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TMI Blog2020 (9) TMI 1100X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the order of CIT(A) confirming the action of the AO in making disallowance of discount and various other expenses like discount on sale of set-top box and hardware, discount on sale of recharge coupon vouchers, disallowance of bonus or credit provided by the assessee to subscribers, disallowance of sale promotion expenses and disallowance of channel support expenses for non-deduction of TDS by invoking the provision of section 40(a)(ia) of the Act. 3. The facts and circumstances of both the years are identical as admitted by Ld. Senior Counsel for the assessee as well by Ld. CIT-DR. Hence, we will take the facts from AY 2009-10 and decide the issues raised by the assessee in this year. For this, assessee has raised the following grounds in AY 2009-10: - "1. On the facts and in the circumstances of the case and in law, the Hon'ble Commissioner of Income-tax (Appeals) -13. Mumbai [C1T(A)] erred in upholding the disallowance of discount on sale of Set-top box & hardware aggregating to Rs. 23.50,51.772 (Rs. 1338,81.648 and Rs. 10,11,70,124 respectively) under Section 40(a)(ia) of the Act. 2. On the facts and in the circumstances of the case and in law, the Hon'ble 01(A) e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. 1 Disallowance of discount on sale of Set-top box & hardware aggregating to Rs. 23,50,5 1,772 (Rs. 13,38,81,648 and Rs. 10111,70,124 respectively) under section 40(a)(ia) of the Act The Mumbai Tribunal at para 34 (page 23) has specifically mentioned about the Appellant giving discount on the sale of Set-top box and recharge coupon vouchers. The Tribunal at para 39 (page 30) has held that such discount is not in the nature of commission 2 Disallowance of discount on the sale of recharge coupon vouchers of Rs. 38,80,61,901 under Section 40(a)(ia) of the Act. 3 Disallowance of bonus or credit provided by the Appellant to subscribers of Rs. 1,54,24,104 under Section 40(a)(ia) of the Act Please refer to clarification mentioned in point B below 4 Disallowance of sales promotion expenses of Rs. 1,30,37,124 under Section 40(a)(ia) of the Act. The Mumbai Tribunal at para 34 (page 23) also mentioned about the additional discount, i.e., festival/seasonal discounts to the distributors. The Tribunal at para 39 (page 30) has held that such discount is not in the nature of the commission 5. Disallowance of distribution channel support expenses of Rs. 10,81,11,728 under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unwarranted. 6. The learned Counsel for the assessee stated that the issue is squarely covered by Tribunal's decision in ITA No. 6923 to 6926/Mum/2012 in assessee's own case for AYs 2009-10 to 2012-13 order dated 12.10.2018, wherein, while adjudicating the appeal under section 201(1) and 201(1A) of the Act, whether the assessee is liable for TDS, he stated that the Tribunal vide Para 39 has categorically held that the assessee should not be visited with the liability to deduct TDS under section 201(1) and 201(1A) of the Act. For this he referred to Para 39 and 40 of Tribunal's order as under: - "39. A cohesive reading of the above case laws particularly that of the Hon'ble Bombay High Court in the case of Piramal Healthcare Ltd. (supra), Qatar Airways (supra) and Intervet India (P.) Ltd. (supra) would show that the ld. Counsel of the assessee's plea that the assessee should not be visited with the liability to deduct TDS for non-deduction of tax at source u/s. 194H on the difference between the discounted price at which it is sold to the distributors and the MRP upto which they are permitted to sell, is cogent and is sustainable view. As noted hereinabove the Hon'ble Juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 Taxman 118 (Delhi) 2. Idea Cellular Ltd. vs. ACIT (2014) 51 taxmann.com 50 (Hyderabad-Trib.) 3. Tata Teleservices Ltd. vs. DCIT (2013) 29 taxmann.com 261 (Bangalore -Trib.) 4. Bharti Cellular Ltd. vs. ACIT (2011) 12 taxmann.com 30 (Calcutta)." He also filed written note dated 14.03.2018. He submitted that the issue is covered in favour of Revenue and against assessee by the case laws of ITAT, Hon'ble High Courts and Supreme Court to support and strengthen the Department's case which are directly on the point. He referred to the following two issues first: - The first issue regarding- (1) Disallowance on discount of sale of STBs U/s. 40(a)(ia) - Rs. 38,86,45,630/- (2) Disallowance on discount of sale of RCVs U/s. 40(a)(ia) - Rs. 46,27,2 1,974/- He stated that the assessee is engaged in the business of providing Direct to Home Services (DTH). A Set Top Box (STB) at the premises of the subscribers receives television signals through broadcasters which are uplinked to the satellite. The assessee classified DTH in two parts; the Hardware (which are ultimately sold to the subscribers, assessee does not retain any ownership rights therein) and the Tata Sky Hardware (wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided to subscribers, sales promotion expenses and distribution channel support expenses for failure to deduct TDS u/s 194H of the IT Act, 1961. This issue of assessee's appeal is allowed. 9. Similar is the facts in respect of this ground for AY 2010-11 in ITA No. 3215/Mum/2014 hence, in that year also the disallowance is deleted on this account. 