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TMI Blog2022 (11) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... ture India Ltd., [ 2022 (7) TMI 1093 - DELHI HIGH COURT] Nature of expenditure - revenue expenditure claimed by the assessee whereas it is in the nature of capital in nature - assessee could not prove that it is a revenue expenditure - HELD THAT:- We observe that the AO has observed that the assessee itself has capitalized in the financial statements to the expenditure incurred but the assessee has claimed it as a revenue expenditure and the assessee also could not justify that this expenditure is in the nature of revenue expenditure before us. Therefore, the AO has rightly treated it as capital expenditure after observing the submissions of the assessee that the salary paid towards the expansion activities in Hyderabad, the capital expenditiure incurred by the assessee is not allowable u/s 37(1) of the Act. Therefore, we uphold the order of the AO and reverse the order of the CIT(A). Allowability of processing fees and interest paid by the assessee on the loan taken - HELD THAT:- No infirmity in the order of the CIT(A) and this issue is also covered by the judgment of Hon ble Supreme Court in the case of Vardhman Polytex Ltd. Vs. CIT [ 2012 (9) TMI 519 - SC ORDER] in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings, the assessee submitted various details as per the questionnaire of the AO. The AO observed that the assessee has claimed an amount of Rs.1,18,27,431/- as credit card commission under the head commission, brokerage and discounts . The assessee was asked to furnish the details. The assessee filed details and it was verified by the AO and he observed that the assessee had not deducted TDS as per the provision of sec. 194H on these payments. In respect of credit card payments, the assessee submitted that it was in the nature of bank charges and do not require TDS to be deducted from the payments made to the banks and he further submitted that the commission is confined to payment made to agents for affecting sales and carrying out business transaction and cannot extend to payments which are for services rendered for products offered on principal to principal basis. The expenditure offered by the assessee was not accepted by the AO and AO applied Explanation - 1 to section 194H of the Act and he relied on the judgment of CIT Vs. Singapore Airlines Ltd., and other Airlines, 213 ITR 441 and the decision of ITAT Ahmadabad Bench in the case of Canara Bank Vs. ITO and B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of Rs.1,17,99,19,085/- as on 31/03/2011 in various equity shares and securities and income from these investments are not form part of the total income of the assessee. The assessee was asked as to why the disallowance u/s 14A r.w Rule 8D should not be made. In response, the assessee submitted that the assessee has not incurred any expenditure in respect of earning of exempt income. The AO has not accepted claim of the assessee and he calculated the disallowance as per Rule 8D and disallowance was made as sec.14A of Rs.57,21,330/-. 7. Further the AO observed that the assessee had claimed deduction amounting to Rs.1,03,47,558/- with the narration salaries transferred to work in progress . In this regard, the assessee was asked to furnish details of allowability of this expenditure. In response, the assessee submitted that salary paid to Sr. executive amounting to Rs.1,03,47,458/- were capitalized in the books of accounts towards expansion of the business in Hyderabad and findings is as under:- The contention of the assessee company are examined and found to be not acceptable: The assessee company itself has capitalized the expenditure relating to salaries. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Rs. 1,46,36,138/- to the bank for credit / debit card payment realisation., AO was of the opinion that such payments fell within the ambit of commission and therefore Section 194H of the Act stood attracted. As per the AO, relationship between the bank and the merchant was established under the merchant contract and hence contention of the assessee that bank was acting on behalf of card holder was incorrect. AO also noted that CBDT vide Notification No.56/2012, dt. 13.12.2012 exempted seven services from the rigors of 'deducti6n of tax at source with effect from 01.01.2013 and hence according to the A10 i1or to that date, such payments fell within section I94H of the At Since the assessee had not deducted tax, AO had applied section 40(a)(ia) of the Act and made a disallowance of Rs.1,46,13,188/-. 11. In its appeal before the CIT (A), argument of the assess e was that what was released by the banks was the net amount and assessee had not paid any direct commission to the bank. Bank itself had retained their charges out of the payments received from customers and passed on only the balance to the assessee. Reliance was placed by the assesse on the decision of the Hyderab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee, we allow ground No.2. ] 15. Ground No.1 and 4 is general in nature and does not require adjudication. 16. In the result, the appeal of the assessee is partly allowed. Now we come to the appeal of the Revenue in ITA No. 1187/Bang/2018 17. In respect of ground No.1, the ld.DR relied on the order of the AO and he submitted that the CIT(A) has wrongly allowed this issue in favour of the assessee. 18. Further in respect of ground No.2, the ld.DR submitted that even if there was no exempt income received by the assessee still the AO can make disallowance u/s 14A r.w Rule 8D and he relied on the order of the AO. The amendment by the Finance Act 2021 is a retrospective in nature . The CIT(A) has wrongly interpreted the provision and allowed this ground of the assessee. 19. In respect of ground No.3 he relied on the order of the AO and he submitted that the AO has rightly disallowed the revenue expenditure claimed by the assessee whereas it is in the nature of capital in nature. The assessee could not prove that it is a revenue expenditure. Therefore, the order of the AO should be restored. 