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Income Tax Appellate Tribunal, DELHI BENCH: ‘H’ NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI K.N. CHARY
PER SHRI K.N. CHARY, JUDICIAL MEMBER
This is an appeal by the Revenue challenging the order dated 28.05.2015 in appeal no. 829/14-15 passed by the Ld. Commissioner of Income Tax (Appeals)-7, Delhi (hereinafter for short called as the “Ld. CIT (A)”) on the following grounds:
1. “On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in law in deleting the addition of Rs. 1,58,19,150/- u/s 40(a)(ia) of the Income Tax Act, 1961, 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. 2. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of Rs. 32,19,512/- made by AO ignoring the facts that the provision was created to meet the unascertained liability and hence require to be added back while calculating the book profit. 3. The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the grounds of appeal.”
2. Briefly stated facts are that the assessee is in the business of manufacturing and trading of jewellery, and for the AY 2012-13 they have filed their return of income on 28.09.2012 declaring a total income of Rs. 1,04,99,00,570/-. Assessment was completed by making an addition of Rs. 1,58,19,150/- by disallowing an expenditure u/s 40(a)(ia) of the Income tax Act, 1961 (for short called ‘the Act’) and Rs. 32,19,512/- in respect of the provisions for retirement benefits for the purpose of Section 115JB of the Act.
On appeal of the assessee ld. CIT (A) by way of impugned order deleted both the additions and allowed the appeal, hence, this appeal by the Revenue.
It is the argument of the Ld. DR that the Ld. CIT (A) erred in 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 Act and has merely of a clarificatory in nature. He further contended that Ld CIT (A) ignored that such a provision in this case was created to meet the unascertained liability and required to be added back. On the other hand, it is the argument of the Ld. AR that basing on the decision reported in CIT vs. JDS Apparels (P) Ltd. (2015) 370 ITR 454 (Delhi), Ld. CIT (A) concluded that there is no requirement of TDS on bank charges, and further placing reliance on the decision of a coordinate Bench of this Tribunal in ACIT vs. M/s NHPC Ltd. Ld. CIT (A) decided on 30.09.2014, he concluded that any ascertain liability cannot result in addition to the book profits, and in this case the Ld. CIT (A) satisfied that the provision for gratuity is an ascertained liability.
In respect of ground no. 1 the AO made disallowance on account of non deduction of TDS on bank charges deducted by the bank while making payment to the assessee for the goods purchased by the customers of the bank against the Debit and Credit cards issued by the bank to its customers. Ld. Counsel submitted that the bank was making the payments to the assessee after making the deduction of the charges to it, as such, there is no occasion for the assessee to deduct the TDS and further bank was not working for the assessee but on the other hand, it was working for its customers, as such, there is no requirement of TDS on bank charges. Ld. CIT (A) placed reliance on the binding decision of the Jurisdictional High Court in CIT vs. JDS Apparels (P) Ltd. (supra), wherein it was held as follows:
“17. Another reason why we feel Section 40(a)(ia) of the Act should not have been invoked in the present case is the principle of doubtful penalization which requires strict construction of penal provisions. The said principle applies not only to criminal statutes but also to provisions which create a deterrence and results in punitive penalty. Section 40(a)(ia) is a deterrent and a penal provision. It has the effect of penalizing the assessee, who has failed to deduct tax at source and acts to the detriment of the assesse’s property and other economic interests. It operates and inflicts hardship and deprivation, by disallowing expenditure actually incurred and treating it as disallowed. The Explanation, therefore, requires a strict construction and the principle against doubtful penalization would come into play. The detriment in the present case, as is noticeable, would include intimation of proceedings for imposition of penalty for concealment, as was directed by the Assessing Officer in the present case. The aforesaid principle requires that a person should not be subjected to any sort of detriment unless the obligation is clearly imposed. When the words are equally capable of more than one construction, the one not inflicting the penalty or deterrent may be preferred. In Maxwell’s The Interpretation of Statutes, 12th edition (1969) it has been observed: “The strict construction of penal statutes to manifest itself in four ways: in the requirement of express language for the creation of an offence; in interpreting strictly words setting out the elements of an offence; in requiring the fulfillment to the letter of statutory conditions precedent to the infliction of punishment; and in insisting on the strict observance of technical provisions concerning criminal procedure and jurisdiction.
The aforesaid principles and interpretations can apply to taxing statutes. 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.
In these circumstances, we do not find any merit in the present appeal and the same is dismissed.”
Facts are similar, and the principle of the above decision is applicable to the facts of the case on hand. We, therefore, hold that the disallowance u/s 40(a)(ia) cannot be sustained and uphold the finding of the Ld.CIT (A). Ground no. 1 is dismissed.
6. Now coming to ground no. 2, a sum of Rs. 32,19,512/- was disallowed by the AO holding that the provision for gratuity was not an ascertain liability, whereas assessee has been contending that it is an ascertain liability. Ld.CIT (A) on facts held that in this case, the provision for gratuity is an ascertained liability and while placing reliance on the decision reported in ACIT vs. NHPC Limited decided by a coordinate bench of this Tribunal he granted the relief. Nothing contrary is established before us to show that the provision for gratuity in this case is not an ascertained liability.
No ascertain liability, whether or not the payment was made in future could be added back, as such, we uphold the finding of the Ld. CIT (A) and dismissed this ground of appeal.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 23.10.2017