DCIT (TDS) 1(3), MUMBAI vs. LAQSHYA MEDIA P.LTD, MUMBAI

None appeared on behalf of the assessee despite service of notice. However, finding that the matter can be proceeded with in the absence of the assessee, I am doing so.

In this appeal, the department has raised the following issues : a) Deletion of processing fees; b) Deletion of deduction of Bank Guarantee Commission and Miscellaneous Bank charges u/s 194H of the Income Tax Act, 1961; and c) Deletion of interest u/s 201(1A) of the Act.

The facts of the case are that the assessee filed e-return on 14.10.2010. The assessee is engaged in the business of providing outdoor Media Advertising Services. During the course of assessment proceedings, the AO observed that the assessee has debited an amount of Rs.40,18,998/- towards “Processing Fees” and Rs.8,92,665/- towards “Bank Guarantee Commission” and did not deduct TDS thereon. The AO called for an explanation from the assessee. The explanation tendered by the assessee did not find favour by the AO and by invoking the provisions of section 194 of the Act, the AO rejected the claim of the assessee. Aggrieved by the order of AO, the assessee preferred an appeal before the First Appellate Authority („FAA‟, for short) 5. In the appellate proceedings before the FAA, the assessee submitted that the processing fees paid to the banks are governed by The Banking Regulation Act, 1949. The processing fees are in the nature of upfront interest. The banks charge processing fees to reduce interest rate and to show income in the year of sanction. In support of the submissions raised, the assessee placed strong reliance on the decision of Tribunal in the case of Aban Investments V/s DCIT (52 SOT 36) (Chennai (URO) and the decision of Delhi Bench of the Tribunal in the case of Bilt Power V/s ACIT (34 CCH 334) in which the Tribunal held since „processing fees‟ fall within the definition of interest provided in section 2(28A) of the Income Tax Act, 1961, these fall in the exclusion provided in section 194A(3) of the Act hence and hence, tax is not liable to be deducted at source in the case of processing fees. The assessee, before the ld.CIT(A), stressed that in view of the above mentioned provisions „processing fees‟ paid to banks are not liable to be subjected to TDS u/s 194J of the Act, that on the contrary, the AO placed strong reliance on the decision of „Kotak Securities‟ to hold that bank guarantee charges fall within ambit of section 194H; and this decision has been reversed by the Tribunal reported in (2012) 50 SOT 148 (Mum).