Tribunal Ruling: Deductions Disallowed, Branch Taxes Verified, MAT Appeal Advised

The Tribunal upheld the disallowance of deductions for fees paid to MasterCard International, losses incurred, and expenses of the Jakarta office. However, it directed verification and allowance of deductions for New York and Tokyo branch taxes, expenses under section 14A, and fees paid to MasterCard/Visa International. The Tribunal advised the assessee to appeal regarding the application of Minimum Alternate Tax (MAT) and upheld the exclusion of foreign branch profits from total income. The Tribunal partially allowed the assessee's appeal and dismissed the department's appeal on 8th May 2013.

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Issues Involved:

1. Disallowance of deduction for fees paid to MasterCard.
2. Disallowance of losses incurred.
3. Disallowance of expenses of Jakarta office.
4. Disallowance of New York Branch State Franchise Tax and Tokyo Branch Business Tax.
5. Disallowance of expenses under section 14A.
6. Disallowance of fees paid to MasterCard International.
7. Application of Minimum Alternate Tax (MAT) under section 115JA.
8. Exclusion of profits of foreign branches from total income.

Issue-wise Detailed Analysis:

1. Disallowance of deduction for fees paid to MasterCard:
The assessee paid US$ 278,885.75 to MasterCard International, equating to Rs.119.47 lakhs, without deducting tax at source. The AO disallowed the claim under section 40(a)(i) of the Income-tax Act. The CIT(A) upheld this decision, referencing earlier ITAT orders in the assessee's own case. The Tribunal noted that the issue was consistently decided against the assessee in previous years and found no evidence that taxes were paid by the payee. Thus, the Tribunal upheld the CIT(A)'s order and rejected the assessee's ground.

2. Disallowance of losses incurred:
The assessee did not press for Ground No.2 regarding the disallowance of losses amounting to Rs.17,21,15,970. Consequently, the Tribunal dismissed this ground as not pressed.

3. Disallowance of expenses of Jakarta office:
Similarly, the assessee did not press for Ground No.3 concerning the disallowance of expenses of Rs.42,21,790 related to the Jakarta office. This ground was also dismissed as not pressed.

4. Disallowance of New York Branch State Franchise Tax and Tokyo Branch Business Tax:
The assessee claimed deductions for taxes paid by its New York and Tokyo branches, which were disallowed by the AO due to lack of documentary evidence. The CIT(A) directed the AO to verify the actual payments and allow the claims accordingly. The Tribunal agreed with the CIT(A) and found no reason for the assessee to have any grievance since the CIT(A) had already directed verification and allowance of the claims based on actual payments.

5. Disallowance of expenses under section 14A:
The AO disallowed Rs.13,18,63,913 under section 14A related to exempt income. The CIT(A) directed the AO to disallow 0.5% of the average investment for expenses on account of earning exempt income. The Tribunal referred to its earlier orders and restored the matter to the AO to determine a reasonable disallowance under section 14A, considering the details provided by the assessee and relevant decisions of coordinate benches.

6. Disallowance of fees paid to MasterCard International:
The assessee claimed deductions for fees paid to MasterCard/Visa International for previous years, which were disallowed under section 40(a)(i) due to non-deduction of tax at source. The CIT(A) directed the AO to verify the taxes paid and allow the deductions as per law. The Tribunal upheld the CIT(A)'s direction for verification and allowance of claims based on actual payments.

7. Application of Minimum Alternate Tax (MAT) under section 115JA:
The assessee requested that its income be computed under normal provisions instead of section 115JA, as it would result in higher income. The Tribunal agreed with the department that this ground did not arise from the CIT(A)'s order and advised the assessee to appeal if it had grievances with the AO's computation after giving effect to the CIT(A)'s order.

8. Exclusion of profits of foreign branches from total income:
The department appealed against the exclusion of Rs.63.03 crore profits from foreign branches. Both parties conceded that this issue was covered in favor of the assessee by earlier Tribunal orders. The Tribunal upheld the CIT(A)'s decision to exclude the profits of foreign branches from the total income, following the precedent set in previous years.

Conclusion:
The Tribunal allowed the assessee's appeal in part for statistical purposes and dismissed the department's appeal. The Tribunal's decision was pronounced in the open court on 8th May 2013.

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