20. The ld.AR of the assesee relied on the order of the CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is paid towards process fees for such borrowal. Further submitted that the books of account and income tax computation are two different things and that the former is governed by the Companies Act, 1956/2013, while the latter governed by the Income Tax Act 1961. There are many instances of both income and expenses that are treated differently under the two Acts above and one need not necessarily follow the other. The appellant relied on the Hon'ble Kolkata Tribunal's in the case of Sarat Chatterjee Co. Pvt. Ltd. Vs. ACIT wherein it was held that upfront fee for term loan and pre-payment penalty charges incurred in relation to obtaining bank loans to finance procurement of heavy machinery were purely in the nature of revenue expenditure. Disallowance of processing charges is against law as the nature of expense in the appellant' case is similar to the expense incurred in the case of India Cement Ltd. Vs. CIT, 60 ITR 52 wherein it was held that amount spent towards stamp duty, registration fees and lawyer fees for creating charge on fixed assets were held to be revenue nature. It is the substance of the expenses that need to be looked into and not the nomenclature u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any exempt income earned by the assessee or not. During the impugned assessment year, the assessee has also not submitted before us computation of income as well as the financial statements so that it can be concluded that there was any exempt income or not for the impugned assessment year. The ld.AR submitted that the assessee has not received any exempt income therefore no addition can be made as decided by the various upper courts. The ld.DR submitted that there is an amendment has been made by Finance Act on 2022 by inserting Explanation for removing the doubts, this explanation has been dealt by Delhi High Court in the case of Pr.CIT (Central) Vs. Era Infrastrucuture (India) Ltd. reported in [2022] 141 taxmann.com 289. The relevant part is as under:- 4. Learned counsel for the petitioner also submits that in view of the amendment made by the Finance Act, 2022 to section 14A of the Act by inserting a non obstante clause and an explanation after the proviso, a change in law has been brought about and consequently, the judgments relied upon by the authorities below including IL FS Energy Development Co. Ltd. (supra) are no longer good law. The amendment to Section 14A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2022-23 and subsequent assessment years. (emphasis supplied) 6. Furthermore, the Supreme Court in Sedco Forex International Drill. Inc. v. CIT [2005] 149 Taxman 352/279 ITR 310 has held that a retrospective provision in a tax act which is for the removal of doubts cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. The relevant extract of the said judgment is reproduced hereinbelow: '9. The High Court did not refer to the 1999 Explanation in upholding the inclusion of salary for the field break periods in the assessable income of the employees of the appellant. However, the respondents have urged the point before us. 10. In our view the 1999 Explanation could not apply to assessment years for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in CIT v. S.G. Pgnatale [(1980) 124 ITR 391 (Guj.)] was followed in 1989 by a Division Bench of the Gauhati High Court in CIT v. Goslino Mario [(2000) 241 ITR 314 (Gau.)]. It found that the 1983 Explanation had been given effect from 1-4-1979 whereas the year in question in that cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his reading of the Explanation by the Kerala High Court, but restricted itself to a question of fact viz. whether the Tribunal had correctly found that the salary of the assessee was paid by a foreign company. This Court dismissed the appeal holding that it was a question of fact. (CIT v. SR Patton [(1998) 8 SCC 608] .) 15. Given this legislative history of Section 9(1)(ii), we can only assume that it was deliberately introduced with effect from 1-4-2000 and therefore intended to apply prospectively [See CIT v. Patel Bros. Co. Ltd., (1995) 4 SCC 485, 494 (para 18) : (1995) 215 ITR 165]. It was also understood as such by CBDT which issued Circular No. 779 dated 14-9-1999 containing Explanatory Notes on the provisions of the Finance Act, 1999 insofar as it related to direct taxes. It said in paras 5.2 and 5.3. 5.2 The Act has expanded the existing Explanation which states that salary paid for services rendered in India shall be regarded as income earned in India, so as to specifically provide that any salary payable for the rest period or leave period which is both preceded and succeeded by service in India and forms part of the service contract of employment will also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139].) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of UP., (1981) 2 SCC 585]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24; Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352; CIT v. Podar Cement (P.) Ltd., (1997) 5 SCC 482]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are it is declared or for the removal of doubts . 18. There was and is no ambiguity in the main provision of section 9(1)(ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word earned had been judicially defined in SG. Pgnatale [(1980) 124 ITR 391 (Guj.)] by the High Court of Gujarat, in our view, correctly, to mean as income arising or acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue has filed appeal and the ld.DR relied on the order of the AO and submitted that the assessee is unable to produce any credential evidence for substantiating his case that it was revenue in nature. Therefore, he requested that the order of the AO should be restored and he submitted that the case law relied on by the CIT(A) is not applicable in the present set facts of the case and also the details are not submitted by the assessee. 25. The ld.AR relied on the order of the CIT(A). 26. After hearing the rival submission, perusing the entire material on record and examining the orders of the lower authorities, we observe that the AO has observed that the assessee itself has capitalized in the financial statements to the expenditure incurred but the assessee has claimed it as a revenue expenditure and the assessee also could not justify that this expenditure is in the nature of revenue expenditure before us. Therefore, the AO has rightly treated it as capital expenditure after observing the submissions of the assessee that the salary paid towards the expansion activities in Hyderabad, the capital expenditiure incurred by the assessee is not allowable u/s 37(1)of the Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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