10. The next issue in ITA No. 3214/Mum/2014 for AY 2009-10 of assessee's appeal is against the order of CIT(A) confirming the action of the AO in making disallowance of year end provisions was made by assessee in respect of expenses. For this assessee has raised the following ground No. 6: - "6. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the disallowance of the year end provisions of Rs. 56,97,54,762/- made by the Appellant in its financial statements under section 40(a)(ia) of the Act." 11. During the relevant AY 2009-10, the assessee made ad-hoc year-end provision of expenses of Rs. 56,97,54,762/- in the absence of receipt of the invoices. Since, the assessee had not deducted tax in AY 2009-10 on such year-end provision, the AO has disallowed the same under section 40(a)(ia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for year-end provision ought to be allowed in AY 2009-10, and consequently, deduction of the same cannot be granted in the subsequent assessment year (i.e. AY 2010-11). 13. The learned DR on the other hand strongly supported the order of the CIT(A) and submitted that as per the provision of chapter XVII-B of the Act, TDS is required to be deducted either at the time of payment or at the time of credit including even a credit in the suspense account is subject to TDS. Therefore, there is no merit in the argument of the assessee is that TDS is not applicable on year end provisions. 14. We have heard both the parties, perused the materials available on record and gone through the orders of the lower authorities below including case laws relied upon by the learned counsel for the assessee. The facts borne out from record indicate that the assessee made year-end provisions in respect of sale promotion, legal and professional fees, interest and programming costs as under: - S NO Particulars Section of applicability of TDS 1. Provision for sales promotion 194H 1,97,48,132 2. Provision for legal & Professional 194J 2,74,55,451 3. Provisions for Interest 194A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gards disallowance of interest expenses. The issue is exactly identical in both the years. Hence, we take following ground for Assessment Year 2009-10 and decide the issue for both the years: - "Disallowance of interest expense under section 36(1)(iii) 7. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the disallowance of interest expense of Rs.1,99,51,000/- under section 36(1)(iii) of the Act." 18. Briefly stated, facts are that during the AY 2009-10 and AY 2010-11, the Assessee had Capital Work-in-progress ('WIP') of Rs. 51.87 crores and Rs. 55.09 crores respectively, which consisted of: Nature of Expenses AY 2009-10 (Rs. in crores) AY 2010-11 (Rs.in crores) Viewing cards 50.13 40.44 Other stand by equipments 1.74 14.65 Otal 51.87 55.09 The AO observed that the assessee had not allocated any interest expenditure against the capital WIP. Hence, AO held that part of interest was allocable to such capital WIP and accordingly, he has disallowed proportionate interest expenditure under Section 36(1)(iii) of the Act. 19. The learned AR submitted that the learned CIT(A) has erred in confirming disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st paid on loan availed for purchase of capital asset needs to be capitalized till such period the assessee put the asset to use. There is no doubt with regard to legal position, because interest paid on borrowed capital shall be capitalized to work in progress till such time the capital asset is put to use. But, what is to be seen is whether the assessee has borrowed any fund for acquisition of capital asset or not. In case, no borrowed fund is used for acquisition of asset then question of capitalization of interest does not arise. In this case, on perusal of facts available on record it is very clear that the assessee has not borrowed specific loan for acquiring capital asset. In fact, the assessment order is silent on this aspect. However, the AO has disallowed proportionate interest paid on other loans including loans borrowed for working capital purpose on the ground that the assessee has used interest bearing funds for acquisition of capital asset, without bringing on record any evidence to prove that loan funds have been used for acquisition of capital work in progress. But, fact remains that the assessee has categorically demonstrated with evidences that capital work in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the IT Act, 1961. The AO has disallowed interest expenses and other expenses by invoking Rule 8D(2)(ii)and (iii) on the ground that although the assessee has debited huge interest expenses and other administrative expenses, but failed to disallow expenses relatable to exempt income, by following the decision of ITAT Delhi Special Bench in the case of Champ Investment Ltd. (378 ITR 33). It is the case of the assessee that during the year under consideration it has not earned any exempt income and hence, the question of disallowance of expenses u/s 14A of the Act does not arise. 23. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. We find that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of Ballarpur Industries Ltd. in ITA No. 51 of 2016, wherein it was held that when there is no exempt income then no disallowance of expenses u/s 14A of the IT Act, 1961 can be made. The Hon'ble Delhi High Court in the case of Cheminvest Ltd. (378 ITR 33supra) has held that if there is no exempt income then no disallowance of expenditure u/s 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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