ACIT (OSD) I CITY-2, MUMBAI V. BOB CARDS LTD, MUMBAI

ITA 7678/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8749 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D H SHAH
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . , BEFORE SHRI D. MANMOHAN, VICE PRESIDENT / AND !'# , !$ %& SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 7678/MUM/2010 ASSESSMENT YEAR 2007-08 DCIT - 2(1), AAYAKAR BHAVAN, R.NO. 561, 5 TH FLOOR, M.K. ROAD, MUMBAI-400 020. VS. M/S. BOB CARDS LTD., ESPERANCE, 1 ST FLOOR, SHAHID BHAGAT SINGH MARG, COLABA, MUMBAI-400 001 PAN: AAACB 1989 L ( '( / APPELLANT ) ( )*'( / RESPONDENT ) REVENUE BY : SHRI MOHIT JAIN ASSESSEE BY : SHRI D.H. SHAH + ,$ / DATE OF HEARING : 10-09-2012 -. + ,$ / DATE OF PRONOUNCEMENT : 18-09-2012 %!/ / O R D E R PER RAJENDRA, A.M. THE APPELLANT HAS FILED THIS APPEAL AGAINST THE ORD ER DT. 19-08-2010 OF THE CIT(A)-4, MUMBAI ON THE FOLLOWING GROUNDS: 1.THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND F ACTS OF THE CASE. 2.(A). ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN HOLDING THAT THE AMOUNT OF RS.21,61,004/- BEING THE AMOUNT OF TDS ON THE PAYMENTS MADE TO VISA AND MASTER CARD WILL BE ALLOW ED AS A DEDUCTION IN THE HANDS OF THE ASSESSEE WITHOUT APPRECIATING THAT THE TDS WAS THE TAXABILITY OF THE VISA AND MASTER CARD AND NOT OF THE ASSESSEE. 2.(B). ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD.CIT(A) ERRED IN HOLDING THAT THE AMOUNT OF RS.21,61,004/- BEING THE AMOUNT OF TDS ON THE I.TA. NO. 7678/MUM/2010 M/S. BOB CARDS LTD. 2 PAYMENTS MADE TO VISA AND MASTER CARD WILL BE ALLOW ED AS A DEDUCTION IN THE HANDS OF THE ASSESSEE WITHOUT APPRECIATING THAT THE TDS BEING PART OF THE ADVANCE TAX CANNOT BE ALLOWED AS A DEDUCTION UNDER THE I.T. ACT . 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THAT THE AO REST ORED. 2. ASSESSEE-COMPANY ENGAGED IN THE BUSINESS OF CREDIT CARD OPERATIONS AND FINANCING PAYMENTS FILED ITS RETURN OF INCOME ON 26 -10-2010 DECLARING LOSS OF RS. 12.49 CRORES. ASSESSMENT WAS FINALIZED ON 06-11-20 09 BY THE ASSESSING OFFICER (AO) U/S. 143(3) OF THE INCOME TAX ACT, 1961 (ACT) AT RS. 12,27,77,507/-. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE-COMP ANY HAD CLAIMED EXPENSES TOWARDS NON-REIMBURSEMENT TDS FOR MASTER CARD AND V ISA CARD UNDER THE HEAD OPERATING EXPENSES. THE BREAK UP GIVEN BY THE AS SESSEE-COMPANY WAS AS UNDER: I. TDS DEPOSITED FOR PAYMENT MADE TO VISA RS . 15,01,535/- II. TDS DEPOSITED FOR PAYMENT MADE TO MASTER CA RD RS. 6,59,469/- AO SPECIFICALLY ASKED THE ASSESSEE-COMPANY TO JUST IFY THE CLAIM OF EXPENDITURE INCURRED UNDER THE HEAD TDS PAID, BEC AUSE AS PER THE AO IT WAS NOT A LIABILITY OF THE ASSESSEE. AFTER CONSIDERING THE S UBMISSIONS MADE BY THE ASSESSEE VIDE ITS LETTER DTD.22-10-2009, HE HELD THAT ASSESSEE H AD NOT FURNISHED A COPY OF AGREEMENT, THAT FOR THE DETAILED REASONS DISCLOSED IN ASSESSME NT ORDERS FOR ASSESSMENT YEARS 2003-04, 2004-05, 2005-06 AND 2006-07 THE TAX DEDUC TED AT SOURCE OF VISA AND MASTER INTERNATIONAL WAS NOT ALLOWABLE DEDUCTION FO R ASSESSEES BUSINESS, THAT TDS BEING PART OF ADVANCED TAX WAS NOT AN ALLOWABLE TAX UNDER THE INCOME TAX ACT. HE FINALLY HELD THAT EXPENDITURE AMOUNTING TO RS. 21.6 LAKHS WAS NOT INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS ES CARRIED OUT BY IT. AS A RESULT, ADDITION AMOUNTING TO RS. 21,61,004/- WAS MADE TO T HE INCOME OF THE ASSESSEE- COMPANY. 