2015 (6) TMI 1183 - AT - Income Tax

Legal and professional fee - nature of expenditure - revenue or capital expenditure - CIT(A) accepted assessee s explanation without giving the Assessing Officer an opportunity in terms of Rule 46 of the Income Tax Rules 1962 - HELD THAT - CIT(A) has not violated the provisions of rule 46A of the Rules. According to the Ld. Representative even in the past years such expenditure has been allowed as revenue expenditure and that in the current year assessment year the AO has based his disallowance on a complete misreading of the submissions put-forth by the assessee. We find that Revenue has not specified any material or evidence relied upon by the CIT(A) which was not before the Assessing Officer and therefore in our opinion the objection of the Revenue in Ground of appeal no. 2 based on Rule 46 of the Rules is quite misconceived and the same is hereby dismissed. TDS u/s 194H - assessee has paid commission to banks on credit card transactions - Addition invoking sec 40(a)(ia). HELD THAT - In the case of JDS Apparels P. Ltd. 2014 (11) TMI 732 - DELHI HIGH COURT . As per the Hon ble Delhi High Court payment of commission to banks with regard to the processing of credit card transactions was not liable to be considered as a commission within the meaning of section 194H. Bank does not act as an agent of the assessee while processing the credit card payments and a charge collected by the bank for such service does not amount to commission within the meaning of section 194H. In view of the aforesaid Judgment of Hon ble Delhi High Court in the case of JDS Apparels P. Ltd. (supra) we hereby affirm the conclusion of the CIT(A) to the effect that the impugned disallowance made by the Assessing Officer by invoking section 40(a)(ia) is unsustainable. Thus Revenue fails on this Ground also. - Appeal of the Revenue is dismissed.

Summary

Issues involved:
1. Disallowance of expenditure for Mystery Audit as capital expenditure.
2. Dispute regarding deduction of tax at source from commission paid to banks.

Analysis:

Issue 1: Disallowance of expenditure for Mystery Audit as capital expenditure:
The appeal by the Revenue challenged the CIT(A)'s order regarding the disallowance of an expenditure of Rs. 9,09,664 for Mystery Audit, contending it should be treated as capital expenditure for property acquisition. The Assessing Officer disallowed the expenditure, considering it capital in nature. However, the CIT(A) found the expense was for checking quality of services in the assessee's restaurants, not for acquiring a property, and allowed the expenditure. The ITAT affirmed the CIT(A)'s decision, stating the expenditure was for maintaining service standards and was revenue in nature. The Revenue's objection under Rule 46A of the IT Rules was dismissed as no new material was presented to the CIT(A), and past allowances supported the current claim.

Issue 2: Dispute regarding deduction of tax at source from commission paid to banks:
The second issue involved the disallowance of Rs. 6,34,22,030 by the Assessing Officer under section 40(a)(ia) for not deducting tax at source from commission paid to banks for credit card services. The CIT(A) disagreed with the Assessing Officer, citing a Tribunal decision that such payments were not subject to tax deduction under section 194H. The ITAT upheld the CIT(A)'s decision, supported by a Delhi High Court judgment, stating that bank charges for credit card services did not fall under the definition of 'commission' for tax deduction purposes. The Revenue's appeal was dismissed based on the established legal precedents.

In conclusion, the ITAT upheld the CIT(A)'s decisions in both issues, dismissing the Revenue's appeal. The judgment emphasized the nature of the expenditures and the legal interpretations regarding tax deductions, providing detailed reasoning and legal references for the decisions made.