2023 (8) TMI 814 - AT - Income Tax

Assessee's Appeal Partially Allowed on Notional Interest Issue, Revenue's Appeal Dismissed

Fabindia Overseas Pvt. Ltd. Versus JCIT, Special Range-3, New Delhi And DCIT, Circle-9 (1), New Delhi Versus Fabindia Overseas Pvt. Ltd.

The Tribunal partly allowed the assessee's appeal, specifically on the issue of notional interest, and dismissed the Revenue's appeal, affirming the ... Depreciation on trademark u/s 32 - HELD THAT:- The issue stands adjudicated in the case of the assessee for the A.Y. 2007-08 and A.Y. 2009-10 [2016 (8) TMI 869 - ITAT DELHI] Since, the matter stands adjudicated by the Co-ordinate Bench of Tribunal, in the absence of any material change in the factual matrix and legal proposition, we hold that the same ratio applies for the instant year. Non deduction of TDS on Credit Card Charges - addition u/s 40(a)(ia) - HELD THAT:- CIT(A) has not erred in deleting the disallowance made by the Assessing Officer u/s 40(a)(ia) of the IT Act on account of non-deduction of tax on credit card charges as relying on NOTIFICATION NO. 56/2012 [F. NO. 275/53/2012-IT(B)], DATED 31-12-2012 stating no deduction of tax under Chapter XVII of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely bank guarantee commission;cash management service charges;depository charges on maintenance of DEMAT accounts;charges for warehousing services for commodities;underwriting service charges;clearing charges (MICR charges) and credit card or debit card commission for transaction between the merchant establishment and acquirer bank. TP Adjustment - Redemption of Deferred Shares - TPO held that though in Form 3CB the assessee has reported that it has applied other method but no method was applied to benchmark the transaction of redeeming of shares - as per CIT(A) TPO had correctly benchmarked them on the basis of valuation report of the Ordinary Shares - HELD THAT:- As gone through the approval proposal to make investment addressed to Standard Chartered Bank at page no. 210. We have also gone through the notification letter exercising share options in the capital of East Ltd. at page no. 278. We have also gone through the letter of the Chartered Accountant indicating the number of shares consisting of 48573 ordinary shares and 20,000 deferred shares at page no. 226. As gone through the reasons given with regard to the valuation shares @ 1 £ each against the value of the ordinary shares. The main contention of the assessee was the shares are non-marketable, do not have voting rights and do not receive dividends. At the same time, we have also observed that the deferred shares are converted into ordinary shares and once converted as ordinary shares they acquire all the benefits and characters attributable to ordinary shares. The deferred shares carried rights as they would automatically be converted into ordinary shares when the holdings of the assessee in East Ltd. falls below 25.1%. Keeping in view, the fact that the deferred shares can be converted into ordinary shares without any encumbrances, we decline to interfere with the order of the ld. CIT(A). Notional Interest - assessee stated that it had advanced interest free loan to its wholly owned subsidiary out of its own funds - assessee has also charged interest on the same loan in the subsequent year owing to the provisions of Companies Act, 2013 - CIT(A) confirmed the addition relying on the judgment of Hon’ble Apex Court in the case of SA Builders [2006 (12) TMI 82 - SUPREME COURT] - HELD THAT:- It is a settled position of law that if the assessee has sufficient interest free own funds to lend monies interest free, no addition is called for. Since, it is contested that the assessee has own interest free funds, the matter is being referred back to the file of the AO to examine the availability of interest free own funds and compute the disallowance accordingly. Issues Involved:1. Depreciation on Trademark2. Transfer Pricing Adjustment on Redemption of Deferred Shares3. Addition of Notional Interest4. Computation of Interest under Section 234C5. Disallowance of Depreciation on Intangible Assets6. Disallowance under Section 40(a)(ia) for Non-deduction of Tax on Credit Card ChargesSummary:Depreciation on Trademark:The issue of depreciation on the trademark amounting to Rs. 22,24,732 was adjudicated based on previous years' decisions (A.Y. 2007-08 and A.Y. 2009-10). The Tribunal held that the same ratio applies for the instant year, and thus, the claim of depreciation was allowed.Transfer Pricing Adjustment on Redemption of Deferred Shares:The assessee redeemed deferred shares in East Limited at book value, reporting the transaction as an international transaction but failing to benchmark it. The TPO and CIT(A) treated deferred shares akin to ordinary shares due to their conversion rights and applied the valuation of ordinary shares for transfer pricing adjustment. The Tribunal upheld the CIT(A)'s decision, noting that deferred shares, despite lacking marketability and voting rights, could convert to ordinary shares and thus carry similar value.Addition of Notional Interest:The assessee advanced an interest-free loan to its wholly-owned subsidiary from its own funds. The CIT(A) confirmed the addition based on the SA Builders case. The Tribunal referred the matter back to the AO to verify the availability of interest-free funds and compute the disallowance accordingly, emphasizing that no addition is warranted if sufficient interest-free funds are present.Computation of Interest under Section 234C:The assessee contested the computation of interest under Section 234C. The Tribunal did not specifically address this issue in the detailed judgment, implying no change to the CIT(A)'s order.Disallowance of Depreciation on Intangible Assets:The Revenue's appeal contested the deletion of disallowance of depreciation on intangible assets amounting to Rs. 22,24,732. The Tribunal upheld the CIT(A)'s order, referencing the settled position from previous adjudications.Disallowance under Section 40(a)(ia) for Non-deduction of Tax on Credit Card Charges:The Revenue appealed against the deletion of disallowance for non-deduction of tax on credit card charges of Rs. 3,34,75,810. The Tribunal referenced a CBDT notification exempting such payments from TDS and upheld the CIT(A)'s order.Conclusion:The Tribunal partly allowed the assessee's appeal, specifically on the issue of notional interest, and dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on other matters. The order was pronounced on 31/07/2023.