Gateway processing charges not commission or brokerage; section 194H disallowance deleted and limited scrutiny scope enforced.

Employee welfare contribution required fresh verification because the record was insufficient to confirm whether the amount had already been added back in an earlier year, so the matter was remanded for reconsideration. Gateway payment charges were held not to be commission or brokerage on a principal-to-principal basis, making section 194H inapplicable; the addition was also found to travel beyond the limited scrutiny scope. The tribunal therefore deleted the gateway charge disallowance and granted relief to the assessee on that issue.

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Issues: (i) Whether the disallowance of employee welfare contribution was to be sustained or remanded for fresh verification. (ii) Whether gateway payment charges were liable to disallowance under section 194H and whether the addition could be made within the scope of limited scrutiny.

Issue (i): Whether the disallowance of employee welfare contribution was to be sustained or remanded for fresh verification.

Analysis: The assessee sought deletion of the adjustment made on account of contribution to provident fund, superannuation fund or gratuity fund. The record did not contain sufficient supporting evidence to verify whether the amount had already been added back in the earlier year, and the claim required examination of the relevant computation and supporting material. In the interest of justice, the issue was sent back to the Assessing Officer for fresh consideration after giving an opportunity to produce evidence and to be heard.

Conclusion: The issue was remanded for fresh adjudication and the ground was allowed for statistical purposes, in favour of the assessee to that extent.

Issue (ii): Whether gateway payment charges were liable to disallowance under section 194H and whether the addition could be made within the scope of limited scrutiny.

Analysis: The assessment was selected for limited scrutiny only to verify the genuineness of expenses, and the addition based on alleged failure to deduct tax on gateway charges travelled beyond that limited scope. On merits, the payments to gateway providers were treated as charges for services rendered on a principal-to-principal basis and not as commission or brokerage paid to an agent. In that view, section 194H was held inapplicable to the gateway charges.

Conclusion: The addition was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The common order granted relief on the gateway charge issue and sent the employee contribution issue back for reconsideration, resulting in a substantially favourable outcome for the assessee.

Ratio Decidendi: Payments to independent service providers for gateway processing charges do not constitute commission or brokerage within the meaning of section 194H, and an addition cannot be sustained where the scope of limited scrutiny is exceeded.

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