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2017 (6) TMI 1114 - AT - Income TaxTDS u/s 194J - disallowance u/s. 40(a)(ia) - non-deduction of tax on MICR charges paid to Clearing House, i.e., expenses paid by various branches of the assessee, J & K Bank Ltd. - Held that - CIT(A), while deleting the disallowance, has observed that MICR charges representing Magnetic Ink Charter Recognition , are cheque clearing charges. It is an undisputed fact that the machine involves recognized numeric data printed with magnetic charged ink. This is done with the help of ultraviolet rays, which scans the genuineness of the cheques. Apparently, human intervention is not required in MICR clearing of cheques, which involves examining technical data, analyzing them and making them useful for subsequent use. MICR clearance of cheques is possible only by a mechanized system, considering that the processing is of cheques in bulk. A similar situation had presented before the Hon ble Supreme Court in the case of CIT vs. Bharti Cellular Ltd. (2010 (8) TMI 332 - Supreme Court of India) following which it was, that the ld. CIT(A) held the provisions of section 40(a)(ia) of the Act not to be attracted. The ld. CIT(A) followed his own order in the assessee s case for A.Ys. 2007-08 and 2009-10 in deleting the disallowance.- Decided against revenue Addition in respect of disallowance of depreciation on wooden partitions - Held that - Assessee to be entitled to 100% depreciation, observing that the structure in the form of wooden partition was purely a temporary wooden structure on a rented premises, giving no advantage of enduring nature; and that similar disallowances have been deleted in the assessee s own cases for A.Ys. 2005-06 to 2009-10. Addition u/s.40(a)(ia) on account of short TDS as reported in Annexure J of the Tax Audit Report of the assessee bank - Held that - Section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40 a)(ia) of the Act. Accordingly, we confirm the order of CIT (A) allowing the claim of assessee and this issue of revenue s appeal is dismissed. Non-deduction of tax on interest paid to Jammu Development Authority - Held that - It has not been disputed that Jammu Development Authority stands incorporated by the J & K Development Act, 1970. C.B.D.T. Notification no.3439, dated 27.10.1970, issued, in pursuance of the provisions of section 194A(3)(f) of the Act, provides that no tax was required to be deducted on interest on deposit paid to a Corporation incorporated under a State Act. The position is not any different so far as regards J.D.A. incorporated under the said State Act, too. Therefore, the provisions of section 194A of the Act are not applicable, due to which, the provisions of section 40(a)(ia) are also not attracted. Disallowance u/s. 14A - Held that - Before invoking Rule 8D of the IT Rules and making additional disallowance, the AO was required to record his satisfaction as to the incorrectness of the claim of the assessee; that in the year under consideration, the bank had shown that the investments, from which income had been earned, stood treated as stock in trade rather than investment; that the assessee had not claimed exemption on this income; that as such, the assessee had offered its income and had not considered the income to be part of its total income; that therefore, section 14A of the Act was not applicable and it could not have been invoked; that had the assessee claimed this income exempt, it was exactly the same as in the earlier years, in which years, it was held that in view of the assessee s own funds, no disallowance of interest cost could have been made and that in view of the fact that management cost is fixed, whether or not this is exempt income as earned, there cannot be any management cost relating to this exempt income earned; and that a similar disallowance has been deleted by him the ld. CIT(A) in the assessee s case for A.Y 2009-10. Disallowance on account of prior period expenditure - TDS laiability - Held that - merely passing a debit entry of these expenses in the books of account, would not be sufficient for claiming the deduction in the present account in the concerned year and then also, the deduction would not be admissible, unless tax has been paid on such amount; and that the proviso to section 40(a)(ia) makes it clear that if tax has been deducted in the subsequent year and paid, then deduction would be allowed in that year. It may be important for accounting purposes, passing of a debit entry in the books of account, concerning the expenses in the year in which the expenses were incurred, for the purposes of section 40(a)(ia) of the IT Act, it is not determinative of the deductibility particularly the year thereof. In view of the above, the grievance raised by the assessee is quite justified and it is accepted as such. The CIT(A) s order is reversed. The addition is deleted.
Issues Involved:
1. Disallowance under Section 40(a)(ia) on Clearing House Charges. 2. Disallowance of Depreciation on Wooden Partitions. 3. Addition under Section 40(a)(ia) due to Short TDS. 4. Addition on Account of Non-Deduction of Tax on Interest Paid to Jammu Development Authority. 5. Disallowance under Section 14A. 6. Disallowance of Prior Period Expenditure. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) on Clearing House Charges: The first issue concerns the disallowance under Section 40(a)(ia) of the Income-tax Act for non-deduction of tax under Section 194J on MICR charges paid to the Clearing House. The CIT(A) deleted the disallowance, stating that MICR cheque clearing involves no human intervention and is done through a mechanized system, following the principle laid down by the Supreme Court in CIT vs. Bharti Cellular Ltd. The ITAT upheld this view, noting that similar disallowances had been deleted in previous years and no changes in facts were shown for the current year. 2. Disallowance of Depreciation on Wooden Partitions: The second issue pertains to the disallowance of depreciation on wooden partitions. The AO allowed depreciation at 10% instead of 100% as claimed. The CIT(A) allowed 100% depreciation, considering the partitions as temporary structures on rented premises. The ITAT upheld this decision, referencing its orders for earlier years where similar disallowances were deleted. 3. Addition under Section 40(a)(ia) due to Short TDS: The third issue involves the addition under Section 40(a)(ia) for short TDS as reported in the Tax Audit Report. The CIT(A) deleted the disallowance, relying on the Calcutta High Court's decision in CIT, Kolkata vs. S.K. Teriwal, which held that shortfall in TDS due to a difference in opinion on the nature of payments does not attract Section 40(a)(ia). The ITAT upheld this view, noting that the Tribunal's orders for earlier years were not reversed or stayed. 4. Addition on Account of Non-Deduction of Tax on Interest Paid to Jammu Development Authority: The fourth issue pertains to the addition for non-deduction of tax on interest paid to Jammu Development Authority (JDA). The CIT(A) deleted the addition, following the Tribunal's orders for earlier years, which held that JDA, being incorporated under a State Act, was exempt from TDS under Section 194A(3)(f). The ITAT upheld this decision, noting that the Tribunal's earlier orders were not reversed or stayed. 5. Disallowance under Section 14A: The fifth issue concerns the disallowance under Section 14A for expenses related to exempt income. The CIT(A) deleted the disallowance, stating that the assessee had offered the entire income to tax and no related cost was incurred for earning the exempt income. The ITAT upheld this view, referencing its orders for earlier years where similar disallowances were deleted. 6. Disallowance of Prior Period Expenditure: The sixth issue involves the disallowance of prior period expenditure. The CIT(A) confirmed the disallowance, stating that the expenses should have been accounted for in the year they were incurred. The ITAT reversed this decision, citing the Delhi High Court's ruling in Commissioner of Income Tax vs. SMCC Construction, which held that expenses are deductible in the year the tax on them is deducted and paid, irrespective of the year they were incurred. Conclusion: The ITAT dismissed the department's appeals for A.Ys. 2010-11 and 2011-12, upholding the CIT(A)'s deletions of various disallowances and additions. The ITAT allowed the assessee's appeal for A.Y. 2011-12, reversing the CIT(A)'s confirmation of disallowance of prior period expenditure. The judgment emphasizes the importance of consistency in tax treatment across years and adherence to judicial precedents.
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