2019 (2) TMI 743 - AT - Income Tax

TDS u/s 195 - addition u/s 40(a)(ia) - treating the Notification No 56/2012 dated 31-12-2012 effective from 01-01-2013 for the deduction of tax payment to Indian Bank under the Income tax Act, 1961 as merely of a clarification in nature - Held that - In case of CIT vs. JDS Apparels (P) Ltd. reported in (2014 (11) TMI 732 - DELHI HIGH COURT) and has held that since the bank was making the payment to the assessee after making deduction of bank charges, there was no occasion for the assessee to deduct tax at source and, further, the bank was not acting on behalf of the assessee but on the other hand was acting on behalf of the customers while processing payments through debit cards and credit cards. In the present case we further feel the said principle should be applied as HDFC would necessarily have acted as per law and it is not the case of the Revenue that the bank had not paid taxes on their income. It is not a case of loss of Revenue as such or a case where the recipient did not pay their taxes - decided against revenue. Addition made to the book profits u/s 115JB - Provision for gratuity as an ascertained liability as it based on actuarial valuation - Held that - We find from the order of the Ld. CIT (Appeals) that he has given a categorical finding that the provision for gratuity was an ascertained liability and was based on actuarial valuation and, therefore, the addition made to the book profits u/s 115JB on this account was liable to be deleted. DR also could not point out that the observations of the Ld. CIT (Appeals) in this regard were factually incorrect. We also note that this issue is also covered by another order of the Delhi Bench of the Tribunal in the case of ACIT vs. NHPC Ltd. vide 2014 (9) TMI 1011 - ITAT DELHI . CIT (Appeals), while allowing the assessee s appeal, has also referred to the observations of the ITAT in this case. Accordingly, we find ourselves unable to take a view which is different from that of the CIT (Appeals) on this issue and we dismiss ground no. 2 of the department s appeal.

Summary

Issues:
1. Disallowance of TDS on bank charges under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of gratuity liability under section 115JB of the Income Tax Act, 1961.

Analysis:

Issue 1: Disallowance of TDS on Bank Charges
The department challenged the deletion of the addition of &8377; 69,45,219/- under section 40(a)(ia) by the Ld. CIT (Appeals). The ITAT, after considering the arguments, found that the issue was covered in favor of the assessee based on a previous order in the assessee's case for assessment year 2012-13. The ITAT referred to the judgment of the Hon'ble Delhi High Court in the case of CIT vs. JDS Apparels (P) Ltd. The ITAT concluded that since the bank deducted bank charges before making payments to the assessee, there was no requirement for the assessee to deduct tax at source. The ITAT emphasized the principle of strict construction of penal provisions and held that the provision of section 40(a)(ia) should not be invoked in this case. Therefore, the ITAT dismissed ground no. 1 of the department's appeal.

Issue 2: Disallowance of Gratuity Liability
The department contested the deletion of the addition of &8377; 4,03,306/- made by the Assessing Officer regarding the gratuity liability of the assessee under section 115JB. The ITAT found that this issue was also covered in favor of the assessee based on previous orders in the assessee's case for assessment year 2012-13 and another case of ACIT vs. NHPC Ltd. The ITAT agreed with the Ld. CIT (Appeals) that the provision for gratuity was an ascertained liability based on actuarial valuation. The ITAT noted that the Ld. CIT (Appeals) had correctly determined that the addition to the book profits under section 115JB was not warranted. Consequently, the ITAT dismissed ground no. 2 of the department's appeal.

General Ground:
The third ground of appeal, which was general in nature, did not require separate adjudication by the ITAT.

In conclusion, the ITAT dismissed the department's appeal, upholding the decisions of the Ld. CIT (Appeals) on both issues. The judgment was pronounced on 28th January 2019.