2.1. ASSESSEE-COMPANY PREFERRED AN APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE ASSESSEE-COMPANY, HE HELD THAT IT WAS NOT CORRECT T O SAY THAT THE AGREEMENT BETWEEN THE VISA, MASTER CARD INTERNATIONAL AND THE APPELLA NT WAS NOT PRODUCED BEFORE THE AO, THAT AS PER THE SAID AGREEMENT, THE ASSESSEE HA D TO BEAR THE EXPENSES ON ACCOUNT OF TAXED IN SHAPE OF TDS, SERVICE CHARGES PAID TO V ISA/MASTER CARD WERE GROSSED UP WITH TAX AND PAID TO THE VISA/MASTER CARD THAT THE PAYMENT MADE WAS NOT IN NATURE OF TDS, SAME WAS CONTRACTUAL LIABILITY, THAT SAID E XPENDITURE WAS ALLOWABLE DEDUCTION FROM THE BUSINESS EXPENSES OF THE ASSESSEE. HE REL IED UPON THE DECISION OF STANDARD POLYGRAPH MACHINES P. LTD. (243 ITR 788) WHEREIN IT WAS HELD THAT THE AMOUNT PAID BY THE ASSESSEE FOR DISCHARGING OF A LIABILITY UNDE RTAKEN IN TERMS OF AN AGREEMENT ENTERED INTO BETWEEN ASSESSEE AND THE COLLABORATOR FIRMS PART OF CONSIDERATION FOR AGREEMENT RELATING TO KNOW-HOW AND HENCE ALLOWABLE. FAA DELETED THE ADDITION MADE BY THE AO. 3. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUBMITT ED THAT AMOUNT OF RS.21.61 LAKHS BEING THE AMOUNT OF TDS ON PAYMENT M ADE TO VISA AND MASTER WAS NOT ALLOWABLE AS A DEDUCTION IN THE HANDS OF THE AS SESSEE, TDS WAS THE TAX LIABILITY OF VISA/ MASTER CARDS AND NOT OF THE ASSESSEE. THE TD S WAS PART OF THE ADVANCE TAX I.TA. NO. 7678/MUM/2010 M/S. BOB CARDS LTD. 3 AND HENCE WAS NOT ALLOWABLE. AUTHORISED REPRESENTA TIVE (AR) SUBMITTED THAT THE PAYMENT WAS THE RESULT OF THE AGREEMENT ENTERED INT O BETWEEN THE ASSESSEE-COMPANY AND MASTER/VISA CARD THAT SAME ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE- COMPANY BY I BENCH OF ITAT VIDE ORDER DT. 20-06-2 012 (A.Y. 2003-04, 2004-05 & 2005-06; ITA NOS. 4882, 2475, 6527/MUM/2010). HE FURTHER RELIED UPON THE CASE OF STANDARD POLYGRAPH MACHINES P. LTD. (SUPRA). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US IN THE CASE UNDER CONSIDERATION. AO HAS ADMITTE D THAT FROM THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE-COMPANY AND THE MASTER/VI SA CARD AGENCIES, THE ASSESSEE- COMPANY HAD TO BEAR THE TAX LIABILITY. PAYMENT OF TDS WAS MADE IN PURSUANCE OF THE AGREEMENT ENTERED IN TO BETWEEN THE ASSESEE-COMPANY AND THE VISA/MASTER CARD INTERNATIONAL. IN OUR OPINION PAYMENT MADE AS A RES ULT OF A CONTRACTUAL LIABILITY IS AN ALLOWABLE EXPENDITURE. FAA HAS RIGHTLY PLACED RELI ANCE ON THE CASE OF STANDARD POLYGRAPH MACHINES P. LTD (SUPRA) IN THIS REGARD. SECONDLY, WE FIND THAT THE SAME ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL DELIVERED FOR EARLIER AYS. I BENCH OF THE ITAT, MUMBAI HAS DECIDED THE ISSUE AS UNDER : 13.THE FOURTH GROUND RELATES TO DELETION OF THE DI SALLOWANCE OF RS.36,37,533/- BEING AMOUNT DEDUCTED AS TDS ON PAYMENTS IN RESPECT OF C HARGES FOR SERVICES PROVIDED BY VISA/MASTER CARD INTERNATIONAL. 14.