M/S LITTLE SHOP,KOLKATA vs. I.T.O WD - 33(3),KOLKATA, KOLKATA

This appeal by assessee is arising out of order of CIT(A)-XIX, Kolkata in Appeal No. 291/CIT(A)-XIX/Wd-33(3)/Kol/12-13 dated 18.01.2013. Assessment was framed by ITO, Wd-33(3), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2008-09 vide its order dated 10.11.2010.

The first issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of bank collection charges/discounting charges deducted by the bankers from the payment of credit cards for the reason that the assessee failed to deduct TDS u/s. 194H of the Act by invoking the provisions of section 40(a)(ia) of the Act. 3. Briefly stated facts of the case are that the assessee is a dealer in readymade garments, textile goods etc. The AO during the course of assessment proceedings noticed from the books of account of the assessee that it has debited commission to bank in the P & L Account but has not deducted TDS u/s. 194H of the Act. Accordingly, the AO required the assessee to explain as to why the commission paid to bank be not disallowed by invoking the provisions of section 40(a)(ia) of the Act. Before AO, assessee explained that these are not commission but discounting charges on account of credit cards payments/collection of credit cards payments by the bank. But the AO was not convinced by the explanation and invoking the provisions of section 40(a)(ia) of the Act, disallowed this amount of Rs.2,85,610/-. Aggrieved, assessee preferred appeal before CIT(A), who also confirmed the action of AO. Aggrieved, now assessee is in second appeal before Tribunal. 4. We have heard Ld. Sr. DR and gone through facts and circumstances of the case. We find that the Assessee has debited discounting charges of credit cards payments made by assessee to the bank. The assessee is maintaining shops in different markets for retail sale of goods. Some of the payments are received over the counter by credit cards. The M/s. Little Shop AY 2008-09 assessee’s bank collects the money of the credit cards of different banks and amount so collected is credited to the assessee’s account by the bank after deducting collection charges. In the advices received from bank, the bank used the word ‘bank discount’ for such deduction but the assessee has given a nomenclature of ‘commission’ in its accounts but practically these are discounting charges or bank discount charges for collection of credit card payments. Whether the provisions of section 194H of the Act will apply to discounting charges or collection of credit card payments by bank or not? This can be replied by answering that discounting charges or collection of credit card payments by bank are not commission but these are discounting charges simpliciter because these charges are not in the control of the assessee. This principle has been laid down by Hon’ble Delhi High court in the case of CIT Vs. Cargil Global Trading I P Ltd. & 204 of 2011 judgment dated 17.02.2011, wherein it is held that as the discounting charges were not in respect of any debt incurred or money borrowed and were merely discount of the sale consideration on sale of goods, it was not “interest” u/s 2(28A) and there was no obligation to deduct TDS thereon. Hon’ble Delhi High court relied on Circular No.65 dated 2.09.1971, Circular No.674 dated 22.03.1993 & Vijay Ship Breaking 219 CTR 639 (SC) for this proposition. Even the revenue has taken this matter to Hon’ble Supreme Court through SLP, which was eventually dismissed. Hence, following this proposition that discounting charges does not come within the purview of TDS and given the facts of the case, we allow this issue of assessee’s appeal.

The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance on account of sundry expenses of Rs.6707/- for non-reconciliation of account of Manna Stores. For this, assessee has raised following ground no.3: “3. For that the CIT(A) erred in law in confirming the disallowance of rs.6707/- being sundry expenses for alleged non reconciliation of account of Manna Stores when the entire expenditure was proved with vouchers & bills.”