2018 (8) TMI 1714 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on royalty provision & interest disallowance. Delhi HC precedent cited.

The Tribunal dismissed the Revenue's appeal on both issues, upholding the CIT(A)'s decisions regarding the disallowance of provision made towards royalty ... Addition on account of provision made for unascertained Royalty liability - maintainability towards claim on account of royalty expenses - Held that:- A perusal of the order of the CIT(A) provides an apparent justification for allowability of royalty expenses in the subsequent assessment year as and when the payment is made. The action of the CIT(A) is manifestly in tune with the law and thus, the Revenue cannot be said to be aggrieved on this score. We therefore do not seek to reiterate the findings of the CIT(A) while endorsing the same. We thus decline to interfere. TDS u/s 194A - Addition in respect of interest paid to a NBFC without deduction of tax - Scope of amendment to Section 40(a)(ia) - whether the proviso inserted by Finance Act 2012 with effect from 1.7.2012 is not applicable for AY 2011-12 but for next assessment year onwards only - Held that:- We find that similar issue was under consideration before the co-ordinate bench in the case of Dipak r. Gondaliya vs. ITO [2016 (3) TMI 1316 - ITAT AHMEDABAD] amendment of second proviso to Section 40(a)(ia) which has been held to have a retrospective effect by the Hon'ble High Court of Delhi in the case of Ansal Landmark Township Pvt. Ltd.[2015 (9) TMI 79 - DELHI HIGH COURT] - in the interest of justice and fair play, we restore this issue to the files of the A.O. The assessee is directed to furnish necessary evidences to show that the payee has filed returns and offered the sum received to tax. The A.O is directed to verify the same and decide the issue Issues:1. Disallowance of provision made towards royalty liability.2. Disallowance of interest paid to NBFC without tax deduction.Analysis:Issue 1: Disallowance of provision made towards royalty liabilityThe Revenue appealed against the CIT(A)'s order concerning the disallowance of a provision made for royalty liability. The AO disallowed the claim as unascertained liability. The CIT(A) remitted the issue back to the AO for allowing the royalty expenses when paid in the subsequent assessment year. The Tribunal found the CIT(A)'s justification for allowability of royalty expenses in the subsequent year to be in line with the law, dismissing the Revenue's appeal on this ground.Issue 2: Disallowance of interest paid to NBFC without tax deductionThe AO disallowed interest paid to a NBFC due to failure in tax deduction under Section 194A. The CIT(A) relied on a Delhi High Court decision, holding the 2nd proviso to Section 40(a)(ia) as retrospective, remitting the matter back to the AO for verification. The Tribunal referenced a similar case where the issue was restored to the AO for verification of tax returns filed by the payee. The Tribunal upheld the CIT(A)'s decision, aligning with the Delhi High Court's ruling, dismissing the Revenue's appeal on this issue.In conclusion, the Tribunal dismissed the Revenue's appeal on both issues, affirming the CIT(A)'s decisions. Additionally, the Cross Objection filed by the assessee was withdrawn with no objections from the Revenue. The appeal of the Revenue was ultimately dismissed, and the cross objection of the assessee was dismissed as withdrawn.