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS MADE PAYMENTS TO V ISA/MASTER CARD INTERNATIONAL ON ACCOUNT OF THEIR CHARGES FOR THE SERVICES PROVID ED BY THEM TO THE ASSESSEE. THE TDS WAS DEDUCTED BY THE ASSESSEE ON SUCH PAYMENTS W AS TO THE TUNE OF RS. 36,37,533/~ WHICH WAS CLAIMED BY THE ASSESSEE AS DE DUCTION IN THE PROFIT & LOSS ACCOUNT . THE AO SOUGHT EXPLANATION FROM THE ASSESSEE AND POI NTED OUT WHY THIS SUM BEING TDS SHOULD NOT BE DISALLOWED AS THE SAME IS N OT A LIABILITY OF THE ASSESSEE. THE ASSESSEE POINTED OUT THAT AS PER AGREEMENT WITH VIS A & MASTER CARD INTERNATIONAL, THE ASSESSEE WAS REQUIRED TO BEAR THE TAX LIABILITY OF THESE COMPANIES. HOWEVER, THIS CONTENTION OF THE ASSESSEE DID NOT FIND FAVOUR WITH AO WHO WAS OF THE OPINION THAT THIS PAYMENT WAS NOT AN EXPENDITURE OF THE ASSESSEE AS THE SAME IS NOT INCURRED FOR THE ASSESSEES BUSINESS. 15.WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT( A), CIT(A) AFTER CONSIDERING THE SUBMISSIONS AND AGREEMENT HELD THAT THIS AMOUNT IS ALLOWABLE IN VIEW OF THE DECISION IN THE CASE OF CIT VS STANDARD POLYGRAPH MACHINES P VT. LTD 243 1TR 788 AND ACCORDINGLY DELETED THE ADDITION AND ALLOWED THE AP PEAL. 16.AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS IN APPEAL BEFORE US. 17.BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE R EITERATED THE SUBMISSIONS MADE BY AO. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF CIT VS STANDARD POLYGRAPH MACHINES PVT. LTD (SUPRA) AND THE OF S. T AKENAKA VS CIT 237 1TR 212 (KARNATAKA) 18.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AND ALSO THE ORDERS RELIED UPON BY THE LD. COUNSEL. WE FIND THAT IDENTICAL FACTS, HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS STANDARD POLYGRAPH MACHINES PVT. LTD (SUPRA) HAS ALLOWED THE CLAIM HOLDING THAT AMOUNT PAID WAS ONLY TO THE DISCHARGE OF THE LIABILITY WHICH LIABILITY THE ASSESSEE HAD TAKEN TO PAY AS PA RT OF THE AGREEMENT ENTERED INTO. I.TA. NO. 7678/MUM/2010 M/S. BOB CARDS LTD. 4 THE AMOUNT SO PAID AS TAX HAS BEEN HELD TO BE THE A MOUNT PAYABLE BETWEEN THE COLLABORATOR AND THE ASSESSEE. THE TRIBUNAL DECIDED THAT THE AMOUNT SO PAID BY THE ASSESSEE WAS ONLY IN DISCHARGE OF A LIABILITY WHICH IT HAD UNDERTAKEN IN TERMS OF THE AGREEMENT. SIMILAR VIEW HAS BEEN TAKEN BY HONBLE K ARNATAKA HIGH COURT IN THE CASE OF S.TAKENAKA VS CIT 237 1TR 212 (SUPRA). WE F IND THAT THE FACTS AND ISSUES ARE IDENTICAL WITH THOSE OF THE ABOVE CITED CASES THERE FORE RESPECTFULLY FOLLOWING THE DECISIONS OF HONBLE HIGH COURTS CITED HEREIN ABOVE , THIS GROUND RAISED BY THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE ORDERS OF THE CO-ORDINA TE BENCH, WE DECIDE GROUND NOS. 1-2 AGAINST THE AO. APPEAL FILED BY THE ASSESSING OFFICER STANDS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER, 2012. SD/- SD/- ( . / D. MANMOHAN) ( !'# / RAJENDRA) / VICE PRESIDENT !$ %& / ACCOUNTANT MEMBER MUMBAI, 0% DATE: 18 TH SEPTEMBER, 2012 TNMM %!/ %!/ %!/ %!/ + ++ + ),1 ),1 ),1 ),1 2!1., 2!1., 2!1., 2!1., / COPY OF THE ORDER FORWARDED TO : 1. APP ELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE *1, ), //TRUE COPY// %!/ %!/ %!/ %!/ / BY ORDER, / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI