruals under section 40(a)(ia) of the Act.4. Ground No. 4: Disallowance of club entrance fee/subscription charges.**Issue-Wise Detailed Analysis:****Ground No. 1:**The appellant argued that the assessment order was invalid as it was passed after the limitation period under section 153(2) of the Act. However, this ground was deemed general in nature and did not require adjudication.**Ground No. 2:**The disallowance under section 40(a)(ia) of the Act for non-deduction of tax on discounts to prepaid distributors was challenged. The appellant contended that recent judicial decisions, including a Supreme Court ruling, supported their position that TDS was not applicable in such cases. The Tribunal agreed with the appellant, citing the Supreme Court decision and allowed the ground of appeal.**Ground No. 3:**The disallowance of year-end accruals under section 40(a)(ia) of the Act was disputed by the appellant. They argued that TDS was not required on year-end provisions that were subsequently reversed at the beginning of the next financial year. The Tribunal referenced a Karnataka High Court decision to support the appellant's position and allowed the ground of appeal.**Ground No. 4:**The disallowance of club entrance fee/subscription charges was contested by the appellant. They relied on decisions from Punjab & Haryana High Court and Karnataka High Court to support their argument that such expenses were revenue in nature. The Tribunal followed the Karnataka High Court decision and deleted the disallowance, thereby allowing the ground of appeal.**Significant Holdings:**- The Tribunal ruled in favor of the appellant on all grounds, allowing the appeal.- The Tribunal emphasized the applicability of recent judicial decisions, including those by the Supreme Court, in determining the tax treatment of certain expenses.- Core principles established include the interpretation of TDS provisions and the distinction between capital and revenue expenditures.In conclusion, the Tribunal allowed the appeal filed by the assessee, overturning the disallowances made by the Assessing Officer and the Commissioner of Income Tax (Appeals). The judgment was pronounced on 29th January 2025.